A sole proprietorship is not a legal entity but the person who owns the business and is responsible for paying all debts that the business accrues. This business is linked to the persons social security number and there is no legal distinection between the owner and the business entity. Lucy's sister probably warned Lucy about sole proprietorship and the legal principle that holds her responible for paying off all of the debts of the business.
The business can be started in many different forms like sole proprietorship, partnership, company etc. Every business form has its own merits and flaws. One must consider all the features of a business form before initiating business.
The term unlimited liability refers to the obligations of person controlling business to pay all the debs and bear all the losses in case of a uncertain event.
This principle of sole proprietorship considers business and the businessmen as same persons and thus all the burden of the liabilities of business falls on the sole owner of the business.
Therefore , Lucy's sister must have warned her about UNLIMITED LIABILITY, the legal principle holding Lucy responsible for paying off all of the debts of the business.
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