Question: What is a significant disadvantage of a sole proprietorship?
Options:
Limited control
Unlimited liability
Complex tax structure
Difficulty in raising capital
Correct Answer: Unlimited liability
Solution:
A significant disadvantage of a sole proprietorship is that the owner has unlimited liability for business debts.
What is a significant disadvantage of a sole proprietorship?
Practice Questions
Q1
What is a significant disadvantage of a sole proprietorship?
Limited control
Unlimited liability
Complex tax structure
Difficulty in raising capital
Questions & Step-by-Step Solutions
What is a significant disadvantage of a sole proprietorship?
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 in terms of money.
Step 3: Know what unlimited liability means. It means that if the business owes money, the owner is personally responsible for paying it back.
Step 4: Realize the disadvantage. In a sole proprietorship, if the business has debts and cannot pay them, the owner's personal assets (like their house or savings) can be used to pay those debts.
Step 5: Conclude that this is a significant disadvantage because it puts the owner's personal finances at risk.
Unlimited Liability – In a sole proprietorship, the owner is personally responsible for all business debts, meaning personal assets can be at risk.
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