Question

Lucy Zimmerman has organized her craft shop as a sole proprietorship. Her sister has warned her about _____, the legal principle holding Lucy responsible for paying off all of the debts of the business.

Answer 1

A sole proprietorship is not a legal entity but the person who owns the business and is responsible for paying all debts that the business accrues.  This business is linked to the persons social security number and there is no legal distinection between the owner and the business entity. Lucy's sister probably warned Lucy about sole proprietorship and the legal principle that holds her responible for paying off all of the debts of the business.