Which statement describes sole traders?

Which statement describes sole traders?

• A. They are owned and managed by a single person and are unincorporated.
• B. They are a separate legal entity from the owner.
• C. They have limited liability.
• D. They are always large corporations.

Answer: (A)

A sole trader is owned and managed by a single person and is unincorporated. This means there isn’t a separate legal person for the business—the owner and the business are legally the same. Because there’s no separate legal entity, the owner bears unlimited liability, so personal assets could be at risk if the business owes money. Sole traders are typically small, not large corporations, and they don’t have the benefits of limited liability or corporate status. This combination of single ownership, direct management, and lack of separate legal personality is what the statement describes, making it the best fit.

A sole trader is owned and managed by a single person and is unincorporated. This means there isn’t a separate legal person for the business—the owner and the business are legally the same. Because there’s no separate legal entity, the owner bears unlimited liability, so personal assets could be at risk if the business owes money. Sole traders are typically small, not large corporations, and they don’t have the benefits of limited liability or corporate status. This combination of single ownership, direct management, and lack of separate legal personality is what the statement describes, making it the best fit.