Test Bank Chapter 9 Legal Issues With A New Business

Entrepreneurship, 3e (Bamford)

Chapter 9 Legal Issues with a New Business

1) Emerging economies are based upon laws.

2) It is illegal for sole proprietors to run their business by deducting business expenses from their business incomes.

3) A sole proprietorship is where the owner, for legal purposes, is treated the same as the business.

4) In a sole proprietorship, all the income and losses are reported on schedule D of the 1040 tax form. 

5) An advantage of a sole proprietorship is that a business is very easy to form and dissolve because there is virtually no separation between the founder and the business.

6) An advantage of a sole proprietorship is that the owner reaps the benefits and doesn't have to share the equity.

7) One of the advantages as a Subchapter S Corporation is having legitimacy in the market.

8) In a Subchapter C Corporation, it is possible to have a double taxation situation.

9) A contract must always be in written form, and it must be signed by the parties involved.

10) A lease need not specify a length of validity as it is assumed to remain in effect as long as a tenant is able to pay for it.

11) Lease contracts commonly give landlords the right to enter occupying businesses to inspect facilities.

12) If a new business deals with toxic waste such as asbestos, it can expect to be subject to significant regulation, regardless of the size of the firm.

13) If a small business has employees, it must have an EIN (Employer Identification Number).

14) The Americans with Disabilities Act (ADA) applies fully to any firm with more than 15 employees.

15) Any business needs to acquire a license to do business in the county or city where the firm will be operating.

16) The Americans with Disabilities Act requires that there should be no discrimination in the hiring, management, or dismissal of employees with disabilities.

17) In the context of business licenses, a business is required to pay a business license tax that is determined by the number of employees it has.

18) An Employer Identification Number is required of any business that has employees.

19) A copyright can only be claimed on creative works if they are published or made available for public consumption.

20) A trademark is legal protection of intellectual property that is associated with a specific business.

21) A copyright is good for the life of the author plus 70 years.

22) A patent is a claim of intellectual property that covers a specific innovation.

23) A difference between copyrights and patents is that copyrights apply to creative materials generated while patents cover specific innovations that are generally industrial or process-based.

24) A copyright is valid for the life of the author plus 70 years.

25) A trademark cannot be renewed once it has been issued even when the firm or the product is active.

26) Patents are inexpensive and easy to obtain and maintain.

27) A business can obtain liability insurance, which helps protect the business against lawsuit judgments.

28) Bonding is a type of insurance in which the business is covered in case the workers cause any damage in the performance of their work.

29) The insurance coverage obtained by a small business is directly proportional to the cost. As the coverage increases, the cost also increases.

30) Damage from floods and earthquakes is covered by a special form of insurance coverage. A small business owner, who chooses, may purchase it in addition to basic insurance.

31) A business that chooses to form a corporation must have a board of directors. In new small corporations, the board of directors and shareholders must be different individuals.

32) Boards of advisors are composed of key employees who advise a firm.

33) ________ economies are based on laws.

A) Emerging

B) Depressed

C) Mature

D) Developing

34) In the context of legal forms of business, identify a true statement about limited liability partnership (LLP).

A) All partners in a limited liability partnership are jointly responsible for any debts or judgments against the firm.

B) In a limited liability partnership, limited partners can work at the firm but not be active in its management.

C) Limited partners in a limited liability partnership must be external advisors who do not have a stake in the ownership of the firm.

D) General partners in a limited liability partnership are indirectly responsible for federal taxes owed by the firm.

35) A ________ is the simplest form of a business to establish, as the person who owns it and the business itself are treated as the same entity.

A) Subchapter C

B) limited liability corporation

C) limited partnership

D) sole proprietorship

36) Carla and John enter into a partnership and form a business. Under the partnership agreement, Carla is directly responsible for the management of the firm and its liabilities. John has a minor financial stake in the firm and works there, but he is not held responsible for the taxes and debts owed by the firm. In the context of the legal forms of business, Carla and John have formed a ________,

A) limited liability partnership

B) sole proprietorship

C) general partnership

D) Subchapter C Corporation

37) Trilane Systems is a small business. Its owner, Myra, is also its only employee. She handles the business's operations herself and is responsible for all of the business's income and losses. In the context of the legal forms of business, Trilane Systems is a

A) limited liability partnership.

B) sole proprietorship.

C) Subchapter S Corporation.

D) general partnership.

38) In the context of legal forms of business, identify a true statement about sole proprietorship firms.

A) These firms can have multiple founders with equal stakes so long as a single individual is considered to be the owner.

B) Laws governing business practices do not recognize other equity investors, which limits the growth potential of such firms.

C) Because of the limited nature of the growth potential of such firms, any profits they make are exempt from federal taxation.

D) Many communities discourage the formation of these firms because their operations are difficult to regulate.

39) In the context of legal forms of business, a general partner in a limited liability partnership

A) has unlimited liability for any debts or judgments against the firm.

B) is not active in the management of the firm.

C) acts as an independent external advisor to the firm.

D) is not responsible for liabilities owed if the firm goes bankrupt.

40) In the context of legal forms of business, identify an accurate statement about a general partnership.

A) Established partners can bring in new equity partners by surrendering a portion of their ownership position.

B) A single partner operates as the firm's manager and is directly responsible for any debts owed by the firm.

C) Owners report their shares of losses or profits independent of their interest in the firm.

D) The partner with the largest equity stake makes decisions about the firm's operations.

41) James and Mary own a business. When they pay themselves an advance in salary or a bonus, it is called a(n) ________.

A) payout

B) cash out

C) draw

D) expected outlay

42) If a partnership agreement is not developed or signed, the partnership will be ruled by the

A) Small Business Act.

B) Uniform Partnership Act.

C) Fair Labor Act.

D) Sarbanes-Oxley Act.

43) In the context of legal forms of business, which of the following is an area in which sole proprietorships differ from general partnerships?

A) How the firm's income and losses are reported on tax forms

B) Where the liability for the firm's debts and finances rests

C) How much responsibility the owner or owners have for making business decisions

D) The possibility of bringing in new equity partners

44) In the context of legal forms of business, a Subchapter S Corporation

A) gives the owners of the firm virtually unlimited liability for its debts and liabilities.

B) treats the owners of the firm and the firm itself as the same entity.

C) allows the owners to treat the income of the firm as part of their personal incomes.

D) treats the owners of the firm as advisory members with little say in the operations of the firm.

45) When forming a sole proprietorship or a partnership, the business debts are

A) the responsibility of the firm's equity investors.

B) the responsibility of the owners.

C) paid by purchase order.

D) paid the first day of the month.

46) In the context of business designs, one of the advantages of a corporation is that when it suffers losses, the founders will

A) lose only their investment in the business rather than their life's savings.

B) be absolved of responsibility for the debts of the company.

C) be expected to pool their personal finances to rescue the business.

D) surrender control of the company to investors.

47) In the context of legal forms of business, identify a benefit of a Subchapter S Corporation over a Subchapter C Corporation.

A) A Subchapter S Corporation can have a larger number of investors than a Subchapter C Corporation.

B) A Subchapter S Corporation is easier to form than a Subchapter C Corporation.

C) A Subchapter S Corporation generally pays lower taxes than a Subchapter C Corporation.

D) A Subchapter S Corporation has more potential for future expansion than a Subchapter C Corporation.

48) A ________ is an organizational form that treats a firm as a unique entity and is responsible for its own taxes.

A) Subchapter A Corporation

B) Subchapter X Corporation

C) Subchapter B Corporation

D) Subchapter C Corporation

49) All of the following are benefits of a Subchapter C Corporation EXCEPT

A) no limit to the number of shareholders.

B) fringe benefits being treated as income.

C) health benefits paid by the corporation.

D) owners being treated as employees of the company.

50) In a limited liability corporation, a firm can have more than ________ investors.

A) 25

B) 50

C) 75

D) 100

51) Which of the following is the simplest form of business to establish?

A) Limited partnership

B) Draws

C) Partnerships

D) Sole proprietorship

52) A defining characteristic of one of the various forms of organization is that it allows other corporations to hold stock in the company. This type of organization is known as a ________.

A) sole proprietorship

B) Subchapter C Corporation

C) limited liability company

D) Subchapter S Corporation

53) A ________ is an agreement between two parties to perform certain activities for some consideration.

A) contract

B) limited partnership

C) corporation

D) warranty

54) Sea Waves Tours and Avis Travels enter into a formal agreement with each other. Under this agreement, over the next year, Sea Waves Tours will recommend Avis Travels to all its customers. Avis Travels will pay a small commission for every new customer they gain as a result of this recommendation. In this scenario, Sea Waves Tours and Avis Travels have

A) signed a contract with each other.

B) formed a limited liability partnership.

C) entered into a general partnership.

D) created a Subchapter C Corporation. 

55) In the context of partnerships, ________ are funds distributed directly from the business. They are usually in the form of a cash dispersion in advance of salary, bonus, and expected year-end distribution.

A) trademarks

B) patents

C) draws

D) contracts

56) A ________ is a contract where a business will be physically located.

A) premise

B) lease

C) warranty

D) pro forma

57) In a lease, a landowner can enter a business premises for all the following reasons EXCEPT

A) when the landowner wants to manage the rental property.

B) when the landowner wants to inspect it.

C) whenever the landowner wants to.

D) when checking to see if anything is illegal.

58) Which of the following questions should a new business owner examine when considering leases?

A) Who is responsible for maintenance and improvements?

B) Is there an ability to renew the lease?

C) What exactly is the new business owner leasing?

D) All of these

59) Marsciva Technologies is an emerging business. The firm considers the owners to be employees of the firm and therefore pays them salaries and bonuses. To reduce corporate tax, the owners of Marsciva Technologies pay themselves nearly all the profits generated so that very little actual profits are reported by the firm. Based on these characteristics, Marsciva Technologies is most likely a

A) sole proprietorship.

B) limited partnership.

C) Subchapter S Corporation.

D) Subchapter C Corporation.

60) If a small business has employees, the business must have a(n) ________.

A) NAICS Code

B) Employer Identification Number (EIN)

C) U.S. Industry Code

D) Business Rating Code

61) An excellent source of information on rules and regulations a business must comply with can be found at the ________.

A) Local Information Center

B) Chamber of Commerce

C) Government Relations Center

D) Small Business Assistance Center

62) Which of the following law's regulation affects companies with more than 15 employees?

A) The Fair Labor Act

B) The Americans with Disabilities Act (ADA)

C) The Family and Medical Leave Act

D) The Civil Rights Activities Act

63) The Americans with Disabilities Act includes all of the following EXCEPT

A) providing accessibility to people with physical disabilities.

B) preventing dismissal of employees with disabilities.

C) testing people with disabilities.

D) managing people with disabilities.

64) The legal means to protect intellectual property is ________.

A) copyright

B) trademark

C) patent

D) all of these

65) A ________ is a claim of intellectual property that covers a specific invention.

A) copyright

B) trademark

C) patent

D) watermark

66) A ________ is a claim of intellectual property that is associated with a specific business.

A) copyright

B) trademark

C) patent

D) watermark

67) Which of the following items is an example of things that can be trademarked?

A) The name of the firm

B) A symbol representing the firm

C) The names of the firm's products

D) All of these

68) In the United States, where must a patent application be filed?

A) The United States Invention Office

B) The United States Patent and Trademark Office

C) The American Patent and Trademark Office

D) The Patent and Copyright Office

69) Which type(s) of patents is issued by the United States Patent and Trademark Office?

A) Physical invention and process patents

B) Physical invention only

C) Process patents only

D) None of these

70) ________ is a type of insurance in which a business is covered if the workers cause any damage to the performance of the work.

A) Bonding

B) Workers' compensation

C) Limited liability

D) Unlimited liability

71) ________ insurance covers liability for workers who are injured on the job.

A) Bonding

B) Workers' compensation

C) Limited liability

D) Unlimited liability

72) A board of advisors should have both ________ and ________ to assist small business owners.

A) money; legal experience

B) insight; experience

C) money; insight

D) insight; legal experience

73) A ________ is a group formed at the discretion of the founders and composed of individuals outside the small business that advise the firm.

A) board of owners

B) board of trustees

C) board of employees

D) board of advisors

74) A business that chooses to form a corporation is legally required to have a ________.

A) board of owners

B) board of directors

C) board of employees

D) board of advisors

75) What is the major difference between a board of directors and a board of advisors?

A) A board of directors always direct large companies, whereas a board of advisors are usually found in small firms.

B) A boards of directors are individuals from outside the firm, whereas a board of advisors are individuals from inside the firm.

C) A board of directors have fiduciary responsibility, whereas a board of advisors advise the firm.

D) There is no difference between the two.

76) A ________ proprietorship is where a person who owns it and the business are treated as one for legal purposes.

77) A ________ is a business formed between two or more individuals directly.

78) A ________ is an agreement between two parties to perform certain activities for some considerations.

79) A(n) ________ is the legal means to protect intellectual property such as books or other printed materials.

80) A ________ is a claim of intellectual property that covers a specific invention.

81) A ________ is a claim of intellectual property that is associated with a specific business's name or logo.

82) In an organization, a(n) ________ is a group formed at the discretion of the founders and composed of individuals outside the business who advise the founders.

83) Explain the advantages and disadvantages of a sole proprietorship.

84) Briefly describe the types of partners involved in a limited liability partnership.

85) Describe the advantages and disadvantages of a general partnership.

86) Describe the four benefits of a Subchapter S Corporation.

87) In the context of legal business entities, briefly describe a Subchapter C Corporation and identify one of its important features.

88) List and describe the required elements of a legal contract.

89) Describe a few issues that a new business owner needs to consider in leasing.

90) Explain the difference between copyright, trademark, and patent.