Which of the following is a disadvantage associated with sole proprietorships?

• A. Complex and costly formation process
• B. Double taxation of profits
• C. Unlimited personal liability for business debts
• D. Requirement to issue stock to raise capital

Answer: (C)

Verified step by step guidance

1. Understand the concept of sole proprietorship: A sole proprietorship is a business owned and operated by one individual. It is the simplest and most common form of business structure.
2. Identify the key characteristics of sole proprietorships: These include ease of formation, direct control by the owner, and the fact that profits are taxed as personal income rather than corporate income.
3. Analyze the disadvantages of sole proprietorships: The primary disadvantage is unlimited personal liability, meaning the owner is personally responsible for all business debts and obligations. This can put personal assets at risk.
4. Compare the options provided in the question: Evaluate each option to determine which aligns with the disadvantages of sole proprietorships. For example, 'complex and costly formation process' and 'requirement to issue stock to raise capital' are not applicable to sole proprietorships, as they are simple to form and do not issue stock.
5. Conclude that the correct answer is 'Unlimited personal liability for business debts,' as this is a defining disadvantage of sole proprietorships compared to other business structures.