After Skip retired from the fire department, he decided to open a sand

QUESTION

After Skip retired from the fire department, he decided to open a sandwich shop near the beach.

He paid his startup costs—licenses, building rental, refrigeration, ingredients, and employee’s initial pay—with a loan he took out against his house. When a customer sued Skip, claiming she got sick from spoiled roast beef, Skip lost not only the business but also his house, his car, and part of his pension fund from the fire department. Which of the five disadvantages of being a sole proprietorship explains Skip’s fate?
A) not being able to sell the business
B) being overstressed about time
C) having management problems
D) having limited financial resources
E) having unlimited financial liability

ANSWER

Answer: E
Explanation: E) As a sole proprietor, Skip faced unlimited financial liability, and his personal possessions were at risk. Any debts or damages incurred by a sole proprietorship become the responsibility of the business owner.