What type of liability do sole traders face?

Sole traders face unlimited liability, meaning that they are personally responsible for all the debts and obligations of their business. This type of liability implies that if the business incurs debts that it cannot repay, creditors can pursue the sole trader's personal assets to settle these debts. Since the business is not legally separate from the individual, the sole trader's personal finances are directly affected by the business's financial situation.

This characteristic highlights both the potential risk and reward of being a sole trader. While they have full control over the business and its profits, they also risk losing personal assets, such as their home or savings, if the business fails. The concept of unlimited liability is a crucial consideration for anyone thinking about becoming a sole trader, as it reflects the inherent financial risks involved in this business structure.