What is a major disadvantage of a sole proprietorship?

A major disadvantage of a sole proprietorship is unlimited personal liability. In this type of business structure, the owner is personally responsible for all debts and obligations incurred by the business. This means that if the business fails or is sued, the owner's personal assets, such as their home, savings, or other personal property, can be at risk to satisfy business debts.

This characteristic of sole proprietorships differentiates it significantly from other business entities, such as corporations or limited liability companies (LLCs), where owners typically enjoy limited liability protection and are not directly responsible for the company’s liabilities beyond their investment in the business. Therefore, while sole proprietorships may offer simplicity and complete control to the owner, the exposure to personal financial risk is a critical factor to consider when choosing this business structure.