What is a major drawback of a sole proprietorship structure?

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A major drawback of a sole proprietorship structure is that the owner is personally liable for all debts and obligations of the business. This means that if the business incurs debts, faces lawsuits, or experiences financial losses, the owner's personal assets—such as their home, savings, or other personal property—are at risk. This unlimited liability can be a significant disadvantage compared to other business structures, such as LLCs or corporations, where liability is generally limited to the business assets.

This aspect of sole proprietorships can deter individuals from choosing this structure or lead them to pursue alternative business forms that offer personal liability protection. In contrast, other structures might allow owners to separate their personal assets from their business liabilities, thereby providing a safeguard against personal financial loss.

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