CH. 9 - Legal Issues with a New Business

Which of the following questions should be considered by a new business owner before entering into a lease contract?

- Can the business owner renew the lease after the term expires? - 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?

Identify the typical requirements for a new business to obtain a city or county business license.

- It should agree to report basic information about its performance on a set schedule. - It should pay a set fee, which is usually less than $100.

Which of the following are drawbacks of sole proprietorships?

- The lack of legitimacy with suppliers and customers. - The formation is limited to a single founder. - The liability of the business is the responsibility of the single owner.

Which of the following is a characteristic of general partnerships that is similar to that of sole proprietorships?

The owners report their shares of losses or profits on their own personal income tax returns in proportion to their interest in the firm.

General and limited are two categories of ______.

partnership

A trademark is valid for ______ years and can be renewed as long as the firm or product is active.

10

One disadvantage of the Subchapter S Corporation is the limitation to the number of shareholders, which is currently set at a maximum of ______ shareholders.

75

True or False: A Subchapter C Corporation treats fringe benefits that are paid out as income for its employees.

False

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

Which form of business involves two or more individuals sharing unlimited liability in a business venture?

General Partnership

Subchapter S and Subchapter C Corporations take their names from subchapters in the ______ Code.

Internal Revenue

Which of the forms of incorporation has recently become the most popular?

LLC

Identify a characteristic of a general partnership that is different from that of a sole proprietorship.

Partners are generally held to be jointly liable for all debts incurred by the partnership.

______ 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

In new corporations, the shareholders and board of ______ are often the same individuals.

directors

Which form of insurance covers liability for workers who are injured on the job?

Workers' compensation

A sole proprietorship is very popular among individuals who:

- are unsure about their business idea - have a very small business - have a business where the costs and risks are low

Which form of incorporation is required to pay an income tax?

Subchapter C

Because it is expensive to obtain and maintain, a(n) ______ should only be obtained if it contributes to the sustainable competitive advantage of the organization.

patent

An important feature of a Subchapter C Corporation is that there are no limits to ______.

the number of shareholders that an organization can obtain

The Americans with Disabilities Act (ADA) applies fully to any business with more than ______ employees and in some communities has been applied to all businesses.

15

Many regulations enacted by the federal government do not apply to businesses with fewer than ______ employees.

50

Unlike a Subchapter C Corporation, a limited liability corporation (LLC) ______.

allows for the flexible treatment of profits from the organization

Identify the true statements about the Uniform Partnership Act and the Revised Uniform Partnership Act. (Check all that apply.)

- They are an effective means to handle the basics of partnership. - Their provision do not cover issues like noncompete agreements.

Which of the following are the characteristics of limited partners in a limited liability partnership (LLP)?

- They are considered passive investors, and their inability is limited to their investment in the business. - They are typically allowed to work for the firm.

A business with employees will be required to calculate and deduct various payroll taxes for:

- federal authorities - state authorities - local authorities

Which of the following are trademarked by most large companies? (Check all that apply.)

- Company name - Company symbols - Company tag lines

Which of the following statements are true regarding liability insurance?

- It covers the business for accidents - It covers product negligence - It helps protect against lawsuit judgements

Which of the following are benefits of a Subchapter S Corporation?

- Limited liability for the owners. - Consolidation of business and personal income for tax benefits - Relatively easy to form compared with Subchapter C - Legitimacy in the market as a more established form of business

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 corporate headquarters - General nature of the business

Which of the following are common examples of licenses and permits?

- Occupancy permits - Business licenses - OSHA food-handling permits

Which of the following are the three basic types of legal business organization?

- Partnership - Corporation - Sole proprietorship

Which of the following are types of patents?

- Plant - Design - Utility

In which of the following business forms do the business debts flow directly to the owner(s)?

- Subchapter S Corporation - Sole proprietorship

Which of the following business forms are required to hold annual board meetings and file reports to local, state, and federal authorities?

- Subchapter S Corporation - Subchapter C Corporation

Two related entitles that can help the new business owner foresee potential legal liabilities are:

- a board of directors - a board of advisors

A business owner hires a mechanic to work on cars owned by the customers. The mechanic makes a mistake that leads to significant and costly damage to a customer's car. Which type of insurance can be purchased to cover the damages?

Bonding

______ insures businesses from damages caused by workers in the performance of their jobs.

Bonding

Which of the following are excellent sources of information regarding regulatory requirements?

- Local department of economic development - Chamber of Commerce - Small Business Administration - Small Business Assistance Centers

Which of the following is true regarding a board of advisors? (Check all that apply.)

- The group is composed of individuals outside the business. - The group advises the founder on key issues. - The group is formed at the discretion of the founder.

Which type of legal business organization is the simplest form to establish?

Sole proprietorship

Which of the following is NOT a common example of a license or a permit?

Trademark permit

A ______ is an agreement between two parties to perform certain activities for some consideration.

contract

A limited liability corporation (LLC) and a Subchapter S Corporation are similar in that they both ______.

have the limited liability feature

The effective application of ______ is one means to limit liability concerns of the new venture.

insurance

______ are very inexpensive to form as this type of organization is formed by simply submitting the paperwork to a state government and having a charter issued prior to beginning operations.

Limited Liability Corporations

Which form of 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

Which of the following is NOT a drawback of sole proprietorships?

The complexity and expense of formation.

True or False: 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

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 individual separate entities

In the United States, a ______ is assumed to apply to anything that is your own original work (whether that original work itself is filed with the U.S. government or not.)

copyright

A corporation pays a tax on its profits; then those after tax 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

A Subchapter C Corporation has a ______ that is equal to the par value times the number of shares distributed.

floor value