A sole proprietorship is a business organization where a single individual owns and operates the entire business. The owner has unlimited liability.
Which of the following best describes a sole proprietorship?
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A) A business owned by two or more individuals is a partnership. B) A separate legal entity owned by shareholders is a corporation. C) A business owned and operated by a single individual is a sole proprietorship. D) A hybrid business structure combining elements of partnerships and corporations is a limited liability company (LLC).
What type of liability does a sole proprietor face?
A) Limited liability is associated with corporations and LLCs. B) Unlimited liability means the owner's personal assets are at risk to cover business debts and obligations, which is the case for sole proprietorships. C) Shared liability is associated with partnerships. D) No liability does not apply to any business structure.
Which of the following is a characteristic of a sole proprietorship's taxation?
A) Double taxation is associated with corporations. B) Pass-through taxation means business income is reported on the owner's tax return, avoiding double taxation, which is the case for sole proprietorships. C) Corporate taxation is associated with corporations. D) Partnership taxation is associated with partnerships.
In the early 1900s, a small-town baker started a business selling homemade bread and pastries. The baker operated as a sole proprietor, using his savings to fund the business and taking on all the risks and responsibilities. Over time, the bakery became a local favorite, and the owner's hard work and dedication paid off as the business grew and prospered.
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Example Series 65 Example Practice Question
A freelance graphic designer decides to start her own business, offering design services to clients. She is a sole proprietor, using her computer and software to create designs. She is responsible for finding clients, managing projects, and handling all financial aspects of the business, including paying taxes on her income.
A sole proprietor stands alone, with risks and rewards all their own. No partners or shareholders to share the load, with unlimited liability down the road.