What is a sole proprietorship?

• A. A business structure in which assets and liabilities are not separated from personal assets and liabilities
• B. A business owned by multiple corporations
• C. A business registered as a nonprofit
• D. A business organized as a partnership

Answer: (A)

In a sole proprietorship, there is no legal separation between the owner and the business. The owner personally owns the business assets and is personally responsible for all its debts and obligations, meaning personal assets could be at risk if the business runs into trouble. This structure is the simplest to set up and typically taxed as the owner’s personal income.

The other descriptions refer to different forms: a business owned by multiple corporations implies a corporate or multi-entity arrangement; a nonprofit indicates a designated tax-exempt status and formal nonprofit organization structure; a partnership involves more than one owner sharing control and liability. None of these match the defining feature of a sole proprietorship, where a single person and the business are one and the same in the eyes of the law.