What is the major disadvantage of a sole proprietorship?

The major disadvantage of a sole proprietorship is the concept of unlimited personal liability. This means that the individual owner is personally responsible for all debts and obligations of the business. If the business incurs debt or faces a lawsuit, the owner's personal assets, such as their home, savings, or other possessions, can be at risk to satisfy those obligations. This level of risk makes sole proprietorships less appealing to many entrepreneurs, as it can lead to significant personal financial exposure.

In contrast, different business structures, such as limited liability companies (LLCs) or corporations, provide a level of protection for personal assets, limiting the owner's liability to just the investment made in the business. This distinction highlights why the unlimited personal liability inherent in sole proprietorships can be a major deterrent for individuals considering starting a business under this structure.