Future Business Leaders of America (FBLA) Business Law Practice Exam

What type of business is owned and operated by a single individual?

1. Corporation

2. Partnership

3. Limited Liability Company

4. Sole Proprietorship

The correct answer is: Sole Proprietorship

A business that is owned and operated by a single individual is classified as a sole proprietorship. This form of business is the simplest and most common structure for small businesses. The key characteristic of a sole proprietorship is that it does not create a separate legal entity; the owner and the business are considered the same entity for legal and tax purposes. This means that the owner personally assumes all liabilities and obligations of the business. A sole proprietorship allows for complete control over the business decisions, and all profits go directly to the owner. While this structure offers simplicity in terms of setup and operation, it also means that the owner risks personal assets in the event of business debts or legal issues. This distinguishing feature of being owned and operated by a single individual sets sole proprietorships apart from partnerships, corporations, and limited liability companies, which involve multiple owners or shareholders and provide different levels of liability protection and regulatory complexity.