DECA Sports and Entertainment Marketing Practice Exam

What defines a sole proprietorship?

1. A partnership of multiple owners

2. A business owned and operated by one person

3. A corporation with shareholders

4. A franchise with multiple locations

The correct answer is: A business owned and operated by one person

A sole proprietorship is defined as a business that is owned and operated by one individual. This business structure is the simplest form of business organization and does not require a formal agreement like partnerships or corporations do. The sole proprietor has complete control over all decisions and retains all profits generated by the business. This structure also means that the owner is personally liable for all debts and obligations of the business, which distinguishes it from other organizational forms that may limit personal liability. The other options describe different forms of business ownership. A partnership involves multiple owners collaborating, which diverges from the singular ownership aspect of a sole proprietorship. A corporation consists of shareholders who elect a board of directors to manage the company, representing a more complex structure than a sole proprietorship. Lastly, a franchise operates under a licensing agreement allowing a franchisee to use established business models and branding, usually involving multiple locations and not restricted to individual ownership. Understanding these distinctions clarifies why the definition of a sole proprietorship is specifically tied to single ownership.