Which statement correctly describes a sole proprietorship?

• A. It is owned by a single individual
• B. It has separate legal entity status
• C. It provides limited liability
• D. It requires corporate tax returns

Answer: (A)

A sole proprietorship is a business owned and operated by one person and is not a separate legal entity from the owner. That’s why the statement that it is owned by a single individual is the best description. Because there isn’t a distinct legal entity apart from the owner, the owner bears personal responsibility for the business’s debts and obligations, and the business income passes through to the owner’s personal tax return rather than filing a separate corporate return. This structure does not provide limited liability and does not involve corporate tax returns.