What is the liability status of a sole proprietorship?

• A. The owner is personally liable for the actions of the business and its employees
• B. The business has limited liability
• C. The liability is limited to the assets of the corporation
• D. There is no personal liability

Answer: (A)

In a sole proprietorship there is no separation between the owner and the business. The owner is personally liable for all business debts and for the actions of the business and its employees. That means if the business incurs debts or faces lawsuits, the owner’s personal assets could be at risk to satisfy those obligations. This unlimited liability is why this structure differs from corporations or LLCs, where the business is a separate legal entity and personal assets are generally protected (with some exceptions). So the correct idea is that the owner bears personal liability for the business and its employees.