Which statement describes the formation of a sole proprietorship?

• A. The business must file a corporate charter with the state
• B. Automatic formation occurs if there is one owner
• C. FinCEN requires comprehensive beneficial ownership reporting for sole proprietorships
• D. A partnership agreement must be signed before operating

Answer: (B)

Understanding how a sole proprietorship forms: there is no separate legal entity created through filings. The moment one person starts operating a business on their own—whether under their own name or a trade name—the arrangement is considered a sole proprietorship by default. This means no corporate charter is filed, and there’s no need for a partnership agreement since there is only one owner. In AML terms, beneficial ownership reporting typically targets other types of entities (like corporations or certain LLCs), because the owner and the business are the same person in a sole proprietorship. So, the statement that formation happens automatically with a single owner best captures how a sole proprietorship comes into being.