Question 1

Some corporations give their boards of directors the authority to bind the companies into contracts.

Accepted Answer

False

Question 2

When choosing an official name, every company has to receive an approval from its respective state regulatory board.

Accepted Answer

Not every company requires state regulatory board approval for its name; requirements vary by jurisdiction and type of business entity.

Question 3

There are conditions under which a corporation can be taxed as a partnership.

Accepted Answer

This can occur if a corporation elects to be treated as an S corporation, which allows it to pass income, losses, deductions, and credits through to its shareholders for federal tax purposes, similar to a partnership.

Question 4

Business angels prefer to invest in sole proprietorships.

Accepted Answer

Business angels typically prefer to invest in companies with scalable business models and a clear exit strategy, which are more often found in corporations or limited liability companies rather than sole proprietorships.

Question 5

The corporate opportunity doctrine basically claims that a director cannot use his position to decide which acquisition deals the company should enter to.

Accepted Answer

The corporate opportunity doctrine prohibits directors and officers from taking personal advantage of business opportunities that belong to the corporation without offering the corporation the opportunity to pursue them first. It does not specifically relate to deciding which acquisition deals the company should enter.

Question 6

Legally, an employee may not compete with his or her employer.

Accepted Answer

Employees have a duty of loyalty to their employer, which generally prohibits them from competing with their employer during the term of their employment.

Question 7

You can use any information you gathered at your previous job as long as it is not patented or copyright protected.

Accepted Answer

Using information from a previous job can violate confidentiality agreements, trade secret laws, or non-disclosure agreements, regardless of whether the information is patented or copyright protected.

Question 8

Persuading your co-workers to leave your employer is not very risky, as long as their defections do not impact the company's ability to function and the conversations are occurring after working hours.

Accepted Answer

The answer of Persuading your co-workers to leave your employer...

Question 9

Corporations do not necessarily operate in the same state where they were formed.

Accepted Answer

Corporations can be formed in one state and operate in another, or multiple other states, through the process of foreign qualification.

Question 10

Certain states do not enforce non-compete agreements.

Accepted Answer

Some states, such as California, have laws that significantly limit or outright prohibit the enforcement of non-compete agreements, considering them to be restrictions on an individual's right to engage in their chosen profession or trade.

Question 11

Double taxation is not necessarily a problem for a company.

Accepted Answer

Double taxation, often associated with the taxation of corporate income at both the corporate level and again at the shareholder level when dividends are distributed, is not necessarily a problem for all companies. Some businesses can mitigate this through tax credits, deductions, and corporate structures such as S corporations or LLCs that allow profits to be taxed only at the individual level, avoiding corporate taxes. Additionally, the impact of double taxation can vary depending on the company's specific financial situation, tax planning strategies, and the jurisdictions in which it operates.

Question 12

National statutes prohibit employment discrimination on the basis of sex, race, nationality, religion, sexual orientation, age, and disability.

Accepted Answer

The answer of National statutes prohibit employment discrimination on the...

Question 13

The number of workers you draw from your former employer to your new company does not matter from the viewpoint of liability.

Accepted Answer

The number of workers you draw from your former employer to your new company can matter significantly, as it may lead to legal issues such as claims of unfair competition, breach of contract, or misappropriation of trade secrets, depending on the circumstances and the jurisdiction.

Question 14

S corporations have the same restrictions as the LLCs, while allocating profit, loss and control more creatively.

Accepted Answer

S corporations have more restrictions on ownership and profit allocation than LLCs, including limits on the number and type of shareholders and the requirement to allocate profits and losses in proportion to ownership shares. LLCs offer more flexibility in profit distribution and management structure.

Question 15

Although formally there is only one owner in the sole proprietorship, two or more people control the company.

Accepted Answer

In a sole proprietorship, only one individual owns and controls the company, making all the decisions regarding its operations.

Question 16

It is illegal to sue a former employee's startup for using trade secrets if such a lawsuit can ruin the new venture.

Accepted Answer

The legality of suing a former employee's startup for using trade secrets is not contingent upon the potential financial impact on the new venture. If trade secrets are unlawfully used, the former employer has the right to take legal action.

Question 17

Every start-up should concentrate on hiring a litigation attorney from the very beginning.

Accepted Answer

While legal advice is important, not every start-up may need a litigation attorney from the start. Many may benefit more from focusing on areas like business formation, intellectual property, and contracts, and only consider litigation attorneys if specific disputes arise.

Question 18

The law protects companies from their employees disclosing trade secrets even if those employees did not sign confidentiality contracts.

Accepted Answer

Trade secret laws protect companies against the unauthorized disclosure of trade secrets by employees, regardless of whether a confidentiality agreement was signed, as the protection of trade secrets is inherent to the competitive interests of businesses and is enforced by laws such as the Uniform Trade Secrets Act and the Defend Trade Secrets Act in the United States.

Question 19

If a business is not able to pay its debts, under a general partnership, the debt is transferred to the owners.

Accepted Answer

In a general partnership, the owners (partners) have unlimited liability, meaning they are personally responsible for the debts of the business. If the business cannot pay its debts, creditors can seek repayment from the personal assets of the partners.

Question 20

The employer is responsible for any damage done by the employees occurring within the scope of their employment.

Accepted Answer

Under the legal doctrine of "respondeat superior," employers are generally held responsible for the actions of their employees if those actions occur within the scope of employment.

Quiz 13: Legal and Tax Issues, Including Intellectual Property