Action Personal Training Practice Test

Which of the following describes a sole proprietorship?

A business owned by two or more people A business entity owned by a board of directors Owned by one person and licensed through the state A corporate entity taxed as a pass-through

Correct Answer:

Owned by one person and licensed through the state

Explanation:

A sole proprietorship is defined by ownership by a single person who runs the business as an individual. It isn’t a separate legal entity from the owner, and the owner often handles licensing or permits required to operate, which is why describing it as “owned by one person and licensed through the state” fits well. This structure contrasts with partnerships (two or more owners) and corporations (owned by a board of directors and often treated as a separate entity). Even though some corporate forms can be taxed as pass-through, they remain distinct entities from the owner, which is not how a sole proprietorship is set up. The essence here is single ownership plus the practical step of obtaining the necessary license to operate.

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