National Occupational Competency Testing Institute (NOCTI) Business Practice Exam

What characterizes a sole proprietorship?

1. One individual or married couple in business alone

2. Multiple partners sharing equal roles

3. A corporation with limited liability

4. A group of individuals with shared ownership

The correct answer is: One individual or married couple in business alone

A sole proprietorship is characterized by the involvement of one individual or a married couple who owns and operates the business independently. This structure allows the owner complete control over decision-making and the profits generated by the business. It is often the simplest and most straightforward form of business structure, requiring minimal formalities to set up and operate. In this type of business, the owner is personally liable for any debts or obligations incurred by the business, which distinguishes it from structures like corporations that offer limited liability. The individual maintains all profits, although they also bear all risks associated with the business. The other choices represent different business structures. Multiple partners sharing equal roles defines a partnership, where two or more individuals collaborate and share profits and liabilities. A corporation with limited liability pertains to a separate legal entity that protects its owners' personal assets from business debts, while a group of individuals with shared ownership describes a cooperative or another form of business far removed from a sole proprietorship. Understanding these distinctions clarifies why the sole proprietorship is uniquely characterized by the singular control and ownership by one individual or a married couple.