Question 1

Which is not a potential penalty for breaking a contract? A) You may lose a share of the ownership of your business to the other party who signed the contract. B) You may be sued in a court of law by the other party who signed the contract. C) A court may order you to pay damages to the other party who signed the contract. D) It can be costly.

Accepted Answer

Losing a share of the ownership of your business is not a typical penalty for breaking a contract. The other options are common penalties that can result from breaking a contract.

Question 2

Some contracts specify that conflicts may be settled through ________ instead of court.
A) negotiation
B) coercion
C) arbitration
D) small claims

Accepted Answer

Some contracts specify that disputes shall be settled through arbitration instead of court. Arbitration is a form of dispute resolution that is usually binding and private. It involves the appointment of an independent third party, who listens to both sides of the dispute and makes a decision that is usually final and binding.

Question 3

Which of the following are not usually not-for-profit organizations? A) trade associations B) charitable foundations C) churches D) book stores

Accepted Answer

Trade associations, charitable foundations, and churches are typically not-for-profit organizations. However, book stores are usually for-profit businesses.

Question 4

The four "A's" of a successful contract include ________.
A) avoid misunderstanding and assure work
B) assure payment and avoid liability
C) assess risk and analyze profit
D) Both A and B.

Accepted Answer

The four "A's" of a successful contract are to avoid misunderstanding and assure work, as well as assure payment and avoid liability. This is covered in choice D, making it the best option. Option A is only half of the equation, while option C only covers risk and profit analysis, leaving out important aspects such as payment and liability.

Question 5

Why are contracts useful to business owners?

Accepted Answer

The answer of Why are contracts useful to business owners?...

Question 6

The limited liability company (LLC) combines the best features of partnerships and corporations and can be an excellent choice for small business with a limited number of owners.

Accepted Answer

An LLC offers pass-through taxation like a partnership, but also provides limited liability protection like a corporation. It is a popular choice for small businesses with a few owners who want to maintain flexibility in management and avoid double taxation.

Question 7

A(n) ________ is an agreement between two or more parties that is enforceable by law.
A) trust
B) contract
C) understanding
D) None of the above.

Accepted Answer

A contract is a legally binding agreement between two or more parties. Trusts and understandings are not necessarily enforceable by law in the same way that a contract is.

Question 8

Tax-exempt, nonprofit corporations ________.
A) cannot make a profit
B) do not have legal liability
C) are set up with a specific mission to improve society
D) pay dividends more often than for-profit corporations

Accepted Answer

Tax-exempt, nonprofit corporations are set up with a specific mission to improve society. They can make a profit, but it is reinvested into the organization rather than being distributed to shareholders like in a for-profit corporation. Nonprofit corporations also have legal liability like any other entity. They are tax-exempt because they are not seen as operating primarily for the purpose of making a profit, but rather for the benefit of a specific cause or community.

Question 9

A good contract will spell out ________, or unforeseeable "acts of God" beyond anyone's control, for which neither party is responsible.
A) contingencies
B) liabilities
C) amendments
D) disasters

Accepted Answer

Contingencies refer to possible events or circumstances that may occur in the future and are often addressed in contracts. Liabilities are responsibilities or obligations that parties assume under a contract. Amendments refer to changes made to a contract after it has been signed. Disasters may be covered under contingencies, but "acts of God" are typically addressed specifically in contract language. Therefore, the best choice is A, contingencies.

Question 10

The time period in which legal action may be taken is the ________.
A) limit of liability
B) statute of legal obligations
C) statute of limitations
D) None of the above.

Accepted Answer

The statute of limitations is the time period in which legal action may be taken. A is incorrect because limit of liability refers to the maximum amount of compensation or damages that can be awarded. B is incorrect because there is no such thing as a statute of legal obligations. D is incorrect because there is no other option available.

Question 11

Contract drafting and review is something the business owner can do and should do using law books at the local library.

Accepted Answer

Contract drafting and review require legal expertise and knowledge, which is typically not available in law books at the local library. It is recommended that business owners seek the services of a qualified attorney for contract drafting and review.

Question 12

How is a legal entity, such as a corporation, similar to a person? If you owned a business, why might you want it to be incorporated?

Accepted Answer

The answer of How is a legal entity, such as...

Question 13

The main disadvantage of corporations is that corporate income is ________.
A) taxed only once
B) always high
C) taxed twice
D) taxed three times

Accepted Answer

Corporate income is taxed at the corporate level, and then again when it is distributed to shareholders as dividends or capital gains, resulting in double taxation.

Question 14

In a corporation, all profits go to ________.
A) reduce the surplus
B) the owners and the shareholders
C) the stockholders as salaries
D) the partners according to the terms of the agreement

Accepted Answer

In a corporation, profits are distributed to the owners (or shareholders) in the form of dividends. Some profits may also be reinvested back into the company for growth and expansion.

Question 15

In limited liability companies ________.
A) income is taxed only once, as the personal earnings of members
B) personal assets of the owners are left legally unprotected
C) income is never taxed
D) income is taxed twice, corporately and personally

Accepted Answer

In limited liability companies, income is taxed only once, as the personal earnings of members. This is because the company itself is not taxed as a separate entity, but rather the profits and losses pass through to the individual members who report them on their personal tax returns. Additionally, limited liability companies provide personal asset protection for the owners.

Question 16

The number of stockholders in a Subchapter S Corporation is limited to ________.
A) 75
B) 50
C) 100
D) 250

Accepted Answer

Subchapter S Corporations are limited to 100 stockholders, allowing them to enjoy the benefits of incorporation while being taxed as if they were a partnership, avoiding double taxation.

Question 17

An injured party whose rights in a contract have been breached can bring a(n) ________ against the other party.
A) arbitration
B) motion
C) mediation
D) lawsuit

Accepted Answer

When a breach of contract occurs and one party's rights have been violated, the injured party can bring a lawsuit against the other party to seek legal remedies for the breach. Arbitration and mediation are alternative dispute resolution methods that parties can agree to use instead of going to court, but they are not the primary option for seeking legal remedies in a contract dispute. A motion is a legal request to a court to take a certain action, but it is not the appropriate remedy for a breach of contract.

Question 18

Compare the legal structure implications of a sole proprietorship and a Subchapter S Corporation for the seven parameters of 1) ownership, 2) liability, 3) taxation issues, 4) profit distribution, 5) voting on policy, 6) life of the legal structure, and 7) capitalization.

Accepted Answer

The answer of Compare the legal structure implications of a...

Question 19

Every corporation is recognized and treated under the law as ________.
A) an entity, much like a person, that has expenses and earnings
B) a small business
C) a large business
D) if it were its owners and employees

Accepted Answer

Corporations are recognized and treated under the law as separate legal entities, similar to individuals, with the ability to incur expenses and earn income. This means that they can enter into contracts, own property, and sue or be sued.

Question 20

________ are the building blocks of business.
A) Letters of agreements
B) Contracts
C) Personal relationships
D) Customer services

Accepted Answer

Contracts are fundamental to business operations as they establish the legal agreements between parties, outlining the terms of their business relationships, obligations, and rights.

Quiz 11: Addressing Legal Issues and Managing Risk

Which is not a potential penalty for breaking a contract?

Some contracts specify that conflicts may be settled through ________ instead of court.

Which of the following are not usually not-for-profit organizations?

The four "A's" of a successful contract include ________.

Why are contracts useful to business owners?

The limited liability company (LLC) combines the best features of partnerships and corporations and can be an excellent choice for small business with a limited number of owners.

A(n) ________ is an agreement between two or more parties that is enforceable by law.

Tax-exempt, nonprofit corporations ________.

A good contract will spell out ________, or unforeseeable "acts of God" beyond anyone's control, for which neither party is responsible.

The time period in which legal action may be taken is the ________.

Contract drafting and review is something the business owner can do and should do using law books at the local library.

How is a legal entity, such as a corporation, similar to a person? If you owned a business, why might you want it to be incorporated?

The main disadvantage of corporations is that corporate income is ________.

In a corporation, all profits go to ________.

In limited liability companies ________.

The number of stockholders in a Subchapter S Corporation is limited to ________.

An injured party whose rights in a contract have been breached can bring a(n) ________ against the other party.

Compare the legal structure implications of a sole proprietorship and a Subchapter S Corporation for the seven parameters of 1) ownership, 2) liability, 3) taxation issues, 4) profit distribution, 5) voting on policy, 6) life of the legal structure, and 7) capitalization.

Every corporation is recognized and treated under the law as ________.

________ are the building blocks of business.