What does unlimited liability mean for a sole trader?

Unlimited liability means that the owner of a sole trader business is personally responsible for all debts and obligations that the business incurs. This fundamental concept implies that there is no legal distinction between the owner and the business; therefore, if the business fails or cannot meet its financial commitments, creditors can pursue the owner's personal assets to settle those debts.

This characteristic of sole traders highlights the risk involved in operating a business without the protection of limited liability, which is typically afforded to companies or corporations. In such cases, the owner's assets, such as personal savings, property, and other belongings, could be at risk if the business faces financial difficulties.

In contrast, the other options pertain to aspects not relevant to the concept of unlimited liability. For instance, a separate legal entity would typically refer to businesses like corporations where the owners' personal assets are protected. The notion of restricted control does not apply to sole traders, who usually have complete control over their business decisions. Finally, the geographical limitation does not define a sole trader's liability but rather addresses operational scope, which can vary regardless of liability status.