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Entrepreneurship: Successfully Launching New Ventures, 6e (Barringer/Ireland)
Chapter 7 Preparing the Proper Ethical and Legal Foundation
1) Billy Goat Ice Cream, the company profiled in the opening feature in Chapter 7, is a
________.
A) limited liability corporation
B) sole proprietorship
C) partnership
D) Schedule S corporation
E) Schedule C corporation
2) According to the textbook, the single most important thing the founders of an entrepreneurial
venture can do is ________.
A) start a board of advisors
B) establish business partnerships
C) make money
D) select a limited liability corporation as opposed to an S-corporation
E) establish a strong ethical culture for their firms
3) According to the 2016 Global Business Ethics Survey, a total of ________ percent of U.S.
employees surveyed report observing misconduct.
A) 7
B) 15
C) 24
D) 47
E) 30
4) According to the 2016 Global Business Ethics Survey, ________ percent of U.S. respondents
indicated that they reported observed misconduct in their workplace.
A) 52
B) 67
C) 76
D) 81
E) 94
5) Which of the following is the most important thing that an entrepreneur, or team of
entrepreneurs, can do to build a strong ethical culture in their organization?
A) Implement an ethics training program
B) Write a mission statement
C) Lead by example
D) Hire an ethics compliance officer
E) Write a code of conduct
6) A code of ________ is a formal statement of an organization’s values on certain ethical and
social issues.
A) conduct
B) behavior
C) performance
D) principles
E) morals
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7) Facebook’s Code of Conduct has ________ sections.
A) 3
B) 13
C) 8
D) 11
8) A situation that involves doing something that is beneficial to oneself or the organization, but
may be unethical, is called a(n) ________.
A) ethical quandary
B) ethical predicament
C) ethical dilemma
D) principled quandary
E) just dilemma
9) The advantage of having a code of conduct is that it provides specific guidance to
entrepreneurs, managers, and ________ regarding expectations of them in terms of ethical
behavior.
A) suppliers
B) employees
C) customers
D) outsiders
E) lenders
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10) The single most important thing the founders of an entrepreneurial venture can do to avoid
ethical misconduct is to establish a strong ethical culture for their firms.
11) The most important thing that any entrepreneur, or team of entrepreneurs, can do to build a
strong ethical culture in their organization is to hire an aggressive attorney.
12) An ethical dilemma is a situation that involves doing something that is beneficial to oneself
or the organization, but may be unethical.
13) List and briefly describe three specific steps that an entrepreneurial organization can take to
build a strong ethical culture.
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14) What is a founders’ agreement? Describe the purpose of a buyback clause and why it’s
important?
15) Describe the purpose of a nondisclosure agreement. Provide an example of when a
nondisclosure agreement kicks in.
16) A(n) ________ is a written document that deals with issues such as the relative split of the
equity among the founders of the firm, how individual founders will be compensated for the cash
or the “sweat equity” they put into the firm, and how long the founder will have to remain with
the firm for their shares to fully vest.
A) entrepreneurs’ agreement
B) creators’ agreement
C) founders’ agreement
D) initiators’ agreement
E) originators’ agreement
17) Most founders’ agreements include a ________ clause, which legally obligates the departing
founder to sell to the remaining founders his or her interest in the firm if the remaining founders
are interested.
A) redemption
B) buyback
C) statutory purchase
D) voluntary recoup
E) shareholder surrender
18) Which of the following is typically NOT included in the founders’ agreement for a firm?
A) Marketing plan
B) Legal form of business ownership
C) Buyback clause
D) Apportionment of stock
E) Identity and proposed titles of the founders
19) The Savvy Entrepreneurial Firm feature in Chapter 7 focuses on the topic of vesting
company stock. According to the feature, a typical startup’s vesting schedule lasts ________ and
includes a 12-month cliff.
A) 12 months
B) 12 months to 24 months
C) 24 months to 36 months
D) 36 months to 48 months
E) 48 months to 60 months
20) A(n) ________ agreement binds an employee or another party to not disclose a company’s
trade secret. A ________ agreement prevents an individual from competing against a former
employer for a specific period of time.
A) nondisclosure; noncompete
B) non breach-of-trust; nonchallenge
C) voluntary truth; nonparticipate
D) binding confidentiality; noncompete
E) ethics; nonparticipate
21) Jessica Marsh just took a job with Instagram. As part of her employment contract, Jessica
signed an agreement that states that she will not disclose any of Instagram’s trade secrets. The
agreement that Jessica signed is called a(n) ________ agreement.
A) nondisclosure
B) non breach-of-trust
C) ethics
D) binding confidentiality
E) legitimacy
22) Steven Diaz just took a job with Harley Davidson. As part of his employment agreement,
Harley Davidson required Steven to sign an agreement, which states that if he leaves Harley
Davidson, he will not work for a firm that competes against Harley Davidson for at least two
years. The agreement that Steven signed is called a ________ agreement.
A) nondisclosure
B) nonparticipate
C) nonchallenge
D) noncompete
E) noncontend
23) ________ is the process in which an impartial third party helps those involved in a dispute
reach an agreement.
A) Conciliation
B) Reconciliation
C) Negotiation
D) Appeasement
E) Mediation
24) It is important for an entrepreneur to select an attorney as late as possible when developing a
business venture.
25) A founders’ agreement is a written document that deals with issues such as the relative split
of the equity among the founders of the firm.
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26) The idea that it’s important to get “everything in writing” in regard to business agreements
27) A noncompete agreement prevents an individual from competing against a former employer
for a specific period of time.
28) Mediation is the process in which an impartial third party helps those involved in a dispute
reach an agreement.
Answer: TRUE
Diff: 2
29) Which of the following statements regarding business licenses and permits is incorrect?
A) Most business licenses and permits can wait until after a business is launched to be obtained.
B) A business license can typically be obtained at the city clerk’s office in the community where
the business will be located.
C) If a business will be run out of a home, a home occupation business license is often required.
D) Some business licenses are hard to get.
E) The business licenses and permits that are needed vary by city, county, and state.
30) Most businesses that plan to use a fictitious name, which is any name other than the business
owner’s name, need a(n) ________ permit.
A) unreal business name
B) fabricated business name
C) invented business name
D) conjured business name
E) fictitious business name
31) Very few businesses require licenses and permits to operate.
32) Which form of business ownership is a particularly poor choice for an aggressive
entrepreneurial firm?
A) C corporation
B) Sole proprietorship
C) Subchapter S corporation
D) Limited partnership
E) Limited liability corporation
33) Which of the following is NOT one of the four factors identified in the textbook as critical in
selecting a form of business ownership?
A) The cost of setting up and maintaining the legal form
B) The number and types of investors involved
C) Accounting considerations
D) Tax considerations
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34) The simplest and most common form of business entity is the ________.
A) sole proprietorship
B) general partnership
C) C corporation
D) limited liability company
E) subchapter S corporation
35) All of the following are advantages of a sole proprietorship except ________.
A) creating one is easy and inexpensive
B) unlimited liability
C) it is not subject to double taxation
D) the owner maintains complete control of the business
E) business losses can be deducted against the sole proprietor’s other sources of income
36) Which of the following statements is incorrect regarding sole proprietorships?
A) There is one owner.
B) Sole proprietor is in full control.
C) Business ends at the owner’s death or loss of interest in the business.
D) Liquidity of the investment is high.
E) Money must be raised by the sole proprietor.