Which of the following best describes a sole proprietorship?

• A. A business owned by two or more people; general partners have unlimited liability.
• B. A business owned by two or more people; no personal liability.
• C. A business owned by one person; owner has unlimited personal liability; profits taxed as personal income.
• D. A joint venture with limited liability.

Answer: (C)

The main idea here is the defining traits of a sole proprietorship: it is owned by a single person, the owner has unlimited personal liability for the business’s debts, and profits are taxed as the owner’s personal income. In a sole proprietorship there’s no separate legal entity for the business, so the owner’s personal assets can be at risk if the business borrows or faces a lawsuit. At the same time, the business income flows directly to the owner's tax return, not to a separate corporate tax, which makes taxation straightforward.

This description matches a one-person-owned business with unlimited personal liability and profits taxed as personal income. It’s different from other setups: a business owned by two or more people with unlimited liability is a general partnership; two or more people with no personal liability points to structures with limited liability (like corporations or LLCs); and a joint venture with limited liability describes a temporary collaboration, not a sole proprietorship.