Question: What is a major disadvantage of a sole proprietorship?
Options:
Limited control
Unlimited personal liability
Complex tax structure
Difficulty in raising capital
Correct Answer: Unlimited personal liability
Solution:
A major disadvantage of a sole proprietorship is that the owner has unlimited personal liability for business debts.
What is a major disadvantage of a sole proprietorship?
Practice Questions
Q1
What is a major disadvantage of a sole proprietorship?
Limited control
Unlimited personal liability
Complex tax structure
Difficulty in raising capital
Questions & Step-by-Step Solutions
What is a major 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: Know that in a sole proprietorship, the owner is responsible for all the business's debts.
Step 3: Recognize that 'unlimited personal liability' means if the business owes money, the owner can lose personal assets, like their house or savings.
Step 4: Realize that this is a major disadvantage because it puts the owner's personal finances at risk.
Unlimited Personal Liability – In a sole proprietorship, the owner is personally responsible for all debts and obligations of the business, which means personal assets are at risk.
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