The Power of Sole Proprietorship in Business

How does a sole proprietorship impact business ownership and finances?

Choose the correct statement regarding a sole proprietorship:

A. A business operated as a sole proprietorship must be owned by one or more persons of the same family.

B. Creditors can recover claims against the business from the sole proprietor's personal assets.

C. A business operated as a sole proprietorship cannot be transferred.

D. Large businesses cannot operate as a sole proprietorship.

Answer:

Option B is correct regarding a sole proprietorship. Creditors can recover claims against the business from the sole proprietor's personal assets.

A sole proprietorship is a business structure where an individual operates and owns the business. The correct statement is that creditors can recover claims against the business from the sole proprietor's personal assets (Option B). In a sole proprietorship, the owner and the business are considered one and the same legally. As a result, the owner's personal assets are not separate from the business, and creditors have the ability to pursue the owner's personal assets to satisfy business debts or claims.

Option A is incorrect as there is no requirement for a sole proprietorship to be owned by one or more persons of the same family. Option C is incorrect as a sole proprietorship can be transferred, although it may involve various legal and financial considerations. Option D is incorrect as both small and large businesses can operate as sole proprietorships, depending on the circumstances and the preferences of the business owner.

It is important for business owners to understand the implications of choosing a sole proprietorship as their business structure. By knowing the financial risks and benefits associated with this type of ownership, entrepreneurs can make informed decisions that align with their goals and aspirations.