Which of the following is a potential drawback of a sole proprietorship?

The potential drawback of a sole proprietorship is indeed the aspect of unlimited personal liability. In a sole proprietorship, the business and the individual owner are legally considered one and the same. This means that any debts or legal actions taken against the business are also the personal responsibility of the owner. Therefore, if the business incurs debts or faces lawsuits, the owner's personal assets, such as their home or savings, may be at risk to satisfy those obligations. This level of personal risk can be a significant disadvantage, especially compared to other business structures like corporations or limited liability companies, where personal liability is limited.

Other aspects, such as raising capital or transferring ownership, typically present fewer challenges in a sole proprietorship compared to more complex business structures, as these entities are often easier to manage and do not have the additional regulatory requirements that can complicate these processes. Tax benefits can also be advantageous in a sole proprietorship because the business income is usually reported on the owner's personal tax return, potentially leading to simplicity in tax management. However, the unlimited personal liability remains a critical drawback that can deter individuals from choosing this business structure.