Which of the following statements is true about sole proprietorships?
A sole proprietorship is the simplest form of business organization.
A sole proprietorship can continue if the owner dies.
The owner of the sole proprietorship has limited liability.
The owner of the sole proprietorship must report to shareholders.
The statement that is true about sole proprietorships is: A sole proprietorship is the simplest form of business organization.
The first statement is true: A sole proprietorship is indeed the simplest form of business organization.
The second statement is false: A sole proprietorship cannot continue if the owner dies. It does not have a separate legal identity from the owner, so when the owner passes away, the business typically comes to an end as well.
The third statement is false: In a sole proprietorship, the owner has unlimited liability, meaning they are personally responsible for all debts and obligations of the business. Their personal assets can be used to satisfy business debts.
The fourth statement is false: A sole proprietorship does not have shareholders, as it is owned and operated by a single individual. Therefore, the owner does not need to report to shareholders.
To determine which of the statements is true about sole proprietorships, let's evaluate each option one by one.
1. "A sole proprietorship is the simplest form of business organization."
This statement is true. A sole proprietorship is indeed the simplest and most common form of business organization. It is owned and controlled by a single individual, known as the proprietor, who has complete decision-making authority.
2. "A sole proprietorship can continue if the owner dies."
This statement is false. A sole proprietorship is not a separate legal entity from its owner. Therefore, when the owner dies, the sole proprietorship typically ceases to exist, unless there is a plan in place for its continuation, such as passing it on to another individual through a will.
3. "The owner of the sole proprietorship has limited liability."
This statement is false. One of the key characteristics of a sole proprietorship is that the owner has unlimited liability. This means that the owner is personally responsible for all debts and obligations of the business. If the business cannot meet its obligations, the owner's personal assets can be used to satisfy those debts.
4. "The owner of the sole proprietorship must report to shareholders."
This statement is false. In a sole proprietorship, there are no shareholders because the business is owned by a single individual. Therefore, the owner does not have any shareholders to report to.
In summary, the only true statement about sole proprietorships is that they are the simplest form of business organization.