DECA Marketing Cluster Practice Exam

What distinguishes a sole proprietorship from other business structures?

1. It is recognized as a separate legal entity

2. It has multiple owners sharing profits

3. It is owned by a single individual with no separate existence

4. It follows strict government regulations

The correct answer is: It is owned by a single individual with no separate existence

A sole proprietorship is characterized by its ownership structure, which is defined by being owned and operated by a single individual. This means that there is no distinction between the business and the owner; the business does not have a separate legal existence. As a result, the owner is personally responsible for all debts and obligations incurred by the business. This clarity in ownership and responsibility is what fundamentally separates a sole proprietorship from other business structures, such as partnerships or corporations, where multiple owners may share profits and responsibilities, and where the business can exist independently from its owners. In contrast, other business forms, such as corporations, are recognized as separate legal entities, meaning they can own property, incur liability, and do business in their own right, independent of their owners. Partnerships involve multiple owners sharing profits, while various business structures may also be subject to stricter government regulations compared to a sole proprietorship, which typically enjoys a simpler regulatory environment owing to its informal nature. Thus, the defining feature of a sole proprietorship is its singular ownership without a separate legal identity.