18
QuizMultiple Choice

Unit 2: Understanding Microeconomics — Test

Question 18 • Personal Finance and Economics

Which best describes the difference between sole proprietorships and partnerships?

Answer
A
Sole proprietors pay taxes only on business profits, while partners do not have to pay taxes on profits.
B
Sole proprietors share responsibilities, while partners are responsible for only a portion of the business.
C
Sole proprietors split profits and share liabilities, while partners keep all profits and have unlimited liability.
D
Sole proprietors keep all profits and have unlimited liability, while partners split profits and share liabilities.

Explanation

A sole proprietorship has one owner, who keeps the business’s profits and is personally responsible for its debts, meaning the owner has unlimited liability. In a partnership, two or more owners generally share the profits and liabilities. Therefore, choice A, “Sole proprietors keep all profits and have unlimited liability, while partners split profits and share liabilities,” is correct.

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