What is a primary concern of a sole proprietorship?

Prepare for the Arkansas NASCLA Contractors Exam. Use flashcards and multiple choice questions, each with hints and explanations, to master your exam material.

A primary concern of a sole proprietorship is unlimited personal liability. This means that the owner of a sole proprietorship is personally responsible for all debts and obligations incurred by the business. If the business faces legal action or financial difficulties, creditors can pursue the owner's personal assets, including savings, property, and other personal resources. This level of liability can pose significant risk to the owner, as there is no legal distinction between personal and business assets in this structure.

In contrast, while limited startup costs, potential for high taxes on business income (which can vary based on individual circumstances), and a complex legal structure are relevant concerns in business formation, they do not encapsulate the fundamental risk associated with a sole proprietorship. The nature of unlimited personal liability is unique and serves as a primary reason why many business owners might choose to form a different type of legal entity, like an LLC or corporation, to protect their personal assets.

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