1. What is a sole proprietorship?
a) A business owned by multiple individuals
b) A business owned by a corporation
c) A business owned and operated by a single individual
d) A business owned by a government entity
Answer: c) A business owned and operated by a single individual
2. In a sole proprietorship, who is legally responsible for the debts and liabilities of the business?
a) The business entity
b) The creditors
c) The sole proprietor
d) The employees
Answer: c) The sole proprietor
3. What is a key advantage of a sole proprietorship?
a) Limited liability
b) Ease of formation
c) Perpetual existence
d) Transferability of ownership
Answer: b) Ease of formation
4. How are profits and losses reported in a sole proprietorship?
a) Through a separate business tax return
b) On the owner’s personal income tax return
c) On the business’s balance sheet
d) Through a corporate tax return
Answer: b) On the owner’s personal income tax return
5. Which of the following is a disadvantage of a sole proprietorship?
a) Lack of personal control
b) Complicated tax requirements
c) Limited access to capital
d) Complex legal structure
Answer: c) Limited access to capital
6. What happens to a sole proprietorship if the owner dies or becomes incapacitated?
a) The business automatically continues under new management
b) The business is dissolved unless there are arrangements for succession
c) The business is converted into a partnership
d) The business is taken over by the government
Answer: b) The business is dissolved unless there are arrangements for succession
7. Which type of tax does a sole proprietor pay on business income?
a) Corporate tax
b) Partnership tax
c) Self-employment tax
d) Excise tax
Answer: c) Self-employment tax
8. How can a sole proprietor raise additional capital for the business?
a) By issuing stock
b) By forming a partnership
c) By taking out loans or using personal savings
d) By selling business interests
Answer: c) By taking out loans or using personal savings
9. Can a sole proprietorship have employees?
a) No, it can only be operated by the owner
b) Yes, but the owner remains solely responsible for all employment issues
c) Yes, and the owner is shielded from any employment-related liabilities
d) No, it is not allowed to have employees
Answer: b) Yes, but the owner remains solely responsible for all employment issues
10. What is required to legally start a sole proprietorship?
a) Filing articles of incorporation
b) Creating a partnership agreement
c) Registering a business name, if different from the owner’s name
d) Obtaining a corporate charter
Answer: c) Registering a business name, if different from the owner’s name
11. What is the primary difference between a sole proprietorship and a partnership?
a) Number of owners
b) Tax treatment
c) Liability for business debts
d) Management structure
Answer: a) Number of owners
12. Can a sole proprietor be held personally liable for the business’s debts?
a) No, the sole proprietorship is a separate legal entity
b) Yes, the sole proprietor is personally liable for all business debts
c) Yes, but only up to a certain limit
d) No, liability is limited to the business’s assets
Answer: b) Yes, the sole proprietor is personally liable for all business debts
13. Which of the following is true regarding the continuity of a sole proprietorship?
a) It has unlimited continuity
b) It ceases to exist upon the owner’s death or withdrawal
c) It automatically converts into a partnership
d) It becomes a corporation upon the owner’s retirement
Answer: b) It ceases to exist upon the owner’s death or withdrawal
14. What is the primary advantage of a sole proprietorship in terms of decision-making?
a) Complex decision-making processes
b) Decisions are made by a board of directors
c) Quick and unilateral decision-making by the owner
d) Decisions must be approved by shareholders
Answer: c) Quick and unilateral decision-making by the owner
15. What type of insurance is typically important for a sole proprietor to consider?
a) Health insurance only
b) Liability insurance and business interruption insurance
c) Life insurance only
d) Auto insurance only
Answer: b) Liability insurance and business interruption insurance