Which of the following best describes the liability of a Sole Proprietor?

A sole proprietor has no liability protection, meaning they are personally responsible for all debts and obligations incurred by their business. This characteristic of sole proprietorships distinguishes them from other business structures such as corporations or limited liability companies (LLCs), which offer some degree of liability protection to their owners. In a sole proprietorship, the business and the owner are legally considered the same entity; therefore, any legal claims or debts against the business can also affect the owner's personal assets.

This lack of liability protection can create a significant risk for sole proprietors, as they cannot separate their personal finances from their business dealings. If the business faces financial difficulties or encounters legal issues, the owner's personal property, such as their home, savings, and other assets, can potentially be at stake. Understanding this aspect is crucial for anyone considering starting a business as a sole proprietor, as it highlights the importance of risk management and possibly looking into insurance or other protective measures.