What is a primary disadvantage of forming a sole proprietorship?

In a sole proprietorship, a primary disadvantage is that all assets of the owner are tied to the business. This means that the proprietor is personally liable for all debts and obligations incurred by the business. If the business were to face financial difficulty, creditors can pursue the owner's personal assets, such as their home, savings, or other properties, to satisfy business debts. This level of risk can deter some individuals from choosing this type of business structure, as it poses a significant financial vulnerability.

Other choices do not reflect the primary disadvantages associated with sole proprietorships. The flexibility of the business operation is typically high, and the owner retains all profits; thus, those options do not highlight the key risks involved with a sole proprietorship's structure.