Which business structure has unlimited personal liability and pass-through taxation?

• A. Sole Proprietorship — unlimited personal liability and pass-through taxation.
• B. LLC — limited liability with pass-through taxation.
• C. Corporation — limited liability; may face double taxation.
• D. S-Corporation — pass-through status.

Answer: (A)

The key idea here is how liability and taxes flow between the business and the owner. In a sole proprietorship, there’s no legal separation between the owner and the business, so the owner faces unlimited personal liability for business debts and obligations. At the same time, the business’s profits and losses pass through to the owner’s personal tax return, meaning the business itself isn’t taxed separately. This combination—unlimited personal liability and pass-through taxation—fits a sole proprietorship exactly. Other structures provide limited liability (protecting personal assets) or tax the business at the corporate level (with possible double taxation), or offer pass-through taxation but with limited liability, so they don’t match both characteristics at once.