Which type of business ownership exposes the owner to personal financial liability?

In a sole proprietorship, there is no legal distinction between the owner and the business. This means that the individual personally owns all the assets and is also personally responsible for all debts and liabilities incurred by the business. If the business faces financial difficulties or legal issues, creditors can pursue the owner's personal assets, such as their home or savings, to satisfy business debts. This personal liability poses a significant risk for sole proprietors, particularly in industries with a higher likelihood of lawsuits or financial instability.

In contrast, a corporation and a limited liability company (LLC) provide their owners with limited liability protection. Owners of these business entities are typically only at risk for losing their investment in the company without exposure to personal assets. In a limited partnership, while general partners carry some liability, limited partners usually have limited liability, protecting their personal assets. Therefore, a sole proprietorship uniquely places the owner at full financial risk, making it the choice that exposes the owner to personal financial liability.