Chapter 14 Navigating Legal and IP Issues Verified Test Bank

Test Bank

Chapter 14: Navigating Legal and IP Issues

Multiple Choice

1. What two characteristics should a lawyer have when working with a startup?

a. years of experience and willingness to work at reduced charges

b. knowledge of laws across states and knowledge of the industry

c. industry knowledge and a familiarity and comfort working with startups

d. knowledge about all aspects of the business and laws across states

Learning Objective: 14.1: Discuss how legal considerations can add value to entrepreneurial ventures.

Cognitive Domain: Comprehension

Answer Location: 14.1. Legal Considerations

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

2. How do the authors suggest the Internet’s legal resources be used?

a. to access low-cost legal forms and advice

b. to identify the type of legal counsel you will need

c. to seek advice from free legal services

d. to find sample documents that match your industry, products, and services

Learning Objective: 14.1: Discuss how legal considerations can add value to entrepreneurial ventures.

Cognitive Domain: Comprehension

Answer Location: 14.1. Legal Considerations

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

3. What is a major risk in following legal advice found on the Internet?

a. The advice may be given by a lawyer who does not have a physical office.

b. The advice may not be strictly accurate or relevant to your type of business.

c. The service is free and there is no paperwork to document the advice.

d. Sample documents and forms will not be available.

Learning Objective: 14.1: Discuss how legal considerations can add value to entrepreneurial ventures.

Cognitive Domain: Comprehension

Answer Location: 14.1. Legal Considerations

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

4. What support service for entrepreneurs is offered by the U.S. Patent and Trademark Office?

a. patent loaning

b. a pro bono legal program

c. small business grants

d. tax preparation services

Learning Objective: 14.1: Discuss how legal considerations can add value to entrepreneurial ventures.

Cognitive Domain: Knowledge

Answer Location: 14.1. Legal Considerations

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

5. Which of the following can be affected by the type of legal structure your company has?

a. the authorities you need to notify, taxes, record-keeping, and decision processes

b. taxes and ability to sue the company

c. taxes and marketability of your company

d. taxes only

Learning Objective: 14.2: Explain the most common types of legal structures available to startups.

Cognitive Domain: Knowledge

Answer Location: 14.2: Types of Legal Structures

Difficulty Level: Easy

AACSB Standard: Contexts of organizations in a global society

6. What business entity term refers to a business owner who has not formed a separate entity to run the business?

a. sole practitioner

b. self-employed

c. sole proprietorship

d. nonentity small business

Learning Objective: 14.2: Explain the most common types of legal structures available to startups.

Cognitive Domain: Knowledge

Answer Location: Sole Proprietorship

Difficulty Level: Easy

AACSB Standard: Contexts of organizations in a global society

7. ______ is the simplest and most inexpensive form of legal structure for startups.

a. Sole proprietorship

b. General partnership

c. C corporation

d. LLC

Learning Objective: 14.2: Explain the most common types of legal structures available to startups.

Cognitive Domain: Knowledge

Answer Location: Sole Proprietorship

Difficulty Level: Easy

AACSB Standard: Contexts of organizations in a global society

8. What is the simplest and most inexpensive form of legal structure for startups?

a. sole proprietorship

b. general partnership

c. C corporation

d. S corporation

Learning Objective: 14.2: Explain the most common types of legal structures available to startups.

Cognitive Domain: Knowledge

Answer Location: Sole Proprietorship

Difficulty Level: Easy

AACSB Standard: Contexts of organizations in a global society

9. In an LLC, how are profits and losses reported?

a. on individual tax returns

b. on the corporation’s tax return

c. on both the corporate and individual tax return

d. on either the corporate or individual tax return

Learning Objective: 14.2: Explain the most common types of legal structures available to startups.

Cognitive Domain: Knowledge

Answer Location: Limited Liability Company

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

10. In an S corporation, what is the maximum number of shareholders allowed?

a. 12

b. 50

c. 75

d. 100

Learning Objective: 14.2: Explain the most common types of legal structures available to startups.

Cognitive Domain: Knowledge

Answer Location: S Corporation

Difficulty Level: Easy

AACSB Standard: Contexts of organizations in a global society

11. A C corporation has transferable ownership, which refers to the fact that ______.

a. a C corporation can change its structure at any time after the first year

b. it can issue stock in exchange for capital and can be passed on to new owners

c. it can adapt to more employees as the company grows

d. it can be owned by an unlimited number of shareholders

Learning Objective: 14.2: Explain the most common types of legal structures available to startups.

Cognitive Domain: Comprehension

Answer Location: C Corporation

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

12. In a C corporation, who is legally liable for its actions?

a. the corporation

b. the shareholders

c. the owner(s) of the company

d. the board of directors

Learning Objective: 14.2: Explain the most common types of legal structures available to startups.

Cognitive Domain: Knowledge

Answer Location: C Corporation

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

13. A C corporation’s disadvantage is double taxation. This means that ______.

a. the corporation is taxed on the profit it makes and the shareholders are taxed on the dividends

b. the corporation pays taxes in April and October

c. corporations are taxed more heavily than other corporate structures

d. corporations pay taxes on the goods they purchase to create the product rather than on the profits from the sale of the goods

Learning Objective: 14.2: Explain the most common types of legal structures available to startups.

Cognitive Domain: Comprehension

Answer Location: C Corporation

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

14. Typically, LLPs are only popular among what type of business?

a. restaurants

b. a sole owner who wants to guard against liability

c. a professional practice, such as a legal or accounting group

d. franchises

Learning Objective: 14.2: Explain the most common types of legal structures available to startups.

Cognitive Domain: Comprehension

Answer Location: Limited Partnership and Limited Liability Partnership

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

15. A limited partnership is made up of which of the following?

a. general partners and limited partners

b. general partners and shareholders

c. general partners only

d. limited partners only

Learning Objective: 14.2: Explain the most common types of legal structures available to startups.

Cognitive Domain: Knowledge

Answer Location: Limited Partnership and Limited Liability Partnership

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

16. Which of the following conditions is applicable to all not-for-profit organizations?

a. They must be classified as a church, educational, or charitable institution.

b. Their earnings should be used to benefit the shareholders.

c. Profit must be reinvested and used for the organization’s exempt purpose.

d. Shareholder earnings are limited by the tax code.

Learning Objective: 14.2: Explain the most common types of legal structures available to startups.

Cognitive Domain: Comprehension

Answer Location: Not-for-Profit Entities

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

17. What government body creates a C-corp?

a. the state government

b. the federal government

c. local county and city jurisdictions

d. the federal courts

Learning Objective: 14.2: Explain the most common types of legal structures available to startups.

Cognitive Domain: Knowledge

Answer Location: C Corporation

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

18. What characteristic of a C corporation will make it possible to pass the corporation on to new owners after the original owners pass away?

a. vesting

b. the laws of inheritance

c. transferable ownership

d. stockholder rights

Learning Objective: 14.2: Explain the most common types of legal structures available to startups.

Cognitive Domain: Comprehension

Answer Location: C Corporation

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

19. The term vesting can best be described as which of the following?

a. paying shares out to employees on a regular, usually annual basis

b. imposing equity forfeitures on cofounders over a certain period of time on a piecemeal basis should they not stay with the company

c. defining a particular time and range of duties the cofounders must contribute to the business

d. determining the investment that each cofounder must contribute to the start and growth of the business

Learning Objective: 14.3: Outline the most common legal errors made by startups.

Cognitive Domain: Knowledge

Answer Location: 14.3. Legal Mistakes Made by Startups

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

20. If you want to seek immediate external funding from experienced investors, what type of organization would be the best to form?

a. LLC

b. benefit corporation

c. S corporation

d. C corporation

Learning Objective: 14.2: Explain the most common types of legal structures available to startups.

Cognitive Domain: Comprehension

Answer Location: 14.3. Legal Mistakes Made by Startups

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

21. Which of the following would most likely be considered fair use of copyrighted material?

a. A T-shirt company uses a famous clause from a song and places it on their T-shirts.

b. A high school teacher copies a portion of a song sheet to explain the use of timing and syncopation.

c. A nonprofit organization sells copies of a copyrighted cookbook at a fundraiser.

d. A movie producer uses a popular song as background to one of his/her movie scenes.

Learning Objective: 14.4: Define IP and how it affects entrepreneurs.

Cognitive Domain: Application

Answer Location: Copyright

Difficulty Level: Medium

AACSB Standard: Application of knowledge

22. Which of the following would most likely be considered fair use of copyrighted material?

a. A writer references a portion of a comedian’s script in a book in order to demonstrate a key point.

b. A writer copies a portion of a new book on chess in which he reveals the secrets in the competitor’s book. He credits the original author.

c. A songwriter puts the words of a poem to a musical score.

d. A writer and biologist copy 30 diagrams from another textbook, citing the original author.

Learning Objective: 14.4: Define IP and how it affects entrepreneurs.

Cognitive Domain: Application

Answer Location: Copyright

Difficulty Level: Hard

AACSB Standard: Application of knowledge

23. Any word, name, symbol, or device used in business to identify and promote a product is called a ______.

a. trademark

b. copyright

c. brand

d. patent

Learning Objective: 14.4: Define IP and how it affects entrepreneurs.

Cognitive Domain: Knowledge

Answer Location: Trademark and Service Mark

Difficulty Level: Easy

AACSB Standard: Contexts of organizations in a global society

24. An employee for a beverage company combines the ingredients used in creating a particular drink mix. Later he/she is fired from the company and decides to sell the same mix under a new label to a competing company. What concept might be represented in this action?

a. a copyright violation

b. a trade secret, provided a nondisclosure that was signed by the employee

c. a trademark violation, regardless of the lack of a nondisclosure agreement

d. No violation; secrets are secrets only until they are known.

Learning Objective: 14.4: Define IP and how it affects entrepreneurs.

Cognitive Domain: Application

Answer Location: Trade Secret

Difficulty Level: Medium

AACSB Standard: Application of knowledge

25. An employee has been developing a company product for the last 3 years when he decides to leave the company. That product is a glue that remains tacky for hours, enabling certain types of artwork to be performed. After he leaves the company, the employee joins another company and finalizes the glue development for his new company. Who is likely to own the rights of the intellectual property involved in the formulation of the glue?

a. the employee; he invented it

b. the original company who paid for the product to be developed

c. the new company because the product was released while the employee worked for it

d. The glue cannot be considered intellectual property.

Learning Objective: 14.4: Define IP and how it affects entrepreneurs.

Cognitive Domain: Application

Answer Location: 14.4. Intellectual Property (IP)

Difficulty Level: Medium

AACSB Standard: Application of knowledge

26. Gary is fascinated by a new device that uses a GPS-like tracker to help owners locate their pets. He purchases the product, disassembles it, and uses it as a pattern for a similar device. The new device uses a less expensive casing, but otherwise has duplicated the technology. What legal concept may be represented in this action?

a. a copyright violation

b. a trademark violation

c. a patent violation

d. a fair use violation

Learning Objective: 14.4: Define IP and how it affects entrepreneurs.

Cognitive Domain: Application

Answer Location: Intellectual Property (IP)

Difficulty Level: Medium

AACSB Standard: Application of knowledge

27. What should an entrepreneur do if he or she worked on a product with a former employer and wants to market the product as his or her own?

a. Market it before the former employer does.

b. Consult an IP attorney to review employee contracts and applicable laws.

c. Keep all documentations proving that he or she is the inventor.

d. Market the product in another country.

Learning Objective: 14.4: Define IP and how it affects entrepreneurs.

Cognitive Domain: Comprehension

Answer Location: 14.4. Intellectual Property (IP)

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

28. How much does IP theft cost the United States every year?

a. $3 billion to $5 billion

b. $100 billion to $200 billion

c. $225 billion to $600 billion

d. It is incalculable.

Learning Objective: 14.5: Assess the global impact of IP theft.

Cognitive Domain: Knowledge

Answer Location: 14.5. Global IP Theft

Difficulty Level: Easy

AACSB Standard: Contexts of organizations in a global society

29. IP protection doesn’t always work. What is the primary contributing factor in this failure?

a. Laws protecting the company’s rights may not be recognized in other countries.

b. There are too many patents on record, making it difficult to monitor them.

c. Companies fail to renew their patents after the expiration date.

d. The product or service has evolved after the original protection was filed.

Learning Objective: 14.5: Assess the global impact of IP theft.

Cognitive Domain: Comprehension

Answer Location: 14.5. Global IP Theft

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

30. What is a key difference between U.S. law and that of most other countries regarding patents on publicly disclosed innovations?

a. Most nations other than the United States allow a one-year grace period after public disclosure.

b. The United States requires innovations to be publicly disclosed for one year before a patent is filed.

c. The United States allows a one-year grace period after a public disclosure.

d. U.S. patents only last for one year.

Learning Objective: 14.6: Describe the common IP traps experienced by entrepreneurs.

Cognitive Domain: Comprehension

Answer Location: Publicly Disclosing Your Innovation

Difficulty Level: Easy

AACSB Standard: Contexts of organizations in a global society

31. What pitfall might affect the ability to attain a patent?

a. developing a prototype

b. disclosing the product or service to the public before the patent is filed

c. not filing for the patent 45 days after the invention of the product

d. not having the company logo on the product

Learning Objective: 14.6: Describe the common IP traps experienced by entrepreneurs.

Cognitive Domain: Comprehension

Answer Location: Publicly Disclosing Your Innovation

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

32. What step might be taken in the United States if some disclosure of your product is necessary in order to obtain funding, obtain raw materials, or otherwise develop the product?

a. Mark all prototypes and designs with the company name.

b. File for a patent under your personal name instead of the company.

c. File for a provisional patent.

d. Change the nature of the product after you have disclosed it.

Learning Objective: 14.6: Describe the common IP traps experienced by entrepreneurs.

Cognitive Domain: Comprehension

Answer Location: Publicly Disclosing Your Innovation

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

33. After filing for a provisional patent, how long do you have before developing the idea into a working prototype?

a. 1 year

b. 2 years

c. 3 years

d. 4 years

Learning Objective: 14.6: Describe the common IP traps experienced by entrepreneurs.

Cognitive Domain: Knowledge

Answer Location: Publicly Disclosing Your Innovation

Difficulty Level: Easy

AACSB Standard: Contexts of organizations in a global society

34. Failure to assign ownership occurs in which of the following situations?

a. when someone makes significant contributions to a product design without a formal agreement regarding who owns the idea

b. only when someone makes a significant contribution and is not paid for the contribution

c. only when someone makes a significant contribution and is paid for the contribution

d. when someone fails to place the company name on the patent

Learning Objective: 14.6: Describe the common IP traps experienced by entrepreneurs.

Cognitive Domain: Comprehension

Answer Location: Failure to Assign Ownership

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

35. Which of the following indicates that an employee is eligible to work in the United States?

a. Declaration of U.S. Citizenship

b. I-9

c. W-4

d. Form 940

Learning Objective: 14.7: Explain the legal requirements of hiring employees.

Cognitive Domain: Knowledge

Answer Location: Employee Forms

Difficulty Level: Easy

AACSB Standard: Contexts of organizations in a global society

36. Which of the following forms will let the employer know how much money to withhold from paychecks for federal taxes?

a. I-9

b. T-140

c. W-4

d. Form 940

Learning Objective: 14.7: Explain the legal requirements of hiring employees.

Cognitive Domain: Knowledge

Answer Location: Employee Forms

Difficulty Level: Easy

AACSB Standard: Contexts of organizations in a global society

37. Which of the following forms will be needed to indicate federal unemployment tax that will be used should the employee lose his or her job?

a. Form 940

b. W-2

c. I-9

d. W-4

Learning Objective: 14.7: Explain the legal requirements of hiring employees.

Cognitive Domain: Knowledge

Answer Location: Employee Forms

Difficulty Level: Easy

AACSB Standard: Contexts of organizations in a global society

38. What number of employees must a company have before they are required to provide family and medical leave and, in some states, sick leave?

a. any size company

b. a company with over 10 employees

c. a company with 15 employees or more

d. a company with over 50 employees

Learning Objective: 14.7: Explain the legal requirements of hiring employees.

Cognitive Domain: Knowledge

Answer Location: Benefits

Difficulty Level: Easy

AACSB Standard: Contexts of organizations in a global society

39. Which of the following is a key disadvantage of hiring an independent contractor?

a. A contractor has autonomy in what, when, and how he or she performs the duties of the job.

b. The contractor would not be required to perform the job to the same level as an employee.

c. The contractor could be terminated if he or she did not fulfill their contracts.

d. The contractor generally would have less of a personal commitment to doing the job well.

Learning Objective: 14.7: Explain the legal requirements of hiring employees.

Cognitive Domain: Comprehension

Answer Location: Hiring a Contractor or an Employee?

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

40. The most significant factor in determining whether a worker is a contractor or an employee is ______.

a. the amount of control the employer has over the work being carried out

b. the number of hours worked

c. whether the worker or employer pays expenses

d. whether the worker gets vacation time

Learning Objective: 14.7: Explain the legal requirements of hiring employees.

Cognitive Domain: Comprehension

Answer Location: Hiring a Contractor or an Employee?

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

41. Before hiring its first employee, a company must get a(n) ______ to use on documents and tax returns for the IRS.

a. EEO

b. SSN

c. TIN

d. EIN

Learning Objective: 14.7: Explain the legal requirements of hiring employees.

Cognitive Domain: Knowledge

Answer Location: Employer Identification Number

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

42. Which of the following is true when compensating employees with company equity?

a. The equity to be issued will be considered salary and not subject to securities laws.

b. The equity will be considered a gift since no cash was issued.

c. The shares may be considered a taxable item.

d. The shares cannot be tied to performance of services.

Learning Objective: 14.7: Explain the legal requirements of hiring employees.

Cognitive Domain: Comprehension

Answer Location: Compensation in the Form of Equity

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

43. Candy-Corp hires a summer intern to work in the candy shop during the summer. The intern works 20 hours a week and earns course credit for a course he is taking toward his culinary degree. He is learning a great deal, and at the same time, the company is benefiting from the intern because they did not need to schedule their regular employees full time and they are not paying the intern. What is the legal liability this company is incurring?

a. The summer intern is learning store operations that put him in physical danger.

b. The intern is performing actual work and not just observing.

c. The intern is benefiting the company by replacing duties which could be provided by paid employees.

d. The intern is working too many hours.

Learning Objective: 14.7: Explain the legal requirements of hiring employees.

Cognitive Domain: Application

Answer Location: Unpaid Internships

Difficulty Level: Medium

AACSB Standard: Application of knowledge

44. What legal structure determines minimum wage and overtime pay?

a. Civil Liberties Act

b. the hiring company’s salary administration policy

c. Fair Labor Standards Act

d. Minimum Wage Act

Learning Objective: 14.7: Explain the legal requirements of hiring employees.

Cognitive Domain: Knowledge

Answer Location: Unpaid Internships

Difficulty Level: Easy

AACSB Standard: Contexts of organizations in a global society

45. How long does a federally registered trademark last before it must be renewed?

a. It is a lifelong registration.

b. 100 years

c. 10 years

d. 25 years

Learning Objective: 14.4: Define IP and how it affects entrepreneurs.

Cognitive Domain: Knowledge

Answer Location: Trademark and Service Mark

Difficulty Level: Easy

AACSB Standard: Contexts of organizations in a global society:

46. Tom has been a lead salesman for a brokerage house but recently got a better position at a competing house. Prior to leaving, Tom copied the customer list and contact information from his company. What may be infringed by this action?

a. the company’s patent

b. trade secrets

c. copyrights

d. No principles were violated since he contributed to the call list in the first place.

Learning Objective: 14.4: Define IP and how it affects entrepreneurs.

Cognitive Domain: Application

Answer Location: Trade Secret

Difficulty Level: Medium

AACSB Standard: Application of knowledge

47. Which of the following cannot be protected as intellectual property?

a. artistic expression

b. a trademark

c. an idea

d. an invention

Learning Objective: 14.4: Define IP and how it affects entrepreneurs.

Cognitive Domain: Comprehension

Answer Location: Intellectual Property (IP)

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

48. How long does a patent generally last?

a. 2 years

b. 10 years

c. 20 years

d. 50 years

Learning Objective: 14.4: Define IP and how it affects entrepreneurs.

Cognitive Domain: Knowledge

Answer Location: Intellectual Property (IP)

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

49. Which of the following countries is most likely to violate IP rights?

a. England

b. Germany

c. China

d. Australia

Learning Objective: 14.5: Assess the global impact of IP theft.

Cognitive Domain: Knowledge

Answer Location: 14.5. Global IP Theft

Difficulty Level: Easy

AACSB Standard: Contexts of organizations in a global society

50. Which of the following is true about filing for a patent in the United States?

a. Patents are based on a “first to file” basis.

b. Patents are based on a “first to invent” basis.

c. Patents can be shared if multiple people invent the same product.

d. Patents are awarded to the best design should multiple people file at the same time.

Learning Objective: 14.4: Define IP and how it affects entrepreneurs.

Cognitive Domain: Comprehension

Answer Location: Publicly Disclosing Your Innovation

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

51. How long does a company have to register a newly hired employee with your state directory?

a. within 2 months of the hire date

b. within 5 days of the hire date

c. within 20 days of the hire date

d. at any time before filing state taxes

Learning Objective: 14.7: Explain the legal requirements of hiring employees.

Cognitive Domain: Knowledge

Answer Location: Employer Identification Number (EIN)

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

52. With which of the following agencies must you register to pay state unemployment compensation tax?

a. the Federal Department of Labor

b. the Labor Department of your state

c. the Franchise Tax Board

d. the State Tax Board

Learning Objective: 14.7: Explain the legal requirements of hiring employees.

Cognitive Domain: Knowledge

Answer Location: Unemployment and Workers’ Compensation

Difficulty Level: Easy

AACSB Standard: Contexts of organizations in a global society

53. Why does the employer fill out an IRS form 940 every year?

a. to report income taxes withheld from employee wages

b. to report federal unemployment tax

c. to report the number of employees from their company who have filed for unemployment

d. to report the number of employees who filed a workers’ compensation claim

Learning Objective: 14.7: Explain the legal requirements of hiring employees.

Cognitive Domain: Knowledge

Answer Location: Employee Forms

Difficulty Level: Easy

AACSB Standard: Contexts of organizations in a global society

54. Which of the following must be paid for by the employer in all states?

a. unemployment insurance

b. vacation leave

c. paid sick days

d. life insurance

Learning Objective: 14.7: Explain the legal requirements of hiring employees.

Cognitive Domain: Knowledge

Answer Location: Benefits

Difficulty Level: Easy

AACSB Standard: Contexts of organizations in a global society

55. Who would be worthwhile to consult before setting up an employee benefits program for your startup?

a. your HR Director

b. an accountant experienced with employee benefits

c. the company lawyer

d. the provider, such as the insurance company or retirement fund company

Learning Objective: 14.7: Explain the legal requirements of hiring employees.

Cognitive Domain: Comprehension

Answer Location: Benefits

Difficulty Level: Easy

AACSB Standard: Contexts of organizations in a global society

56. A delivery service hires independent contractors as drivers to deliver products that are ordered online. The company requires that the delivery service be available from 8 am to 5 pm Monday through Friday and displays the company logo on their shirt and automobile (in the form of a magnetic sign). Procedures for logging the package and the number of attempts for delivery are defined by the company. What issues may be of concern in this situation?

a. The employer has not outlined provisions for overtime.

b. The employer may not be paying vacation time to the contractors.

c. The employer may have misclassified these workers as contractors because the employers are controlling their work hours, operations, and appearance.

d. None, as the employer and delivery service have signed an independent contractor agreement.

Learning Objective: 14.7: Explain the legal requirements of hiring employees.

Cognitive Domain: Comprehension

Answer Location: Hiring a Contractor or an Employee?

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

57. According to the International Trade Union Confederation (ITUC), which of the following countries scores among the highest for equality at work?

a. Uruguay

b. China

c. Egypt

d. Colombia

Learning Objective: 14.7: Explain the legal requirements of hiring employees.

Cognitive Domain: Knowledge

Answer Location: Equal Employment Opportunity

Difficulty Level: Easy

AACSB Standard: Contexts of organizations in a global society

58. What is a shorter, less technical contract which is a clear agreement between founders on a number of key issues that the business might face?

a. founders’ agreement

b. limited liability agreement

c. employee contract

d. independent contractor agreement

Learning Objective: 14.3: Outline the most common legal errors made by startups.

Cognitive Domain: Knowledge

Answer Location: The Founders’ Agreement

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

True/False

1. In a sole proprietorship, you are personally responsible for problems such as injuries on the job or loans taken out on behalf of the business.

Learning Objective: 14.2: Explain the most common types of legal structures available to startups.

Cognitive Domain: Knowledge

Answer Location: Sole Proprietorship

Difficulty Level: Easy

AACSB Standard: Contexts of organizations in a global society

2. A limited liability partnership protects the owners from liability, and taxes are paid by the corporation.

Learning Objective: 14.2: Explain the most common types of legal structures available to startups.

Cognitive Domain: Comprehension

Answer Location: Limited Partnership and Limited Liability Partnership (LP and LLP)

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

3. Choosing the wrong business structure can lead to incurring higher taxes than necessary.

Learning Objective: 14.3: Outline the most common legal errors made by startups.

Cognitive Domain: Knowledge

Answer Location: 14.3. Legal Mistakes Made by Startups

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

4. Regardless of the type of entity, a business partner can always maintain his or her own shares in the company, even when they leave the company, provided they were one of the company’s founders.

Learning Objective: 14.3: Outline the most common legal errors made by startups.

Cognitive Domain: Comprehension

Answer Location: 14.3. Legal Mistakes Made by Startups

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

5. Once a product is protected by a patent in the United States, the product will be protected from counterfeit by other countries due to international trade agreements.

Learning Objective: 14.5: Assess the global impact of IP theft.

Cognitive Domain: Comprehension

Answer Location: 14.5. Global IP Theft

Difficulty Level: Easy

AACSB Standard: Contexts of organizations in a global society

6. One way that a company can protect its product is by licensing its innovation to a large organization with protection already in place. This inventor then receives royalties.

Learning Objective: 14.6: Describe the common IP traps experienced by entrepreneurs.

Cognitive Domain: Comprehension

Answer Location: Failure to Protect Product and Processes

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

7. Even if an inventor makes significant improvements to another company’s existing product (e.g., changing the way the product is used and solving a problem with the original product), the improved product is still the intellectual property of the original company.

Learning Objective: 14.6: Describe the common IP traps experienced by entrepreneurs.

Cognitive Domain: Comprehension

Answer Location: Inability to Determine Originality

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society.

8. A company with fewer than 50 employees does not have to offer family leave, medical leave, or health insurance.

Learning Objective: 14.7: Explain the legal requirements of hiring employees.

Cognitive Domain: Knowledge

Answer Location: Benefits

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

9. A company must have an EIN before hiring employees.

Learning Objective: 14.7: Explain the legal requirements of hiring employees.

Cognitive Domain: Knowledge

Answer Location: Employer Identification Number (EIN)

Difficulty Level: Easy

AACSB Standard: Contexts of organizations in a global society

10. Every jurisdiction and industry requires a legal filing to set up a business as a sole proprietorship.

Learning Objective: 14.2: Explain the most common types of legal structures available to startups.

Cognitive Domain: Knowledge

Answer Location: Sole Proprietorship

Difficulty Level: Easy

AACSB Standard: Contexts of organizations in a global society

11. In a sole proprietorship, the owner is held personally liable for any problems the business incurs.

Learning Objective: 14.2: Explain the most common types of legal structures available to startups.

Cognitive Domain: Knowledge

Answer Location: Sole Proprietorship

Difficulty Level: Easy

AACSB Standard: Contexts of organizations in a global society

12. Fair use is a clearly defined area in U.S. law with absolute rules and boundaries.

Learning Objective: 14.4: Define IP and how it affects entrepreneurs.

Cognitive Domain: Knowledge

Answer Location: Copyright

Difficulty Level: Easy

AACSB Standard: Contexts of organizations in a global society

13. A sole proprietorship is rarely the correct choice of legal structure for startups.

Learning Objective: 14.2: Explain the most common types of legal structures available to startups.

Cognitive Domain: Comprehension

Answer Location: Sole Proprietorship

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

14. In a general partnership, if one partner is responsible for running the company into the ground, the other partner is not considered liable.

Learning Objective: 14.2: Explain the most common types of legal structures available to startups.

Cognitive Domain: Comprehension

Answer Location: General Partnership

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

15. In a C corporation, the shareholders—not the corporation—are legally liable for a company’s actions.

Learning Objective: 14.2: Explain the most common types of legal structures available to startups.

Cognitive Domain: Comprehension

Answer Location: C Corporation

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

16. Both the C-corp and the S-corp have to deal with double taxation, as there are two levels of tax to pay for both types of legal structures.

Learning Objective: 14.2: Explain the most common types of legal structures available to startups.

Cognitive Domain: Comprehension

Answer Location: S Corporation

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

17. A disadvantage of a C corporation is that it cannot survive after the demise of its owners.

Learning Objective: 14.2: Explain the most common types of legal structures available to startups.

Cognitive Domain: Comprehension

Answer Location: C Corporation

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

18. A common mistake new companies make is to hire employees rather than independent contractors.

Learning Objective: 14.7: Explain the legal requirements of hiring employees.

Cognitive Domain: Comprehension

Answer Location: Hiring a Contractor or an Employee

Difficulty Level: Easy

AACSB Standard: Contexts of organizations in a global society

19. Entrepreneurs may receive legal support from clinics operated at law schools.

Learning Objective: 14.1: Discuss how legal considerations can add value to entrepreneurial ventures.

Cognitive Domain: Knowledge

Answer Location: 14.1. Legal Considerations

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

20. IRS regulations require that an employer keeps records of employment taxes for at least the most recent year.

Learning Objective: 14.7: Explain the legal requirements of hiring employees.

Cognitive Domain: Knowledge

Answer Location: Withholding Taxes

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

21. All states forbid discrimination on the basis of sexual orientation.

Learning Objective: 14.7: Explain the legal requirements of hiring employees.

Cognitive Domain: Knowledge

Answer Location: Equal Employment Opportunity

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

22. All employers have a responsibility to their employees to maintain a safe and healthy workplace environment.

Learning Objective: 14.7: Explain the legal requirements of hiring employees.

Cognitive Domain: Knowledge

Answer Location: Safety Measures

Difficulty Level: Easy

AACSB Standard: Contexts of organizations in a global society

23. In order to entice the best employees, it is advisable to include language in your policies that hints at promises of future employment or benefits.

Learning Objective: 14.7: Explain the legal requirements of hiring employees.

Cognitive Domain: Knowledge

Answer Location: Safety Measures

Difficulty Level: Easy

AACSB Standard: Contexts of organizations in a global society

24. If you issue shares in your company to your employees, you are risking noncompliance with securities law.

Learning Objective: 14.7: Explain the legal requirements of hiring employees.

Cognitive Domain: Comprehension

Answer Location: Compensation in the Form of Equity

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

25. Income tax is triggered any time an individual receives any form of property in exchange for performing services.

Learning Objective: 14.7: Explain the legal requirements of hiring employees.

Cognitive Domain: Comprehension

Answer Location: Compensation in the Form of Equity

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

Essay

1. Bob and Karin founded a luxury health spa located near natural hot springs. They each owned 30% of the company, with the remaining 40% owned by other shareholders. There were many expenses in the first few years, but by year 4, the company was doing well and had a large base of steady customers. Both Bob and Karin work long hours at the spa and work at marketing and operational tasks. Last week, Bob had an offer from a New York entity to build a luxury spa in Upstate New York and was offered a huge salary. Bob is going to take the offer. Describe the legal protections that could keep Karin from assuming all the work while Bob continues to gain benefit of the company’s growth.

Learning Objective: 14.3: Outline the most common legal errors made by startups.

Cognitive Domain: Application

Answer Location: 14.3. Legal Mistakes Made by Startups

Difficulty Level: Medium

AACSB Standard: Application of knowledge

2. Protecting intellectual property is of growing concern to today’s modern entrepreneur. Briefly describe why this is so.

Learning Objective: 14.4: Define IP and how it affects entrepreneurs.

Cognitive Domain: Comprehension

Answer Location: 14.4. Intellectual Property (IP)

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society

3. You have just developed a voice recognition system that will also translate the spoken language into other languages. You are based in the United States but would like to sell the product in Europe and parts of South America. Describe what steps you might take to protect your product.

Learning Objective: 14.5: Assess the global impact of IP theft.

Cognitive Domain: Application

Answer Location: 14.5. Global IP Theft

Difficulty Level: Medium

AACSB Standard: Application of knowledge

4. Steve works for a cement company as an IT contractor. The company does not ask Steve to sign a nondisclosure agreement, but Steve has full access to the company databases and documents. Steve also attends meetings during which a new, fast-drying, and injectable product is openly discussed. A year later, Steve reveals the formula to a competing company and is scheduled to receive royalties. Discuss the legal and ethical issues involved in this action.

Learning Objective: 14.6: Describe the common IP traps experienced by entrepreneurs.

Cognitive Domain: Application

Answer Location: Common IP Traps

Difficulty Level: Medium

AACSB Standard: Application of knowledge

5. Generally, federal law forbids discrimination in the workplace, but there are exceptions. Describe those exceptions.

Learning Objective: 14.7: Explain the legal requirements of hiring employees.

Cognitive Domain: Comprehension

Answer Location: Equal Employment Opportunity

Difficulty Level: Medium

AACSB Standard: Application of knowledge

6. A new business owner is setting up a business and will be opening in 3 months. While she is recruiting for full-time employees, she hires a temporary worker. The worker is only helping out a few days a week and doing odd jobs such as being on the premises when the owner is away, stocking office supplies, and helping arrange office furniture. At the end of the week, the business owner pays the worker the agreed-upon fee of $200. What issues might affect the business?

Learning Objective: 14.7: Explain the legal requirements of hiring employees.

Cognitive Domain: Analysis

Answer Location: Hiring Employees

Difficulty Level: Medium

AACSB Standard: Analytical thinking

7. Bob is a massage therapist working for a company with three employees. After a year, he asks to take a vacation only to find out that vacations are not offered by the company. Bob argues that he is due 2 weeks of vacation based on customary vacations received elsewhere. Discuss the legal, practical, and ethical issues.

Learning Objective: 14.7: Explain the legal requirements of hiring employees.

Cognitive Domain: Analysis

Answer Location: Benefits

Difficulty Level: Medium

AACSB Standard: Analytical thinking

8. Collin obtains a position as a stock clerk where he must stock and distribute office supplies to a group of 250 employees. In his job, he uses a pull cart, ladder, and occasionally must use small hand tools in order to assemble small furniture and office equipment. Discuss safety precautions the employer must take.

Learning Objective: 14.7: Explain the legal requirements of hiring employees.

Cognitive Domain: Application

Answer Location: Safety Measures

Difficulty Level: Medium

AACSB Standard: Application of knowledge

9. Describe the dangers of publicly disclosing your innovation before you have filed a patent application as well as the provisional measure you could take, as long as you’re in the United States, that may provide you some protection.

Learning Objective: 14.6: Describe the common IP traps experienced by entrepreneurs.

Cognitive Domain: Comprehension

Answer Location: Publicly Disclosing Your Innovation

Difficulty Level: Medium

AACSB Standard: Application of knowledge

10. Pick two of the legal structures from the ones covered in the text and compare the advantages and disadvantages.

Learning Objective: 14.2: Explain the most common types of legal structures available to startups.

Cognitive Domain: Analysis

Answer Location: 14.2: Types of Legal Structures

Difficulty Level: Medium

AACSB Standard: Contexts of organizations in a global society