Which of the following is a disadvantage of sole proprietorship?

Step 1: Analyze the question We are asked for a disadvantage of sole proprietorship, a business owned and run by one person. Four of the options are benefits, so we need the one that is a drawback.

Step 2: Recall the concept Sole proprietorship has these features:

Advantages

• Easy to set up, with few legal formalities
• Quick decision-making, since there is only one owner
• Secrecy of business affairs
• Close contact with workers and customers
• The owner keeps all the profit

Disadvantages

• Unlimited liability: the owner's personal property can be used to pay the business debts
• Limited capital, since funds come mainly from the owner's savings and loans
• Lack of continuity: the business may end if the owner dies, falls ill or goes bankrupt
• Heavy workload and limited managerial skills
• Difficulty in expanding

Step 3: Check each option

• A. Does not enjoy limited liability: This is a disadvantage. The owner is personally responsible for all debts.
• B. Decisions are easily made and implemented: This is an advantage, because there is no need to consult partners or a board.
• C. Easy to set up: This is an advantage.
• D. Enjoys secrecy: This is an advantage, because the owner does not have to publish accounts.
• E. Maintains close relationship with workers and customers: This is an advantage. (The "dose" in the question is a typo for "close".)

Step 4: Answer The only disadvantage listed is A: a sole proprietor has unlimited liability and does not enjoy limited liability.

Exam tip: In "disadvantage of sole proprietorship" questions, look for these keywords: unlimited liability, limited capital, lack of continuity. Limited liability belongs to registered companies, not sole traders or ordinary partnerships.