What liability characteristic is associated with sole proprietorships?

What liability characteristic is associated with sole proprietorships?

• A. Limited liability
• B. Unlimited liability
• C. Shared liability
• D. Corporate liability

Answer: (B)

Sole proprietorships are characterized by unlimited liability, which means that the owner is personally responsible for all debts and obligations of the business. This form of business structure does not create a separate legal entity; therefore, there is no distinction between the owner's personal assets and those of the business. In practical terms, if a sole proprietorship incurs debt or is sued, the owner’s personal assets, such as their home or savings, can be used to satisfy business debts. This potentially exposes the owner to significant financial risk, as they bear full liability for the business's financial obligations. Other options, such as limited liability, would apply to business structures like corporations or limited liability companies (LLCs), where the owners' personal assets are protected from business creditors. Shared liability refers to partnerships, where liability is distributed among partners, while corporate liability typically relates to the legal responsibilities of a corporation as a separate entity. Therefore, unlimited liability is the defining characteristic of sole proprietorships.

Sole proprietorships are characterized by unlimited liability, which means that the owner is personally responsible for all debts and obligations of the business. This form of business structure does not create a separate legal entity; therefore, there is no distinction between the owner's personal assets and those of the business.

In practical terms, if a sole proprietorship incurs debt or is sued, the owner’s personal assets, such as their home or savings, can be used to satisfy business debts. This potentially exposes the owner to significant financial risk, as they bear full liability for the business's financial obligations.

Other options, such as limited liability, would apply to business structures like corporations or limited liability companies (LLCs), where the owners' personal assets are protected from business creditors. Shared liability refers to partnerships, where liability is distributed among partners, while corporate liability typically relates to the legal responsibilities of a corporation as a separate entity. Therefore, unlimited liability is the defining characteristic of sole proprietorships.