What is a key disadvantage of a sole proprietorship?
Practice Questions
1 question
Q1
What is a key disadvantage of a sole proprietorship?
Limited liability
Unlimited liability
Ease of formation
Tax benefits
A key disadvantage of a sole proprietorship is unlimited liability, meaning the owner is personally responsible for all debts.
Questions & Step-by-step Solutions
1 item
Q
Q: What is a key disadvantage of a sole proprietorship?
Solution: A key disadvantage of a sole proprietorship is unlimited liability, meaning the owner is personally responsible for all debts.
Steps: 5
Step 1: Understand what a sole proprietorship is. It is a type of business owned and run by one person.
Step 2: Learn about liability. Liability means being responsible for something, especially debts.
Step 3: Know what unlimited liability means. In a sole proprietorship, if the business owes money, the owner must pay it back with their own money.
Step 4: Realize the risk. If the business fails or has debts, the owner's personal assets (like their house or savings) can be taken to pay those debts.
Step 5: Conclude that the key disadvantage of a sole proprietorship is that the owner has unlimited liability.
