Accountancy Readiness Test 1 Practice

Which statement defines Sole Proprietorship?

It is the simplest form of business owned and managed by only one person. It is owned and operated by two or more persons called partners. It is a corporation with shareholders. It is a cooperative owned by its members.

Correct Answer:

It is the simplest form of business owned and managed by only one person.

Explanation:

A sole proprietorship is defined by single ownership and control. It’s the simplest business form because there is no separation between the owner and the business: one person owns the business, runs it, and receives all profits while personally bearing all losses and liabilities. It’s usually unincorporated, making setup quick and straightforward. This is why the statement describing it as the simplest form of business owned and managed by only one person fits best. In contrast, descriptions of two or more partners point to a partnership, a corporation with shareholders describes a corporation, and a cooperative owned by members describes a cooperative. Taxes typically pass through to the owner’s personal return, reflecting the lack of a separate legal entity.

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