Entrepreneurship and Small Business Management, 2e (Mariotti)
Chapter 16 Addressing Legal Issues and Managing Risk
1) In a corporation, all profits go to ________.
A) The owners and the shareholders
B) Reduce the surplus
C) The stockholders as salaries
D) The partners according to the terms of the agreement
E) Friends and family
Learning Obj.: LO 1
AACSB: Analytical thinking
2) ________ insurance is designed to cover in the event that a business’s (its employees’) failure
to do something that causes harm to a customer.
A) Errors and omissions
B) Negligence
C) Product liability
D) Workers Comp
E) Flood
Learning Obj.: LO 5
AACSB: Analytical thinking
3) 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) Alterations
E) Modifications
Learning Obj.: LO 2
AACSB: Analytical thinking
1
4) Some contracts specify that conflicts may be settled through ________ instead of court.
A) Arbitration
B) Negotiation
C) Coercion
D) Litigation
E) None of the above
Learning Obj.: LO 2
AACSB: Analytical thinking
5) The time period in which legal action may be taken is the ________.
A) Statute of limitations
B) Statute of legal obligations
C) Limit of liability
D) Limit of collection
E) None of the above
Learning Obj.: LO 2
AACSB: Analytical thinking
6) Obtain a trademark in order to ________.
A) Protect your logo
B) Protect all your intellectual property
C) Register your business name
D) Pay your taxes
E) Get new customers
Learning Obj.: LO 4
AACSB: Analytical thinking
7) A low deductible will yield a ________.
A) Higher premium
B) Lower premium
C) The deductible has no impact on the premium.
D) Disaster
E) Savings in all cases
Learning Obj.: LO 5
AACSB: Analytical thinking
2
8) ________ are the building blocks of business.
A) Contracts
B) Personal relationships
C) Letters of agreements
D) Networks
E) Loans
Learning Obj.: LO 2
AACSB: Analytical thinking
9) You do not need a patent unless you ________.
A) Believe that someone else could successfully sell the product by copying your invention
B) Have invented a product that you intend to market yourself or sell to a manufacturer
C) Both A and B
D) Want to get sued
E) None of the above
Learning Obj.: LO 4
AACSB: Analytical thinking
10) 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) Assume parties will abide by the contract
E) Both A and B
Learning Obj.: LO 2
AACSB: Analytical thinking
11) If you purchase $250,000 worth of insurance to protect your restaurant, with a $10,000
deductible, how much money are you entitled to receive as a payout if a fire destroys your store,
which is valued at $250,000?
A) $240,000
B) $10,000
C) $250,000
D) $350,000
E) $290,000
Learning Obj.: LO 5
AACSB: Application of knowledge
3
12) ________ protects people from having property or wealth stolen, lost, or destroyed. There
are many kinds, and in order to purchase it you pay a monthly, quarterly, or annual ________.
A) Insurance, premium
B) Insurance, dividend
C) Insurance, carrying cost
D) Protection, dividend
E) Coverage, carrying cost
Learning Obj.: LO 5
AACSB: Analytical thinking
13) The number of stockholders in a Subchapter S Corporation is limited to ________.
A) 100
B) 50
C) 250
D) 12
E) 25
Learning Obj.: LO 1
AACSB: Analytical thinking
14) What is used to identify and distinguish the source of a service rather than a product?
A) Service mark
B) Trademark
C) Sales mark
D) All of the above
E) None of the above
Learning Obj.: LO 4
AACSB: Analytical thinking
15) Which of the following is not necessary for a contract to be binding?
A) Signing parties must have their signatures notarized.
B) Signing parties must exchange something of value or agree not to do something they are
legally entitled to do.
C) Both parties must sign the contract.
D) Witnesses must be present.
E) All of the above
Learning Obj.: LO 3
AACSB: Analytical thinking
4
16) An injured party whose rights in a contract have been breached can bring a ________ against
the other party.
A) Lawsuit
B) Motion
C) Mediation
D) Judgment
E) Claim
Learning Obj.: LO 2
AACSB: Analytical thinking
17) Federal, state and local ________ may apply to a business and may affect what it can do,
how it can do it, and when and where it can operate.
A) Regulations
B) Grants
C) Taxes
D) All of the above
E) None of the above
Learning Obj.: LO 3
AACSB: Analytical thinking
18) The form of protection offered under U.S. law to the authors of “original works of
authorship” is a(n) ________.
B) Electronic right
C) Patent
D) Right
E) Charter
Learning Obj.: LO 4
AACSB: Analytical thinking
19) The main disadvantage of corporations is that corporate income is ________.
A) Taxed twice
B) Always high
C) Taxed only once
D) All of the above
E) None of the above
Learning Obj.: LO 1
AACSB: Analytical thinking
5
20) Infringement of intellectual property is ________.
A) A crime
B) Profitable
C) A business tactic
D) Commonplace
E) Acceptable
Learning Obj.: LO 4
AACSB: Analytical thinking
21) If you invent something and don’t patent it, it falls into the public domain, meaning that
________.
A) Anyone can manufacture your invention and profit from selling it without paying you
B) You can sell the right to manufacture the invention
C) You can sell your invention publicly without paying the U.S. Patent Office
D) All of the above
E) None of the above
Learning Obj.: LO 4
AACSB: Analytical thinking
22) 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) All of the above.
E) None of the above.
Learning Obj.: LO 2
AACSB: Analytical thinking
23) Tax-exempt, nonprofit corporations ________.
A) Are set up with a specific mission to improve society
B) Do not have legal liability
C) Pay dividends more often than do for-profit corporations
D) Do not have boards of directors
E) Pay more taxes than do other entities
Learning Obj.: LO 1
AACSB: Analytical thinking
6