Q&A Hero

Q: Glen is starting a small bakeryHealthy Breadsand is considering whether to organize the business as a limited liability company or a limited liability partnership. Both forms a. are subject to the same flexibility restrictions as S corporations. b. do not limit their owners' personal liability for business debts. c. limit their owners' personal liability for business obligations. d. obviate the need to obtain insurance for business liability risks.

Q: Dona and Egan operate First Rate Investments as a general partnership. Gail, a customer slips and breaks her ankle in a First Rate and is awarded damages by a court. Those damages must be paid by a. Dona and Egan only. b. Dona, Egan, and First Rate. c. First Rate only. d. Gail only.

Q: Pam opens Quik Express, a local delivery service. Unless Pam expressly adopts a certain form of business organization, the law considers Quik to be a. a corporation. b. a limited liability company. c. a partnership. d. a sole proprietorship.

Q: Donna is starting a financial planning business. She hires Ed, an attorney, to handle the initial paperwork. The advantages of retaining an attorney at this point in a business include the lawyer's a. business contacts only. b. confidentiality only. c. legal and business expertise only. d. business contacts, confidentiality, and legal and business expertise.

Q: Misclassifying an employee as an independent contractor can result in considerable tax liability imposed on an employer.

Q: An employer's promises of job security are never binding.

Q: Hiring independent contractors avoids the application of laws governing employment relationships.

Q: To charge interest on an overdue account, a business must make certain disclosures relating to those charges before entering into the contract.

Q: A contract should be in writing so that if a dispute arises, there will be written evidence of the terms.

Q: Key-person insurance protects against the risk that a key employee may resign.

Q: A "take-along right" allows an investor to take specific items of corporate property along with his or her purchase of an interest in the business.

Q: A shareholder agreement defines the owners' rights and interests.

Q: A public offering is an attempt by a business firm to raise a certain limited amount of money from a certain limited number of investors.

Q: At common law, a company can sue a firm that misappropriates its trade secrets.

Q: To protect trade secrets, a company can require employees that have access to the secrets to agree not to divulge the secrets.

Q: Use of your name or a description of your product as a trademark provides the strongest protection against infringement.

Q: A trademark can be similar to another's distinctive or famous mark.

Q: Filing in a state office is not required to incorporate.

Q: A sole proprietorship's profits are taxed before expenses are deducted, and the owner's profit is taxed on his or her personal return.

Q: In a general partnership, the partners have no limited liability.

Q: In a limited liability partnership, the firm has limited liability for its debts.

Q: A key consideration in starting up a business is whether the business form chosen will limit personal liability for business obligations.

Q: Failure to comply with state incorporation requirements may subject the owners to personal liability.

Q: The chief factor in deciding whether to retain an attorney is the cost.

Q: Electro, Inc., makes and sells electric bikes, as well as parts and service, to customers in the United States and other countries. Can Electro prevent its employees from revealing its customer lists, pricing policies, and other confidential information, if the employees resign to work for a competitor or to enter the same business themselves? How?

Q: Ben owns Copyshop and wants to sell Copyshop franchises throughout the United States. In doing so, Ben wants to prevent competitors from imitating the distinctive Copyshop logo and thereby misleading consumers. How can Ben protect the logo?

Q: Alpha Corporation uses independent contractors. Alpha can a. be sued by a contractor for a violation of discrimination laws. b. exercise little control over how the contractors perform. c. obtain workers' compensation insurance for the contractors. d. withhold income taxes from payments to the contractors.

Q: Consolidated Industries, Inc., is subject to the Fair Labor Standards Act, which governs a. employee compensation. b. unemployment compensation. c. workers' compensation. d. all of the above.

Q: Fact Pattern 42-2 Elin meets Fred, the president of Great Starts, Inc., who hires Elin to perform services for the firm without telling her that it is a corporation. When Elin's invoices are not paid, she files a suit against Fred and Great Starts to collect. Refer to Fact Pattern 42-2. According to the reasoning in Case 42.3, Instant Print Centers, Inc. v. Crowley, the court is most likely to base a ruling on a. Elin's desire to stop doing work for Great Starts. b. Elin's failure to recognize that Great Starts is a corporation. c. Fred's ability to work for Elin. d. Fred's failure to tell Elin that Great Starts is a corporation.

Q: Fact Pattern 42-2 Elin meets Fred, the president of Great Starts, Inc., who hires Elin to perform services for the firm without telling her that it is a corporation. When Elin's invoices are not paid, she files a suit against Fred and Great Starts to collect. Refer to Fact Pattern 42-2. According to the decision in Case 42.3, Instant Print Centers, Inc. v. Crowley, the court is most likely to a. award damages to Elin. b. deny Elin's request for relief. c. enjoin further work by Elin for Great Starts. d. order Fred to work for Elin.

Q: Nora opened Oh! Fudge!, a candy store, as a corporation. When doing business on behalf of the store, to avoid personal liability, Nora should sign contracts a. as an express agent for the corporation. b. as an express party to the contract. c. as an express agent and a party to the contract. d. under a false name.

Q: Select Production Company's offer of shares of stock in itself to anyone who is willing to pay $60 per share is a. a private offering. b. a public offering. c. a private offering and a public offering. d. neither a private offering nor a public offering.

Q: The three shareholders of Omega, Inc., want to prevent each other from selling the shares to third parties without first being given the opportunity to buy them. The shareholders can provide for this in a. a buy-sell agreement that includes a right of first refusal. b. a buy-sell agreement that includes a "take-along" clause. c. a key-person clause that specifies who can sell what to whom. d. a stop-and-desist clause that dissolves the firm on a sale of shares.

Q: National Standard Company (NSC) products are identified with a trademark. For several years, NSC allows others to use the mark without permission and without protest. This may constitute, on NSC's part, a. abandonment of the mark. b. anticompetitive conduct. c. liability for misleading consumers. d. liability for misleading competitors.

Q: Kyle wants to make and sell a computer operating system under a trademark. To obtain the most protection under the law, Kyle should choose a mark that is a. distinctive. b. similar to an existing mark. c. the same as an existing mark. d. non-distinctive.

Q: Paula wants to incorporate Ripe Orchards, her farm. Her first step is to a. choose a corporate name. b. draft the articles of incorporation. c. hold an organizational meeting with the board of directors. d. issue bylaws.

Q: Eve wants to incorporate her sports equipment stores as Game Ball, Inc., and files that name with the New York secretary of state. The secretary's approval will give Eve permission to use the name a. in New York only. b. in New York and the states that border it only. c. throughout the United States. d. throughout the world.

Q: Global Tours, a travel agency, is a limited liability company. Global is exempt from legal requirements that relate to a. business name registration. b. occupational licensing. c. state tax registration. d. none of the above.

Q: Mark and Nina operate Peak Mountain Bikes, a bicycle shop, as a partnership. Taxes on the business's income are paid by a. Mark and Nina only. b. Peak only. c. Mark, Nina, and Peak. d. not Mark, Nina, or Peak.

Q: Fact Pattern 42-1 Aron and Bret form Coffee, LLC, to own and operate Delite Café. Each owns 50 percent of Coffee. To obtain start-up capital, Aron personally guarantees a loan to the firm. Later, Bret bans Aron from the café. Aron files a suit to dissolve Coffee and sell its only asset, Delite.Refer to Fact Pattern 42-1. According to the reasoning in Case 42.1, Haley v. Talcott, the court is most likely to base a ruling in part on a. Aron's continuing liability on the loan. b. Bret's maintaining the clientele of Delite. c. Coffee's ongoing business operation. d. Delite's retaining the public's patronage.

Q: Fact Pattern 42-1 Aron and Bret form Coffee, LLC, to own and operate Delite Café. Each owns 50 percent of Coffee. To obtain start-up capital, Aron personally guarantees a loan to the firm. Later, Bret bans Aron from the café. Aron files a suit to dissolve Coffee and sell its only asset, Delite.Refer to Fact Pattern 42-1. According to the decision in Case 42.1, Haley v. Talcott, the court is most likely to direct the parties to a. dissolve Coffee and sell Delite. b. dissolve Coffee but not sell Delite. c. neither dissolve Coffee nor sell Delite. d. sell Delite but not dissolve Coffee.

Q: Ali and Bill form AB Associates, a limited partnership, to invest in real estate. Compared to a sole proprietorship and a general partnership, a limited partnership has limited a. business purposes. b. investment opportunities. c. liability. d. requirements.

Q: Howie operates Island Burger Restaurant as a corporation. A customer slips and breaks her ankle in the restaurant and is awarded damages by a court. Those damages must be paid by a. Howie only. b. Island Burger only. c. Howie and Island Burger. d. neither Howie nor Island Burger.

Q: Paul and Rita form SA, LLC, a limited liability company, to operate Superior Athletics, a health and fitness center. Compared to a sole proprietorship and a general partnership, a limited liability company has limited a. business purposes. b. investment opportunities. c. liability. d. requirements.

Q: Dave is opening an office as Eagle Property Management Company. An attorney may provide legal services to Dave and Eagle in exchange for a. an equity stake in Eagle, but not a promise of its future legal business. b. an equity stake in Eagle or a promise of its future legal business. c. a promise of Eagle's future legal business, but not an equity stake in the firm. d. neither an equity stake in Eagle nor a promise of its future legal business.

Q: Andy wants to open AAA Advertising Agency with the assistance of an attorney. To find an attorney, Andy could a. ask other small businesspersons. b. look in a telephone directory. c. review listings in the Martindale-Hubbell Law Directory. d. all of the above.

Q: An employer may be liable for misrepresentation for making an undeserved, glowing recommendation to another employer about a former employee.

Q: When a worker is fired, severance pay is required.

Q: No state has a law that allows employees access to their personnel records.

Q: The regulations of the Occupational Safety and Health Administration have no small business exemptions.

Q: A corporate agent is personally liable for contracts entered into on the corporation's behalf.

Q: A shareholder agreement defines relative ownership rights and interests.

Q: Key-person insurance helps to cover business losses caused by the death or disability of an essential employee.

Q: A buy-sell agreement establishes the criteria for the price to be paid a shareholder for his or her ownership interest.

Q: A private offering makes a certain number of shares of stock in a business firm available for purchase by members of the public at a set price.

Q: No capital can be raised through an offering of stock without registering the shares as securities with the Securities and Exchange Commission.

Q: Allowing others to use a trademark without protesting that use can constitute abandonment of the mark.

Q: Registration is required to have a right to a particular trademark.

Q: Without copyright, patent, or trademark protection for a product or a mark, a competitor can copy it.

Q: Corporate income is taxed twice unless it is distributed to shareholders.

Q: A limited liability company limits the liability of the firm for business debts.

Q: All states permit a businessperson to operate as a limited liability company.

Q: All corporate business forms offer limited liability to their owners.

Q: The law considers all new, single-owner businesses to be limited liability companies unless the owner affirmatively adopts some other form.

Q: Errors in bookkeeping can provoke litigation.

Q: A businessperson cannot incur a penalty for violating a law or regulation of which he or she is unaware.

Q: When a corporation wishes to issue certain securities, it must provide sufficient information for an unsophisticated investor to evaluate the financial risk involved. Specifically, the law imposes liability for making a false statement or omission that is "material." What sort of information would an investor consider material?

Q: Drew is an officer of Energy Fuel, Inc. Drew knows that an Energy engineer recently developed a new, inexpensive method for converting hydrogen into fuel. Drew takes advantage of this information to buy Energy stock from Gert and, after the discovery is announced, to sell the stock to Holly at a profit. Gert claims that this is a violation of federal law. Is Gert correct? If so, what federal law has Drew violated? If not, has Drew violated any law?

Q: Fine Café Company offers its stock for sale only in a single state. The law in Fine's state is like the law in most states. Fine's offer is subject to state securities statutes that include a. antifraud and disclosure provisions. b. antifraud provisions only. c. disclosure provisions only. d. neither antifraud nor disclosure provisions.

Q: Lara is the chief executive officer of Micro, Inc., which is required to file certain financial reports with the Securities and Exchange Commission (SEC). Under the Sarbanes-Oxley Act of 2002, Lara must personally a. certify that the reports are complete and accurate. b. designate a corporate official to assume liability for inaccuracies. c. do nothing. d. read the reports and be prepared to answer questions about them.

Q: Tom, an accountant for Universal Company, learns that Vicky, a Universal director, has violated insider-trading laws. Tom does not suffer a loss in trading with Vicky, but reports her to the Securities and Exchange Commission. Tom may be entitled to a. a bounty payment. b. damages equal to the amount of Vicky's profits. c. damages equal to the amount of Universal's losses (if any). d. triple the profits gained by Vicky.

Q: Elin contracts to buy securities from Fred. Later, believing that Fred committed fraud in the deal, Elin files a suit against him. If Fred is found liable, Elin may obtain a. an apology only. b. damages to the extent of Fred's illegal profits only. c. damages to the extent of Fred's illegal profits or rescission of her contract to buy securities from Fred. d. rescission of her contract to buy securities from Fred only.

Q: Fact Pattern 41-2 The government investigates Ross's buying and selling of Small Business Company (SBC) stock, the media reports on the investigation, and the value of the stock drops. At a conference attended by investors, Ross briefly defends his actions before making a presentation on a different topic. Other presentations on other topics by other individuals and companies follow. Refer to Fact Pattern 41-2. According to the reasoning of the court in Case 41.3, United States v. Stewart, Ross's conduct is a. a criminal violation of the Securities Act of 1933 and the Securities Exchange Act of 1934. b. a criminal violation of the Securities Act of 1933 only. c. a criminal violation of the Securities Exchange Act of 1934 only. d. not a criminal act.

Q: Fact Pattern 41-2 The government investigates Ross's buying and selling of Small Business Company (SBC) stock, the media reports on the investigation, and the value of the stock drops. At a conference attended by investors, Ross briefly defends his actions before making a presentation on a different topic. Other presentations on other topics by other individuals and companies follow. Refer to Fact Pattern 41-2. Suppose that the government files charges against Ross for fraud in connection with the purchase and sale of securities. Under the decision of the court in Case 41.3, United States v. Stewart, to succeed, the government must prove a. only that Ross bought and sold SBC stock. b. scienter on the part of Ross and SBC. c. scienter on the part of Ross only. d. scienter on the part of SBC only.

Q: Excel Aviation Corporation is required to register its securities under Section 12 of the Securities Exchange Act of 1934. Section 14(a) of the act regulates a. the declaration of dividends by Excel's board of directors. b. the later re-registration of Excel's securities. c. the short-swing activities of Excel's insiders. d. the solicitation of proxies from Excel's shareholders.

Q: Dave, an accountant, does not work for Eagle Oil Company, but wrongfully obtains inside information concerning Eagle. Based on the information, Dave buys and sells Eagle stock to his personal gain. The SEC prosecutes Dave, arguing that he is liable because he stole information rightfully belonging to another. The SEC's argument is a. the blue-sky theory. b. the misappropriation theory. c. the red-herring theory. d. the tipper/tippee theory.

Q: Fact Pattern 41-1 Adam, a director of Beta Computer Company, learns that a Beta engineer has developed a new, significantly faster computer chip. Adam buys Beta stock and tells his friend Cathy, who also buys Beta stock. When the new chip is announced three weeks later, Adam and Cathy sell their stock for a big profit. Refer to Fact Pattern 41-1. Regarding Adam's profits on the purchase and sale of Beta stock, under Section 16(b) of the Securities Exchange Act of 1934 Beta may recapture a. all of Adam's profits. b. half of Adam's profits. c. 10 percent of Adam's profits. d. none of Adam's profits.

Q: In Case 41.2, United States v. O"Hagan, the United States Supreme Court held that liability for insider trading under Rule 10b-5 a. may be based on a misappropriation theory. b. does not require the use of a deception. c. may not be based on a fraud on the market theory. d. may extend to tippees.

Q: Fact Pattern 41-1 Adam, a director of Beta Computer Company, learns that a Beta engineer has developed a new, significantly faster computer chip. Adam buys Beta stock and tells his friend Cathy, who also buys Beta stock. When the new chip is announced three weeks later, Adam and Cathy sell their stock for a big profit. Refer to Fact Pattern 41-1. Under SEC Rule l0b-5, Adam would not be liable if he had waited to buy Beta stock until a. after Adam told Cathy of the new chip. b. after Cathy bought Beta stock. c. after the public announcement of the chip. d. just before the chip was announced.

Q: To raise capital to form Apex Corporation with Bert, Carla sells bonds and stock in other companies, and plans to register an initial public offering under the Securities Act of 1933. SEC Rule l0b-5 covers a. most forms of securities. b. only bonds. c. only securities registered under the Securities Act of 1933. d. only stock.