Louisiana Contractors License Practice Exam

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Prepare for the Louisiana Contractors License Exam with our comprehensive quiz. Engage with practice questions designed to test your understanding and improve your chances of passing the exam. Master the essential knowledge needed to secure your contractors license in Louisiana!

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What is a key disadvantage of a sole proprietorship?

Limited control
Double taxation
Unlimited personal liability
High formation costs

The correct answer is: Unlimited personal liability

A key disadvantage of a sole proprietorship is unlimited personal liability. This means that the owner of a sole proprietorship is personally responsible for all debts and obligations of the business. In the event that the business incurs any debts or faces legal issues, creditors can pursue the owner's personal assets, such as savings accounts, property, and other resources, to satisfy business debts. This level of risk can be significant, as it places the owner's personal finances at risk if the business fails or faces legal trouble. In contrast, other business structures, such as corporations or limited liability companies (LLCs), offer protection against personal liability, meaning that the owners' personal assets are generally shielded from business liabilities. This makes the issue of personal liability a critical factor for individuals considering starting a business and is often a reason why entrepreneurs may choose to form an LLC or corporation instead of operating as a sole proprietorship.