Michigan Residential Builders License Practice Test

Which is NOT an advantage of a sole proprietorship?

1. Owner receives all profits

2. Owner has complete control

3. Owner is liable for all debts

4. Owner can operate the business independently

The correct answer is: Owner is liable for all debts

The choice that identifies a liability as not an advantage clearly highlights a key characteristic of a sole proprietorship. While the sole proprietorship structure allows the owner to benefit from all profits, exercise complete control over business decisions, and operate independently, the aspect of personal liability serves as a significant downside rather than an advantage. In a sole proprietorship, the owner is personally responsible for all the debts and obligations of the business. This means that if the business incurs debt or faces legal issues, the owner’s personal assets can be at risk. This contrasts with other business structures, such as corporations or limited liability companies (LLCs), where personal liability is limited. Thus, while the other characteristics contribute to the benefits of running a sole proprietorship, liability for debts is a risk and not an advantage at all.