How does a sole proprietorship differ from a corporation?

How does a sole proprietorship differ from a corporation?

• A. A sole proprietorship has multiple owners while a corporation has one
• B. A sole proprietorship is personally liable, while a corporation is a separate legal entity
• C. Corporations have unlimited liability while sole proprietorships do not
• D. Only corporations can receive investments from the public

Answer: (B)

In a sole proprietorship, the business is owned and operated by a single individual, which means that the owner is personally responsible for all debts and obligations of the business. This concept is known as unlimited personal liability, wherein the owner's personal assets can be used to satisfy business debts. On the other hand, a corporation is recognized as a separate legal entity distinct from its owners (shareholders). This means that the corporation itself is responsible for its debts and obligations, and the personal assets of the shareholders are generally protected from being used to cover those liabilities. This structure limits the financial risk for owners, making it a key distinction between a sole proprietorship and a corporation. The other options present misunderstandings about the structures of sole proprietorships and corporations. For example, sole proprietorships do not have multiple owners; they are defined by a single individual running the business. In terms of liability, corporations do not have unlimited liability; rather, they provide limited liability to their owners. Lastly, while corporations can certainly receive public investments, this does not mean that they are the only business form capable of attracting investment, especially in private contexts. Thus, the correct choice emphasizes the fundamental difference in legal liability and structure between these two business forms.

In a sole proprietorship, the business is owned and operated by a single individual, which means that the owner is personally responsible for all debts and obligations of the business. This concept is known as unlimited personal liability, wherein the owner's personal assets can be used to satisfy business debts.

On the other hand, a corporation is recognized as a separate legal entity distinct from its owners (shareholders). This means that the corporation itself is responsible for its debts and obligations, and the personal assets of the shareholders are generally protected from being used to cover those liabilities. This structure limits the financial risk for owners, making it a key distinction between a sole proprietorship and a corporation.

The other options present misunderstandings about the structures of sole proprietorships and corporations. For example, sole proprietorships do not have multiple owners; they are defined by a single individual running the business. In terms of liability, corporations do not have unlimited liability; rather, they provide limited liability to their owners. Lastly, while corporations can certainly receive public investments, this does not mean that they are the only business form capable of attracting investment, especially in private contexts. Thus, the correct choice emphasizes the fundamental difference in legal liability and structure between these two business forms.