Legally, a sole proprietorship is inseparable from its owner -- the business and the owner are one and the same. As a result, the owner of a sole proprietorship is personally liable for the entire amount of any business-related obligations, such as debts or court judgments. This means that if you form a sole proprietorship, creditors of the business can come after your personal assets -- your house or your car, for example -- to collect what the business owes them. For more information on personal liability, including examples, see Sole Proprietorship Basics.
To learn more about sole proprietorships and other business forms, get Legal Guide for Starting & Running a Small Business, by Fred Steingold (Nolo), which provides all the legal and business information you need to get your business off the ground and running.