Which statement best describes a sole proprietorship?

Which statement best describes a sole proprietorship?

• A. The business, or any part of it, can be sold, altered, or exchanged at will.
• B. Ownership cannot be transferred once established.
• C. The business must be a corporation for tax purposes.
• D. All profits must be reinvested.

Answer: (A)

In a sole proprietorship, one person owns and runs the business, with no separate legal entity. The owner has full control over the business and can decide to sell the entire operation or parts of it, change how it’s run, or swap aspects of the business at their discretion. That freedom to transfer or modify the business as desired is why this statement best describes a sole proprietorship. The other ideas aren’t correct because ownership can be transferred by sale, the business doesn’t have to be a corporation for tax purposes, and there’s no rule that all profits must be reinvested.