Who generally bears the financial liability in a sole proprietorship?

In a sole proprietorship, the financial liability is typically borne by the owner personally. This is due to the nature of a sole proprietorship being an unincorporated business structure where there is no legal distinction between the owner and the business entity. When debts arise or legal issues occur, the owner's personal assets are at risk because the owner is personally liable for all financial obligations incurred by the business.

This situation contrasts with other business structures, such as corporations or limited liability companies, where the entity itself can bear financial liability, thus protecting the owners' or shareholders' personal assets from being used to satisfy business debts. In a sole proprietorship, if the business fails or faces lawsuits, creditors can pursue the proprietor's personal assets, such as their savings, property, and other belongings to settle the liabilities. This direct exposure to personal financial risk underscores why understanding the implications of being a sole proprietor is crucial for anyone considering this form of business ownership.