Chapter 9: Legal Issues with a New Business
Which of the following are disadvantages associated with Subchapter S Corporation?
May require a lawyer to process paperwork. Limitations on the number of shareholders. Expensive, complex formation compared with sole proprietorships.
__________ insures businesses from damage caused by workers in the performance of their jobs.
bonding
An advantage of a sole proprietorship is that the owner reaps the benefits and doesn't have to share the equity.
False
Which of the following is a disadvantage of forming a Subchapter C corporation?
It incurs double taxation.
Which of the following forms of business has two classes of partners?
Limited liability partnership
What is the best form of business ownership?
One form is not better than another.
Which of the following are excellent sources of information regarding regulatory requirements?
Small Business Assistance Centers Small Business Administration Chamber of Commerce Local department of economic development
In which of the following business forms do the business debt flow directly to the owner(s)?
Sole proprietorship General partnership
Which of the following is true regarding a board of advisors?
The group is formed at the discretion of the founder. The group advises the founder on key issues. The group is composed of individuals outside the business.
Which of the following are drawbacks of sole proprietorships?
The liability of the business is the responsibility of the single owner. The formation is limited to a single founder. The lack of legitimacy with supplier and customers.
Which of the following is a characteristic of general partnership that is similar to that of sole proprietorships?
The owners report their shares of losses or profits on their own personal income tax return in proportion to their interest in the firm.
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.
True
True or False: it is advisable for an entrepreneur to employ formal written contracts whenever there is an agreement with another party.
True
True or false: If a corporation suffer substantial losses, the founder(s) will lose only his or her investment in the business.
True
True or false: Workers' compensation insurance is considered a minor expense for a business.
False
Many regulations enacted by the federal government do not apply to businesses with fewer than ________ employees.
50
Which of the following are types of patents?
Design Plant Utility
An advantage of the Subchapter _______ Corporation is that it allows the owners to report their income or losses on their personal income tax returns, thus avoiding double taxation.
S
An important feature of a Subchapter C Corporation is that there are no limits to ________
The number of shareholders that an organization can obtain.
Which of the following are the characteristics of limited partners in a limited liability partnership (LLP)?
They are considered passive investors, and their liability is limited to their investment in the business. They are typically allowed to work for the firm.
_____ insurance covers liability for workers who are injured on the job.
Workers' compensation
A trademark is valid for ______ years and can be renewed as long as the firm or product is active.
10
The Americans with Disabilities (ADA) applies fully to any business with more than ___________ employees and in some communities has been applied to all businesses.
15
Which of the following are trademarked by most large companies?
Company symbols Company name Company tag lines
A _____ is an agreement between two parties to perform certain activities for some consideration.
Contract
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.
False
True or false: A Subchapter C Corporation treats fringe benefits that are paid out as income for its employees.
False
In a sole proprietorship, all the income and losses are reported on schedule D of the 1040 tax form.
False, it's on schedule C
Which class of partner in a limited partnership is considered the manager of the firm and has unlimited liability for any debts or judgements against the firm?
General
In the context of legal forms of business, a general partner in a limited liability partnership
Has unlimited liability to any debts or judgement against the firm.
Which of the following is an advantage of forming a sole proprietorship?
It is easy to form.
In recent years, the ________ has become one of the most popular forms of incorporation for new businesses.
Limited liability Corporation (LLC)
__________ are very inexpensive to form as this type of organization is formed by simply submitting the paperwork to a state government and having a chapter issues prior to beginning operations.
Limited liability Corporation (LLC)
Identify a characteristic of a general partnership that is different from that a sole proprietorship.
Partners are generally help to be jointly liable for all debts incurred by the partnership.
Which of the following are the basic types of legal business organization?
Partnership Corporation Sole proprietorship
________ insurance obtained by an entrepreneurial business primarily covers the building, fixtures, and inventory in all of the buildings in which the business has a function.
Property
Which of the following is true regarding a board of advisors?
The group advises the founder of key issues. The group is composed of individuals outside the business. The group is formed at the discretion of the founder.
After several years in business, PODS changed from a sole proprietorship to a corporation. What was a major reason for making this organizational change?
To accelerate expansion and growth.
Which of the following is NOT a common example of a license or a permit?
Trademark permit
If a small business has employees, it must have an EIN (Employer Identification Number).
True
The Americans with Disabilities Act requires that there should be no discrimination in the hiring, management, or dismissal of employees with disabilities.
True
Which of the following questions should be considered by a new business owner before entering into a lease contract?
Who has to carry the liability insurance and at what level? Who is responsible for maintenance and other facilities issues? Who would be responsible for making improvements to the facility? Can the business owner renew the lease after the term expires?
In the United States (US), a __________ is assumed to apply to anything that is your own original work (whether that original work is filled with the U.S government or not).
copyright
Someone who desires to start a business, but who may not be comfortable with the risk associated with creating a new product or service, should consider a
franchise business.
Which form of business involves two or more individuals sharing unlimited liability in a business venture?
general partnership
The effective application of ________ is one means to limit liability concerns of the new venture.
insurance
Which class of partner in a limited partnership is considered to be a passive investor and his or her liability is limited to his or her investment in the firm?
limited
A business with employees will be required to calculate and deduct various payroll taxes for:
local authorities federal authorities state authorities
What is the initial value at which the firm's shares are offered?
par value
Which of the following statements are true regarding liability insurance?
It helps protect against lawsuit judgements. It covers product negligence. It covers the business for accidents.
Subchapter S and Subchapter C Corporations take their names from subchapters in the _________.
Internal revenue
Identify the typical requirements for a new business to obtain a city or country business license.
It should pay a set fee, which is usually less than $100 It should agree to report basic information about its performance on a set schedule.
Which of the following elements are required when forming a Subchapter C or Subchapter S Corporation?
Names, addresses, and titles of all founders Location of the corporation headquarters General nature for the business.
A corporation pays a tax on its profile; then those after taxes profits are paid as dividends to the owners, who then have to pay personal income taxes on the dividend income. This situation is referred to as __________.
double taxation
True or false: According to the contract law, the term length of lease contracts involving new businesses should be more than two years.
False
Which type of insurance can be purchased to cover losses from employee embezzlement?
bonding
In new corporation, the shareholders and board of ________ are often the same individuals.
directors
Because it is expensive to obtain and maintain, a(n) _______ should only be obtained if it contributes to the sustainable competitive advantages of the organizations.
patent
Which form of incorporation is required to pay an income tax?
Subchapter C
Which of the following business form are required to hold annual board meetings and file reports to local, state, and federal authorities?
Subchapter C Corporation Subchapter S Corporation
Which of the following is NOT a drawback of sole proprietorships?
The complexity and expense of formation.
Unlike a Subchapter C Corporation, a limited liability corporation (LLC) _______________.
allows for the flexible treatment of profits from the organization.
A copyright can be claimed on creative materials generated, such as:
artwork unpublished music books advertising copy
A business that chooses to form a corporation is legally required to have a _____.
board of directors
Which form of the business has at least two individuals who are partners in a venture but only one person declares a full pass-through of all income on his or her federal taxes and assumes unlimited liability?
limited liability partnership
General and limited are two broad categories of _________
partnership
An individual who is unsure of his business idea, plans to keep his business very small, or has a minimal amount of cost and risk is more likely to select a ______ as a business form.
sole proprietorship
Which type of legal business organization is characterized by the fact that the person who owns the business and the business itself are treated as the same entity?
sole proprietorship
A _____ is a business formed between individuals directly.
partnership
The critical issues of personal liability and the desire to limit exposure to the original equity investment led to the development of corporations. A corporation addresses both drawbacks by ___________.
considering the business and the individuals separate entities.
In new corporations, the shareholders and board of __________ are often the same individuals.
directors
A partnership will be governed by either the Uniform Partnership Act or the Revised Uniform Partnership Act if the partnership agreement is not developed and signed.
True
Two related entities that can help the new business owner foresee potential legal liabilities are:
board of directors board of advisors
