Deck 6: Protecting the Idea and Other Legal Issues for the Entrepreneur

Question 1

As shown in the Opening Profile, building an organization often takes not only commitment and dedication by the founder and/or CEO but also finding the right people to serve on the company's management team and then giving them the freedom to make decisions.

Answer 1

True

Question 2

By definition, the sole proprietor has unlimited liability, controls all decisions, and receives all profits of the business.

Answer 2

True

Question 3

The sole proprietorship: In most provinces, the law requires that if business is carried on under a name other than the actual name of the owner, the name must be registered.

Answer 3

True

Question 4

In a sole proprietorship, the death of the owner results in the termination of the business

Question 5

Two or more people combining resources to start a company is known as a dual proprietorship

Question 6

In a partnership, if a partner purchases a building in his name and the partners then use the building for business purposes, the building actually becomes partnership property.

Question 7

Discuss the role of the board of directors for a corporation in today's business environment.

Question 8

Incorporated companies are considered to be separate legal entities, run by shareholders who have limited liability.

Question 9

The difference between a public corporation and a closely held corporation is that the shares of a closely held corporation are generally worth more and command a higher price when traded on the open stock market.

Question 10

Closely held corporations provide limited liability from lawsuits due to negligence and protection against some creditors, but the owners often have to become personally liable for some debt of the company.

Question 11

For the proprietorship, new capital can come only from loans by any number of sources: Often, an entrepreneur will take a second mortgage on his or her home as a source of capital.

Question 12

In the corporation, new capital can be raised in a number of ways-the alternatives are More restricted than in any of the other legal forms of business

Question 13

Proprietors receive all distributions of profits from the business. In the partnership, the distribution of profits and losses depends on the partnership agreement.

Question 14

For the proprietorship, Canada Revenue Agency (CRA) treats the business as the individual owner. All income appears on the owner's return as personal income.

Question 15

Canada Revenue Agency (CRA); Tax; corporations pay a higher tax rate than individuals, and dividends received by shareholders are also taxed at a much higher rate than other sources of income.

Question 16

Important to organizational design and staffing is the entrepreneur's ability to lead and manage his employees. Leadership is a skill that occurs naturally in some people, and (according to the text author) cannot be taught.

Question 17

As organizations grow and evolve, the entrepreneur's focus changes from doing everything to managing, supervising, and making decisions.

Question 18

In building a successful organizational culture, managers need to lead and be role models for their employees.

Question 19

Spending extra time when hiring employees rarely pays off for an entrepreneur as their time is often better spent managing and training employees on how to do the job properly in the first place.

Question 20

The purpose of the board of directors or advisers is important and they provide important leadership and direction for the new venture - participants should be carefully chosen.

Question 21

There are three basic legal forms of business formation,

A) (1) proprietorship, (2) general partnership, and (3) special partnership.
B) (1) proprietorship, (2) partnership, and (3) corporation.
C) (1) proprietorship, (2) private corporation, and (3) public corporation.
D) (1) proprietorship, (2) sole partnership, and (3) proprietary corporation.
E) None of the answers apply.

Question 22

Closely held corporations are much more common than __________.

A) public corporation
B) proprietary corporation
C) sole partnership
D) corporate governance
E) None of the answers apply.

Question 23

The proprietorship form of business has a single owner who has __________.

A) unlimited liability
B) controls all the decisions
C) receives all the profits
D) All of the answers are correct.

Question 24

A partnership consists of two or more people combining resources to start a company. Most partnerships are __________.

A) will vary according to how much resources are committed to the project
B) will change once the business moves from the planning phase to the operations phase
C) general partnerships where the owners have unlimited liability
D) of relatively minor consequence
E) None of the answers apply.

Question 25

When evaluating the different organizational structures, an entrepreneur will use which of the following criteria?

A) liability of owner(s)
B) costs of starting the business
C) continuity of the business
D) transferability of interests
E) All of the answers are correct.

Question 26

Which of the following is not one of the criteria used by entrepreneurs when evaluating the different organizational structures for the new venture?

A) liability of owner(s)
B) management control
C) transferability of interests
D) organizational culture
E) capital requirements

Question 27

Some customers prefer to do business with a __________ because this form of business is sometimes viewed as a more stable form than the others.

A) proprietorship
B) limited partnership
C) full partnership
D) corporation
E) None of the answers apply.

Question 28

As defined in the text, a form of business with a single owner who has unlimited liability, controls all decisions, and receives all profits is known as a(n) __________.

A) proprietorship
B) partnership
C) closely held corporation
D) public corporation
E) None of the answers apply.

Question 29

Discuss the recommendations made in the text on recruiting and hiring employees.

Question 30

As defined in the text, two or more individuals having unlimited liability who have pooled resources to own a business would be known as a __________.

A) proprietorship
B) dual proprietorship
C) partnership
D) closely held corporation
E) None of the answers apply.

Question 31

In Canada, partnerships are governed by the __________, which outlines the rights and duties of partners towards one another.

A) Competition Act
B) Partnership Act
C) Forms of Business Act
D) Articles of Incorporation Act
E) None of the answers apply.

Question 32

By law in Canada, unless specified by a partnership agreement to the contrary, all money and property brought into or acquired by the partnership __________.

A) is shared in proportion to the contributions made by the partners
B) is held in separate trust for the contributor(s) should the partnership dissolve in the future
C) becomes partnership property
D) is capitalized at fair market value to be shared by partners in proportion to their contributions and role in the firm
E) None of the answers apply.

Question 33

What form of business ownership is the best for raising capital.

Question 34

Discuss the challenges associated with the death of an entrepreneur who operates as a sole proprietor.

Question 35

Discuss the issues an entrepreneur need to consider when designing the organization of their business.

Question 36

As discussed in the text, limited partnerships are not common in Canada for which of the following reasons?

A) Closely held corporations offer most of the same benefits with fewer restrictions.
B) The disclosure regulations are too complex and demanding.
C) Canadians tend to distrust complex legal structures such as limited partnerships.
D) Canadian taxation policies are heavily weighted against them.
E) None of the answers apply.

Question 37

As discussed in the text, lawyers and chartered accountants in Canada tend to favour the __________type of organizational structure.

A) proprietorship
B) partnership
C) limited liability partnership
D) closely held corporation
E) public corporation

Question 38

It is important to note that limited partners cannot actively participate in the management of the firm; if a partner does participate he would become a general partner and lose his __________.

A) multi-proprietorship
B) limited liability partnership
C) limited liability status.
D) profits
E) None of the answers apply.

Question 39

As defined in the text, a separate legal entity that is run by a number of shareholders having limited liability, and whose shares are usually actively traded on a public exchange is known as a__________.

A) multi-proprietorship
B) limited liability partnership
C) public corporation
D) closely held corporation
E) None of the answers apply.

Question 40

As defined in the text, a separate legal entity that is run by a few shareholders having limited liability, and whose shares are rarely traded is known as a __________.

A) multi-proprietorship
B) limited liability partnership
C) public corporation
D) closely held corporation
E) None of the answers apply.

Question 41

The primary difference between a public and closely held corporation results in which of the following?

A) Closely held corporations tend to be larger and more profitable.
B) Publicly traded corporations must abide by the disclosure rules of the securities act in their jurisdiction.
C) Closely held corporations have less liability issues to worry about.
D) Closely held corporations are more attractive to investors.
E) None of the answers apply.

Question 42

To an entrepreneur, the problem with using the closely held corporation form of business is__________.

A) lenders will still require personal guarantees on start-up capital, thus increasing the liability of the owner
B) the high cost of maintaining compliance with disclosure regulations
C) lenders will still require personal guarantees on start-up capital, thus reducing the liability of the owner
D) the difficulty in finding limited partners that want to assume responsibility for the venture
E) None of the answers apply.

Question 43

In a corporation, ownership is reflected by __________.

A) the way the company chooses to do business
B) ownership of shares of stock in the company
C) control of the board of directors
D) control of senior management within the company
E) None of the answers apply.

Question 44

If liability was a concern when establishing a new venture, an entrepreneur would most likely use the__________ form of organizational structure.

A) proprietorship
B) limited partnership
C) corporation
D) income trust
E) None of the answers apply.

Question 45

To contain or limit liability within a partnership, the company will __________.

A) ask each partner to contribute more than they need to operate the company and set it aside just in case
B) designate some partners as being more liable than others, in exchange for a greater share of the profits
C) set up an income trust to act as a contingency fund against potential lawsuits
D) buy insurance against liability suits
E) None of the answers apply.

Question 46

As discussed in the text, it is highly advisable that entrepreneurs create and sign a partnership agreement upon the commencement of their partnership for which of the following reasons?

A) verbal agreements rarely stand up in a court of law
B) without a specific partnership agreement, the business must follow the rules outlined in the Partnership Act
C) lawyers will rarely provide advice without something in writing
D) it is a legal requirement of most Canadian provinces
E) None of the answers apply.

Question 47

Discuss the characteristics, advantages, and disadvantages of the corporation as an organizational structure.

Question 48

In Canada, a corporation can be created only by __________.

A) filing for a business or trade name with the appropriate authority
B) written legal agreement between shareholders
C) filing article of incorporation under a provincial or federal statute
D) partnership agreement to list with the securities commission
E) None of the answers apply.

Question 49

As discussed in the text, the best advice to an entrepreneur when starting their venture is to__________.

A) get financing in place before the business plan is finished, it will speed things up considerably
B) complete the marketing plan first to see if the venture is viable
C) get legal advice before you start the business, not when a problem develops after the fact
D) keep your plans confidential until you know the venture is ready to go
E) None of the answers apply.

Question 50

Discuss the characteristics, advantages, and disadvantages of the partnership as an organizational structure.

Question 51

In a sole proprietorship, __________.

A) there are strict time limits on how long they may exist, which vary by province
B) profitability is the only determinant of longevity
C) the death of the owner results in the termination of the business
D) the business can be carried on only by the owner's children or spouse
E) None of the answers apply.

Question 52

With regards to transferability of interest, a sole proprietor may __________.

A) choose to sell or transfer the assets of the business, but not the business itself
B) sell the business as a going concern for whatever someone is willing to pay
C) pass the business only to their children or spouse
D) avoid tax liabilities by lending another proprietor the money to purchase the assets of the business
E) None of the answers apply.

Question 53

Discuss the characteristics, advantages, and disadvantages of the sole proprietorship as an organizational structure.

Question 54

Transferability of interest for a closely held corporation may be a problem for which of the following reasons?

A) In Canada, no restrictions may be placed on the selling of shares in corporations.
B) There may be difficulty in finding someone who wants to purchase the shares, knowing that they would have little input in running the company.
C) In Canada, there are laws in place to prevent excessive concentration of ownership within corporations.
D) Selling shares in this form of corporation requires the consent of all other majority shareholders.
E) All of the answers are correct.

Question 55

For a sole proprietor, new capital can come from either their own additional personal contributions or__________.

A) through the issuing of shares conveying part-ownership in the company
B) through borrowing
C) additional contributions from limited partners
D) through the selling of existing shares in the company
E) All of the answers are correct.

Question 56

The need for capital during the early months of a new venture can become one of the most critical factors in keeping the new venture alive. In the partnership, loans may be obtained from banks but will likely require a change in the partnership _______________

A) proprietorship
B) agreement
C) profits
D) expenses
E) None of the answers apply.

Question 57

Suppliers may prefer to deal with profit-making organizations rather than nonprofit companies; why?

Question 58

Some entrepreneurs see the process of building a board of advisers as being overwhelming. After all, they may be just starting their business or spending all their time managing their enterprise. If this is the case and they forgo a board, they should consider enlisting the support of a _________________.

A) different family members
B) loyal employees who are willing to work for less than the going rate
C) family members
D) mentor
E) All of the answers are correct.

Question 59

With regards to corporate boards of directors, the purpose of new legislation passed by the Ontario Securities Commission and the Canadian Dealers Association is to __________.

A) restrict board activities to corporate governance issues only
B) establish more independent functioning boards
C) remove limits on liabilities of shareholders if they are involved in illegal practices
D) restrict board membership to only those who have a vested interest in the success of the company
E) All of the answers are correct.

Question 60

In terms of management control, in a partnership, __________.

A) democracy rules as every partner participates in decision making
B) the senior partners have the most decision making authority
C) only the managing partner can break a decision deadlock
D) majority rules unless otherwise specified in a partnership agreement
E) None of the answers apply.

Question 61

As discussed in the text, a strong board of directors should provide entrepreneurs with which of the following?

A) access to people and capital
B) credibility
C) strategic thinking
D) education and mentoring
E) All of the answers are correct.

Question 62

Which of the following statements regarding management control and a corporation is(are) true?

A) When a corporation is new and small, there is a greater likelihood that the majority shareholders will also manage the company.
B) Shareholders may indirectly affect the operation of the business through the elected board of directors.
C) As the corporation grows in size, there is greater separation between management and control.
D) Control over major long-term decisions may require a vote of the major shareholders.
E) All of the answers are correct.

Question 63

The ability of an entrepreneur to raise capital depends upon __________.

A) the success of the business
B) the personal capabilities and character of the entrepreneur
C) the amount of personal liability in the venture
D) All of the answers are correct.

Question 64

For the proprietorship, Canada Revenue Agency (CRA) treats the business as the individual owner. All income appears on the owner's return as __________.

A) bonds
B) tax credits
C) Personal income
D) interest
E) All of the answers are correct.

Question 65

For tax purposes, income from the proprietorship __________.

A) is regarded by the Canada Revenue Agency as having been generated by a separate tax entity
B) appears on the owner's return as personal income
C) is treated as distinct from the owner's and is taxed twice
D) can be used to offset losses from other investments
E) None of the answers apply.

Question 66

Which of the following forms of business has the advantages of not being subject to double taxation when profits are distributed to the owner and business losses may be used to offset other income?

A) proprietorship
B) partnership
C) corporation
D) Proprietorship and partnership
E) All of the answers are correct.

Question 67

For a proprietorship, home office expenses are treated differently from other business expenses in which of the following ways?

A) home office expenses are more stringently controlled than other business expenses
B) home office expenses may only be used to offset business income
C) home office expenses are subject to audit if claims are deemed to be excessive
D) losses created by home office expenses may not be carried forward to offset future income
E) None of the answers apply.

Question 68

As discussed in the text, both partnerships and proprietorships are organizational forms that__________.

A) serve as nontaxable conduits of income and deductions
B) have limited liability
C) have separate legal identities used only for accounting purposes
D) serve as nontaxable conduits of income and deductions and have separate legal identities used only for accounting purposes
E) None of the answers apply.

Question 69

Which of the following statements regarding partnerships and distribution of income is(are) true?

A) Income serves as the basis for determining the share of each partner.
B) Income is distributed based on the partnership agreement.
C) Partners report their share as personal income and are taxed at the regular rate.
D) All of the answers are correct.
E) None of the answers apply.

Question 70

It is especially important for partnerships to report income since this serves as the basis for determining each partner's ______________.

A) Profit deductions
B) Tax expenses.
C) Promotion fees
D) Share
E) None of the answers apply.

Question 71

Which of the following statements regarding distribution of income of corporations is(are) true?

A) Corporations pay a lower rate of tax than individuals.
B) Dividends received by shareholders are taxed at a lower rate than other sources of income.
C) Corporations are able to claim more deductions and expenses than proprietorships and partnerships.
D) All of the answers are correct.
E) None of the answers apply.

Question 72

From strictly a taxation perspective, the most favourable form of business structure in Canada would be a__________.

A) proprietorship
B) partnership
C) corporation
D) limited partnership
E) None of the answers apply.

Question 73

As a venture grows from start-up to a successful business, the challenge for an entrepreneur is to__________.

A) change the organizational structure to accommodate the greater workload
B) retain decision making authority and responsibility
C) maintain the organizational culture of an aggressive start-up new to the market
D) maintain control over expenses
E) None of the answers apply.

Question 74

As discussed in the text, stage 1 of an organization's development is characterized by which of the following?

A) The business is essentially operated by one person, usually the entrepreneur.
B) The business is managed by the entrepreneur, with decision making authority delegated to managers.
C) The business is managed by professional managers, with a formal chain of command with decision making authority.
D) The business is overseen by a board of directors, with professional managers responsible for the day to day operations.
E) None of the answers apply.

Question 75

As discussed in the text, stage 2 of an organization's development is characterized by which of the following?

A) The business is essentially operated by one person, usually the entrepreneur.
B) The business is managed by the entrepreneur, with decision making authority delegated to managers.
C) The business is managed by professional managers, with a formal chain of command with decision making authority.
D) The business is overseen by a board of directors, with professional managers responsible for the day to day operations.
E) None of the answers apply.

Question 76

As a new venture grows, the role of entrepreneur changes to become more of a(n) __________.

A) adaptor
B) allocator of resources
C) negotiator
D) problem solver
E) All of the answers are correct.

Question 77

The board of directors of a corporation __________.

A) lacks voting authority
B) have a responsibility to represent all shareholders
C) tend to be less objective than the entrepreneur
D) are normally senior managers of the company
E) All of the answers are correct.

Question 78

When attempting to build a successful organizational culture, it is important for the entrepreneur to remember that __________.

A) it is easier to change a person's attitude than their behaviour
B) nobody works as hard as the owner
C) it is easier to change a person's behaviour than their attitude
D) the more that you ask from someone, the more you will get
E) None of the answers apply.