Which of the following best describes a sole proprietorship?

• A. A business owned and operated by one individual, with no legal distinction between the owner and the business.
• B. A business organization that combines the tax benefits of a partnership with the limited liability of a corporation.
• C. A separate legal entity owned by shareholders.
• D. A business owned by two or more individuals who share profits and losses.

Answer: (A)

Verified step by step guidance

1. Understand the concept of a sole proprietorship: A sole proprietorship is a type of business structure where the business is owned and operated by one individual. There is no legal distinction between the owner and the business, meaning the owner is personally responsible for all debts and obligations of the business.
2. Compare the characteristics of a sole proprietorship with the other options provided: Sole proprietorships differ from partnerships, corporations, and hybrid entities like LLCs in terms of ownership, liability, and tax treatment.
3. Analyze the first option: 'A business owned and operated by one individual, with no legal distinction between the owner and the business.' This matches the definition of a sole proprietorship.
4. Evaluate the second option: 'A business organization that combines the tax benefits of a partnership with the limited liability of a corporation.' This describes a Limited Liability Company (LLC), not a sole proprietorship.
5. Review the remaining options: 'A separate legal entity owned by shareholders' refers to a corporation, and 'A business owned by two or more individuals who share profits and losses' describes a partnership. Neither of these matches the definition of a sole proprietorship.