Which type of business entity has unlimited personal liability for its owners?

A sole proprietorship is a type of business entity that inherently combines the owner's personal and business assets and liabilities. This means that the owner is personally responsible for all debts and obligations of the business. If the sole proprietorship incurs debt or faces a lawsuit, the owner's personal finances, including assets such as home, savings, and personal property, are at risk. This characteristic of unlimited personal liability is a defining feature that differentiates sole proprietorships from other business structures.

In contrast, corporations and limited liability companies (LLCs) provide their owners with limited liability protection, meaning the owners are typically not personally liable for the debts and obligations of the business beyond their investment in the entity. Partnerships can involve different liability structures depending on their formation—general partners typically have personal liability while limited partners do not. Thus, the sole proprietorship's unique exposure to personal liability makes it the correct answer to the question.