Deck 9: Legal Issues With a New Business

Question 1

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

Answer 1

True

Question 2

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

Answer 2

False

Question 3

Emerging economies are based upon laws.

Answer 3

False

Question 4

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

Question 5

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

Question 6

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

Question 7

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.

Question 8

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.

Question 9

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.

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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.

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

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

Question 22

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.

Question 23

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

Question 24

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

Question 25

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.

Question 26

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.

Question 27

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

Question 28

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

Question 29

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

Question 30

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

Question 31

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

Question 32

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.

Question 33

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.

Question 34

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.

Question 35

________ economies are based on laws.

A)Emerging
B)Depressed
C)Mature
D)Developing

Question 36

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.

Question 37

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.

Question 38

Patents are inexpensive and easy to obtain and maintain.

Question 39

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

Question 40

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.

Question 41

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

A)contract
B)limited partnership
C)corporation
D)warranty

Question 42

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

Question 43

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.

Question 44

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

Question 45

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.

Question 46

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.

Question 47

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

A)premise
B)lease
C)warranty
D)pro forma

Question 48

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

Question 49

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

A)Limited partnership
B)Draws
C)Partnerships
D)Sole proprietorship

Question 50

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

Question 51

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.

Question 52

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

Question 53

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.

Question 54

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.

Question 55

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

Question 56

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.

Question 57

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

Question 58

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.

Question 59

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

A)25
B)50
C)75
D)100

Question 60

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.

Question 61

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

Question 62

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

Question 63

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

Question 64

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

A)Bonding
B)Workers' compensation
C)Limited liability
D)Unlimited liability

Question 65

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.

Question 66

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

Question 67

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

Question 68

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

A)copyright
B)trademark
C)patent
D)watermark

Question 69

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

Question 70

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.

Question 71

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

Question 72

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

Question 73

________ 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

Question 74

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

A)copyright
B)trademark
C)patent
D)watermark

Question 75

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

Question 76

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

Question 77

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

Question 78

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

Question 79

The legal means to protect intellectual property is ________.

A)copyright
B)trademark
C)patent
D)all of these

Question 80

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