What is one key risk associated with being a sole proprietor?

One key risk associated with being a sole proprietor is that the owner can lose personal assets to pay business debts. In a sole proprietorship, there is no legal distinction between the owner and the business. This means that the owner's personal assets, such as their home, savings, or other valuable possessions, could be at risk if the business faces financial difficulties or legal liabilities.

Unlike corporations or limited liability companies, where owners typically have their personal assets protected from business debts, a sole proprietor's personal finances are directly tied to their business's financial health. Therefore, in the event of bankruptcy or unpaid debts, creditors have the right to pursue the owner's personal assets to settle business obligations. This exposure to personal liability is a significant risk that potential sole proprietors need to consider when choosing their business structure.