What is a major disadvantage faced by owners of a Sole Proprietorship?

A major disadvantage faced by owners of a sole proprietorship is unlimited liability. This means that the owner is personally responsible for all debts and obligations of the business. If the business incurs debt or faces a lawsuit, the owner's personal assets, such as their home or savings, can be targeted to satisfy business debts. This level of personal risk is significant and can deter individuals from starting or maintaining a sole proprietorship, as it poses a substantial financial risk compared to other business structures, such as corporations or limited liability companies, where owners enjoy limited liability protection.

Recognizing the implications of unlimited liability helps explain why many entrepreneurs might choose alternative business forms that protect personal assets. It emphasizes the importance of understanding the legal structure one selects for business operations, as it directly impacts financial liability and personal risk.