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Interactive Quiz for ALT-12e, Chapter 43
Chapter 43 – Law for Small Business
1. When interviewing an attorney, which of the following questions would be most helpful to ask yourself if your goal is to start a new business? a. Is he or she a member of a large law firm? b. Does he or she appear to understand the process of creating a new business? c. Does he or she have law review articles on the subject? d. Does he or she have children in the same school as your children?
Answers:
a. Incorrect. This may or may not be important to you, but it is not the most important factor to be considered. b. Correct. It is important to determine whether the attorney understands what is involved in starting a new business. c. Incorrect. It is not necessarily all that important to know if an attorney has law review articles published on a topic. d. Incorrect. This is obviously not all that important.
2. Which of the following is a key consideration for most people when they start a new business? a. The number of newspapers in the area. b. The degree to which key-person insurance is available. c. The amount of personal liability they are willing to accept. d. The amount of cash reserves held by their national government.
Answers:
a. Incorrect. This is not a key consideration for most people. b. Incorrect. This is not a key consideration for most people because key- person insurance is widely available. c. Correct. This is a key consideration. If a business owner is willing to accept the risk of personal liability, he or she is more willing to act as a sole proprietor or partner. If not, the owner should consider incorporating. These are key considerations when starting a new business. d. Incorrect. Knowing the amount of cash reserves a national government holds is usually not a key consideration when starting a business.
3. In a general partnership, what kind of liability exists? a. Fully limited liability. 2
b. No liability. c. Personal liability for the debts and obligations of the partnership. d. Personal liability for the debts of partners and of the partnership.
Answers:
a. Incorrect. Liability is not fully limited. b. Incorrect. In a general partnership, there is liability. c. Correct. This is the level of liability in a general partnership. d. Incorrect. Liability does not include liability for the debts of partners.
4. Why do people say that corporations involve “double taxation?” a. Because corporations pay twice the income tax rate as individuals. b. Because corporations are required to pay the income tax twice per year. c. Because corporations pay taxes on their profits, and shareholders again pay taxes on the profits when they are distributed to the shareholders. d. Because corporations generally conspire to raise the tax rates of individuals to twice their normal rate.
Answers:
a. Incorrect. This is not what is meant by the “double taxation” of corporations. b. Incorrect. Corporations are not required to pay taxes twice per year. c. Correct. Because both the corporation and its individual shareholders pay tax on any profits earned by the corporation and distributed to shareholders, the corporation is said to be subject to “double taxation. d. Incorrect. This is not generally the case.
5. Which of the following does a corporate records book NOT contain? a. Minutes of shareholder meetings. b. Memos relating to sales meetings. c. Articles of incorporation. d. Bylaws.
Answers:
a. Incorrect. A corporate records book would contain these. b. Correct. Typically, a corporate records book would not contain such memos. c. Incorrect. This is an important corporate document and would be contained in the records. d. Incorrect. Bylaws would be contained in corporate records. 3
6. In order to protect your trademark, you would be well advised to undertake a number of actions. Which of the following actions IS NOT one of these? a. File your mark with the federal government. b. File your mark with your local government. c. Use the symbol ™ after your name. d. After five years, renew your trademark registration.
Answers:
a. Incorrect. You might wish to file your mark with the federal government. b. Correct. Local governments do not protect trademarks; only state governments and the federal government provide such protection. c. Incorrect. Using the symbol ™ WILL provide you with some protection. d. Incorrect. If you do register a trademark, you should renew your initial registration after five years.
7. Joe knows that Abram is starting a new e-commerce Web site. Joe is willing to give Abram $3 million of his personal fortune in cash in exchange for a 10 percent ownership stake in Abram’s new company. What is Joe called? a. A retriever. b. A venture capitalist. c. A White Knight. d. A sole proprietor of Abram’s new business.
Answers:
a. Incorrect. Joe is not a retriever. b. Correct. Joe is known as a venture capitalist. He helps finance new business endeavors. c. Incorrect. The term “White Knight” may be used in the context of corporate takeovers, but not in this situation. d. Incorrect. Joe is not a sole proprietor of the new business.
8. One of the many benefits that venture capitalists offer to entrepreneurs is: a. they have limited business connections. b. they are often experienced business managers. c. they often ignore tax laws. d. they demand substantial and ongoing operational control.
Answers:
a. Incorrect. This would not be a benefit. b. Correct. Venture capitalists are often experienced at managing businesses. 4
c. Incorrect. This would not be a benefit. d. Incorrect. This is a disadvantage of venture-capital funding.
9. A federal statute governing compensation for employees is: a. the Age Declaration Act. b. the Fair Labor Standards Act. c. the Sherman Antitrust Act. d. the Houghton Wages Act.
Answers:
a. Incorrect. There is no Age Declaration Act. b. Correct. This Act governs compensation to employees of businesses that have $500,000 or more in sales or that are engaged in interstate commerce. c. Incorrect. The Sherman Antitrust Act does not cover wages. d. Incorrect. There is no Houghton Wages Act.
10. One benefit of using independent contractors instead of employees is: a. independent contractors are generally subject to a greater amount of control by the employer than employees are. b. independent contractors are generally subject to less control by the employer than employees are. c. independent contractors are normally covered by workers’ compensation laws. d. the employer does not need to withhold Social Security taxes for independent contractors.
Answers:
a. Incorrect. This is not true, and thus cannot be a benefit of using independent contractors instead of employees. b. Incorrect. This is true, but it is not a benefit of using independent contractors instead of employees. c. Incorrect. This is not true. d. Correct. This is one benefit of using independent contractors.