Question

domain 1 preassessment
what is the main drawback of a sole proprietorship?
○ they are responsible to shareholders
○ they are easy to create
○ they require a partner
○ they have unlimited personal liability

Explanation:

To determine the main drawback of a sole proprietorship, we analyze each option:

• "They are responsible to shareholders": Sole proprietorships have no shareholders (that's for corporations), so this is incorrect.
• "They are easy to create": Ease of creation is an advantage, not a drawback.
• "They require a partner": Sole proprietorships are owned by one person, so no partner is required—this is incorrect.
• "They have unlimited personal liability": In a sole proprietorship, the owner is personally liable for all business debts/obligations, meaning personal assets can be used to satisfy business liabilities. This is a key drawback.

Answer:

They have unlimited personal liability