Who bears the risk in a sole proprietorship?

In a sole proprietorship, the owner of the business bears all the risks associated with running the enterprise. This is because a sole proprietorship is not considered a separate legal entity; instead, it is simply an extension of the individual who owns it. Therefore, the owner is personally liable for all debts and obligations incurred by the business. This means that if the business fails or incurs liabilities, the owner's personal assets may be at risk.

This highlights the unique characteristic of sole proprietorships, where the owner enjoys complete control and is entitled to all profits while simultaneously facing the total responsibility for losses. In contrast, in structures such as corporations, shareholders and external investors usually do not bear personal liability for the debts of the business beyond their investment in the company. Employees, while critical to the operations, do not assume the financial risks associated with business ownership.