AFC Accounting Fundamentals Practice Test – Complete Exam Prep

A sole proprietorship is the simplest form of business structure and typically requires minimal legal formalities to establish. The most essential requirement for a sole proprietorship to legally operate is obtaining a business license. This license ensures that the business complies with local laws and regulations, which can include zoning laws and health permits, depending on the nature of the business.

While the other options pertain to different business structures or agreements, they are not relevant to sole proprietorships. A partnership agreement is required when two or more individuals decide to run a business together, indicating that it applies to partnerships rather than sole proprietorships. A corporate charter is necessary for corporations, as it allows them to operate as a separate legal entity. An operating agreement is primarily used in limited liability companies (LLCs) to outline the management structure and operating procedures.

Thus, obtaining a business license is fundamental for a sole proprietor to ensure legal operation within their jurisdiction.