In a sole proprietorship, which statement is true regarding the owner's liability?

In a sole proprietorship, the owner has unlimited liability, which means that they are personally responsible for all the debts and obligations of the business. This concept indicates that if the business incurs debt or faces legal action, the owner's personal assets—such as their home or savings—can be at risk to satisfy those obligations. This structure is one of the defining features of a sole proprietorship and differentiates it from other business structures like corporations or limited liability companies, where owners typically enjoy limited liability protection. The idea that the owner can be held accountable beyond their investment in the business underscores the importance of personal risk management in this type of entity. Understanding this concept is crucial for individuals considering starting a sole proprietorship, as it affects their personal financial exposure.