Deck 42: Law for Small Businesses

Question 1

A key consideration in starting up a business is whether the business form chosen will limit personal liability for business obligations.

Answer 1

True

Question 2

A limited liability company's limited liability may be lost by contract.

Answer 2

True

Question 3

To protect trade secrets, a company can require its employees to agree not to divulge those secrets.

Answer 3

True

Question 4

A limited liability company has more legal flexibility than a corporation.

Question 5

The law considers all new, single-owner businesses to be limited liability companies un?less the owner affirmatively adopts some other form.

Question 6

All states permit a businessperson to operate as a limited liability company.

Question 7

Without copyright or patent protection for a product, a competitor can copy it.

Question 8

Corporate income is taxed twice unless it is distributed to shareholders.

Question 9

In a general partnership, the general partners have no limited liability.

Question 10

A corporate records book contains memos relating to sales meetings.

Question 11

A trademark can be similar to another's distinctive or famous mark.

Question 12

A trademark should be registered with both the federal and state governments.

Question 13

Registration is required to have a national right to a particular trademark.

Question 14

Filing in a state office is not required to incorporate.

Question 15

The chief factor in deciding whether to retain an attorney is the cost.

Question 16

A sole proprietorship's profits are taxed be?fore expenses are deducted, and the owner's profit is taxed on his or her personal return.

Question 17

It costs nothing to establish a limited partnership.

Question 18

All corporate business forms offer limited liability to their owners.

Question 19

Allowing others to use a trademark without protesting that use can con?sti?tute abandonment of the mark.

Question 20

Limited liability organizations protect only business debts.

Question 21

A corporate agent is not personally liable on a contract entered into on the corporation's behalf unless the agent expressly agrees to such liability.

Question 22

Key-person insurance helps to cover business losses caused by the death of the employee who "turns the key" to open a business each working day.

Question 23

No capital can be raised through an offering of stock without registering the shares as securities with the Securities and Exchange Commission.

Question 24

The regulations of the Occupational Safety and Health Administration have no small business exemptions.

Question 25

Hiring independent contractors avoids the application of laws governing employment relationships.

Question 26

Use of your name or a description of your product as a trademark pro?vides the strongest protection against infringement.

Question 27

In a public offering, a certain number of shares are offered at a set price to members of the public.

Question 28

A shareholder agreement defines the owners' rights and interests.

Question 29

When a worker is fired, severance pay is required.

Question 30

A business organization with only two owners does not need an agreement to define their ownership rights and interests.

Question 31

Some contracts must be evidenced by a writing to be enforceable.

Question 32

Misclassifying an employee as an independent contractor can result in considerable tax liability imposed on an employer.

Question 33

A right of first refusal permits a shareholder to refuse to sell his or her shares to the corporation that issued them.

Question 34

In a private offering, capital is raised through a private placement memorandum distributed to select potential investors.

Question 35

A buy-sell agreement establishes the criteria for the price to be paid a shareholder for his or her ownership interest.

Question 36

Independent contractors are not considered to be employees.

Question 37

Typically, in exchange for a loan, a bank will demand operational control over a company.

Question 38

Generally, no employment agreement should be in writing.

Question 39

A shareholder agreement defines relative ownership rights and interests.

Question 40

An employer's promises of job security are never binding.

Question 41

Chuck and Dolph are partners in Eden Apartments, a new general partnership and business enterprise. As general partners, Chuck and Dolph are subject to

A) liability limited to the amount of their investment in Eden.
B) liability limited to the deductible on Eden's insurance policy.
C) no liability.
D) personal liability for Eden's debts and obligations.

Question 42

Pam opens Quik Xpress, a local delivery service. Unless Pam expressly adopts a certain form of business organization, the law considers Quik to be

A) a corporation.
B) a limited liability company.
C) a partnership.
D) a sole proprietorship.

Question 43

Reb wants to start a new business enterprise. Shari is an accountant. Reb most likely needs to consult Shari because

A) an accountant can be less expensive than an attorney.
B) bookkeeping errors can provoke litigation.
C) ignorance of the law is a defense against liability.
D) keeping up with laws that govern business conduct is difficult.

Question 44

Misha operates Napa Valley Runners, an athletic equipment shop, as a sole proprietorship. Taxes on the business's income are paid by

A) Misha and the business.
B) Misha only.
C) neither Misha nor the business.
D) the business only.

Question 45

B2B, Inc., an inventory management firm, is a corporation. Cody is one of B2B's owners-a shareholder. If Cody's dies, B2B

A) automatically terminates.
B) continues in business.
C) dissolves unless the other owners agree to continue.
D) distributes Cody's shares to the other shareholders.

Question 46

Howie operates Island Burger Restaurant as a corporation. A customer slips and breaks her ankle in the restaurant and is awarded damages by a court. Those damages must be paid by

A) Howie only.
B) Island Burger only.
C) Howie and Island Burger.
D) neither Howie nor Island Burger.

Question 47

Hopper wants to start Ice Rinx as a new business enterprise. Josh is an attorney. Hopper most likely needs to consult Josh because

A) ignorance of the law is a defense against liability.
B) it adds credibility with potential investors and lenders.
C) keeping up with laws that govern business conduct is difficult.
D) managing accounts receivable and accounts payable is critical.

Question 48

Philo wants to start a new business enterprise. Because it is difficult, if not impossible, to keep up with the many legal rules that govern business conduct, Philo most likely needs to consult

A) an accountant.
B) an attorney.
C) an experienced small-business owner.
D) a partner.

Question 49

Jess and Kaley own and operate Little Tykes, a small-business enterprise. Little Tykes pays taxes on its profits, and Jess and Kaley pay taxes on the profits that are afterwards distributed to them. Little Tykes is

A) a corporation.
B) a limited liability company.
C) a partnership.
D) a sole proprietorship.

Question 50

Gibby operates Happy Campin', a resort on Idle Lake, as a limited liability company. This form of business organization protects from liability Gibby's

A) business and personal assets.
B) business assets only.
C) neither business nor personal assets.
D) personal assets only.

Question 51

Quia and Rafi form SA, LLC, a limited liability company, to operate Superior Athletics, a fitness center. Compared to a sole pro?prietorship and a general partnership, a limited liability company has limited

A) business purposes.
B) investment opportunities.
C) personal liability.
D) requirements.

Question 52

Stef is starting a small machine shop-Thunder Road Hydraulics-and is considering whether to organize the business as a limited liability company or a lim?ited liability partnership. Both forms

A) do not limit their owners' personal liability for business debts.
B) limit their owners' personal liability for business obligations.
C) obviate the need to obtain insurance for business liability risks.
D) require their owners to obtain insurance for business liability risks.

Question 53

Dave is opening an office as EZ Property Management Company. An attorney may provide legal services to Dave and EZ in exchange for

A) an equity stake in EZ, but not a promise of its future legal business.
B) an equity stake in EZ or a promise of its future legal business.
C) a promise of EZ's future legal business, but not an equity stake in the firm.
D) neither an equity stake in EZ nor a promise of future legal business.

Question 54

Joy and Kersey want to open a magic and novelty shop as Jo-Kers, with a plan to open other shops in the future. To attain limited li?ability for the lowest cost and the fewest start-up formalities, their best op?tion is to form

A) a corporation.
B) a limited liability company.
C) a limited partnership.
D) a sole proprietorship.

Question 55

Josh and Kya form Longview Associates, a limited part?nership, to invest in real estate. Compared to a sole proprietorship and a general partnership, a limited partnership has limited

A) business purposes.
B) investment opportunities.
C) personal liability.
D) requirements.

Question 56

Darcy and Eigen own and operate a small-business enterprise that does not pay taxes on its profits, but distributes them to Darcy and Eigen who pay taxes on these amounts as their individual income. Darcy and Eigen's personal liability for the firm's debts and obligations is limited. This firm is

A) a corporation.
B) a general partnership.
C) a limited liability company.
D) a sole proprietorship.

Question 57

Lee wants to begin importing athletic shoes under the corporate name Mercury, Inc. Mercury should include most of its corporate rules in

A) the articles of incorporation.
B) the bylaws.
C) the corporate charter.
D) the minutes of the first meeting of the board of directors.

Question 58

Rachel wants to open Star Ad Agency with the assistance of an attorney. To find an attorney, Rachel could

A) ask other small businesspersons.
B) look in a telephone directory.
C) review listings in the Martindale-Hubbell Law Directory.
D) all of the choices.

Question 59

Dana and Etta operate Fast Bikes, a bicycle shop, as a part?nership. Taxes on the business's income are paid by

A) Dana and Etta only.
B) Dana, Etta, and the business.
C) not Dana, Etta, or the business.
D) the business only.

Question 60

Bro wants to incorporate Chop Shop, a motor vehicle repair business. Incorpora?ting requires filing, with the appropriate state office,

A) a copy of the corporate liability insurance policy.
B) a corporate name.
C) corporate bylaws.
D) nothing.

Question 61

National Standard Company (NSC) products are identified with a trade?mark. For several years, NSC al?lows others to use the mark without permission and without protest. This may consti?tute, on NSC's part,

A) abandonment of the mark.
B) anticompetitive conduct.
C) liability for misleading consumers.
D) liability for misleading competitors.

Question 62

The three shareholders of Omega, Inc., want to prevent each other from sell?ing the shares to third parties without first being given the opportu?nity to buy them. The shareholders can provide for this in

A) a buy-sell agreement that includes a right of first refusal.
B) a buy-sell agreement that includes a "take-along" clause.
C) a key-person clause that specifies who can sell what to whom.
D) a stop-and-desist clause that dissolves the firm on a sale of shares.

Question 63

Klee wants to make and sell a computer operating system under a trade?mark. To obtain the most protection under the law, Klee should choose a mark that is

A) distinctive.
B) similar to an existing mark.
C) the same as an existing mark.
D) non-distinctive.

Question 64

Nick designs a new office-management software program and incorpo?rates Nick's Niche, Inc., to make and market it. To sell a limited number of shares of stock to the public, the firm must register the shares with

A) a lawyer with securities law expertise.
B) a venture capitalist.
C) the Securities and Exchange Commission.
D) the U.S. Patent and Trademark Office.

Question 65

Nero opened Oh! Fudge!, a candy store, as a corporation. When doing busi?ness on behalf of the store, to avoid personal liability, Nero should sign contracts

A) as an express agent for the corporation.
B) as an express party to the contract.
C) as an express agent and a party to the contract.
D) under a false name.

Question 66

Payroll Services Company is a small business with ten employees. The regulations of the Occupational Safety and Health Administration exempts

A) all small businesses.
B) businesses for whom penalties would be difficult to absorb.
C) businesses with fewer than fifteen employees.
D) no small businesses.

Question 67

Huck decides to open Italian Place as a restaurant and operate the business as a corporation. At the directors' initial meeting, the directors may

A) adopt articles of incorporation only.
B) adopt bylaws only.
C) choose a corporate name only.
D) adopt articles of incorporation, adopt bylaws, and choose a name.

Question 68

Mick starts a business to market nationally long-distance phone time as Mick's Minutes. Registering his trademark with the U.S. Patent and Trademark Office provides nationwide protection for the mark

A) only if the mark is currently in use.
B) only if the mark is not yet in use but will be within six months.
C) if the mark is currently in use or will be in use within six months.
D) under any circumstances.

Question 69

Bild-It-Rite Corporation uses independent contractors. Bild-It-Rite can

A) be sued by a contractor for a violation of discrimination laws.
B) exercise little control over how the contractors perform.
C) obtain workers' compensation insurance for the contractors.
D) withhold income taxes from payments to the contractors.

Question 70

Demi operates Eyes Wide Open, a small-business optician enterprise. To raise capital, Demi contacts Foster, a venture capitalist. Besides capital, Foster will most likely

A) assist in the drafting of a business plan.
B) decline a proportion of future profits.
C) offer assistance with respect to marketing.
D) refrain from demanding operational control.

Question 71

Fay wants to incorporate her video game store as Game Ball, Inc., and files the name with the Idaho secretary of state. With approval, Fay can use the name

A) in Idaho only.
B) in Idaho and the states that border it only.
C) throughout the United States.
D) throughout the world.

Question 72

When Chez Cheese Company is incorporated in Delaware, the state agency with which the business name is filed approves Chez Cheese's name as a trade name. This approval is le?gal permission to own the name

A) only in Delaware.
B) only in the United States.
C) only in the United States and other countries in North America.
D) throughout the world.

Question 73

Global Tours, a travel agency, is a limited liability company. Global is ex?empt from legal requirements that relate to

A) business name registration.
B) occupational licensing.
C) state tax registration.
D) none of the choices.

Question 74

To protect its trade secrets, Innovative Processes, Inc. (IPI), may require employees that have access to the secrets to agree in their employment contracts not to

A) compete with IPI.
B) memorize the trade secrets.
C) quit working for IPI.
D) think about the trade secrets after work.

Question 75

Select Sales Company's offer of shares of stock in itself to anyone who is willing to pay $60 per share is

A) a private offering.
B) a private offering and a public offering.
C) a public offering.
D) neither a private offering nor a public offering.

Question 76

Rudy operates Silver Buckles, a small-business equine enterprise. To raise capital, Rudy contacts Thad, a venture capitalist. Besides capital, Thad will most likely

A) assist in the drafting of a business plan.
B) decline a proportion of future profits.
C) offer assistance with respect to business strategy.
D) refrain from demanding operational control.

Question 77

Mabel and Nahim want to start up and incorporate a new business enterprise. The first step in the incorporation process is to

A) choose and file a corporate name with a state office.
B) draft the bylaws to govern the corporation.
C) hold an initial board of directors' meeting.
D) prepare and file articles of incorporation with a state office.

Question 78

Loudon Machinery, Inc., wants to fire its employee Newt, who is an at-will employee. This means that Newt can be fired

A) for any reason or no reason.
B) for cause only.
C) only if Newt agrees to quit.
D) under no circumstances.

Question 79

Valley Winery Corporation's attempt to raise $1 million from a few select inves?tors is

A) a buy-sell agreement.
B) a key-person investment.
C) a private offering.
D) a public offering.

Question 80

Sally's Salon & Day Spa hires only independent contractors such as Tina as workers. This hiring practice allows the employer to avoid

A) all laws governing employment relationships.
B) all laws governing employment relationships except tax-withhold?ing requirements.
C) all laws governing employment relationships except those prohib?it?ing employment discrimination.
D) no laws governing employment relationships.