Future Business Leaders of America (FBLA) Agribusiness Practice Test

What happens to a Sole Proprietorship at the owner's death?

1. It continues operations with someone else

2. It automatically converts to a corporation

3. It terminates

4. It becomes a partnership

The correct answer is: It terminates

A sole proprietorship is a type of business that is owned and operated by a single individual. Upon the death of the owner, the sole proprietorship does not have a separate legal existence beyond that of the owner. This means that the business ceases to exist as it cannot continue operations independently like a corporation or a partnership might. The assets and liabilities of the business typically become part of the owner's estate, and the business is not automatically transferred to another individual or entity without the explicit action of the estate executor or heirs. In contrast, businesses like corporations can continue operations beyond the lifespan of their owners due to their separate legal status. When a sole proprietorship owner passes away, the business is effectively terminated unless there are directives in place for selling or transferring the business and its assets. Therefore, the correct answer reflects the nature of a sole proprietorship's dependence on the owner's involvement for its existence.