DECA Marketing Cluster Practice Exam

Who is classified as a sole proprietor?

1. A business with employees and shareholders

2. Any individual with a partnership agreement

3. An unincorporated business with one owner

4. A corporation registered with the state

The correct answer is: An unincorporated business with one owner

A sole proprietor is classified as an unincorporated business with one owner. This type of business structure is characterized by the fact that it does not involve multiple owners or a complex management structure. The sole proprietor personally manages the business and is responsible for its debts and liabilities, making it simpler in terms of legal and financial obligations. Sole proprietorships are often favored by individuals who want to maintain complete control over their business operations and do not require the formalities and regulatory requirements that come with corporations and partnerships. In essence, the sole proprietor enjoys all profits generated by the business while also bearing all risks, which distinguishes this structure from corporate entities or partnerships that involve shared ownership and responsibilities. The other options represent business structures that differ significantly from sole proprietorships. For example, a business with employees and shareholders typically refers to a corporation, which has a distinct legal identity separate from its owners. Similarly, an individual with a partnership agreement would be part of a partnership, involving at least two people sharing ownership. Lastly, a corporation registered with the state indicates a formal business structure that has been legally incorporated, again different from the singular nature of sole proprietorships.