Utah General Contractors - Business and Law Practice Exam

Can sole proprietorships issue and sell stock in the company to raise capital?

1. Yes

2. No

3. Only with government approval

4. Only to family members

The correct answer is: No

A sole proprietorship cannot issue and sell stock to raise capital because it is a business entity owned and operated by a single individual. In this structure, there is no legal separation between the owner and the business itself, which means the owner holds full responsibility for all aspects of the business, including its debts and liabilities. To raise capital, sole proprietorships typically rely on personal financing, loans, or other forms of credit as they do not have shares or stock that can be sold to investors. In contrast, other business structures, like corporations, have the ability to issue stock to raise funds, creating a distinct separation between ownership and management that allows them to attract investors through shares. Essentially, while sole proprietorships can seek funding through various other means, the inability to issue stock is a fundamental aspect of their structure that distinguishes them from corporations and certain partnerships.