Entrepreneurship and the Law
Exam Answer Key
Course Introduction
This course explores the intersection of entrepreneurship and legal frameworks, providing students with essential knowledge of the laws that impact startups and new ventures. Topics include business entity formation, intellectual property protection, contract negotiation and enforcement, regulatory compliance, financing, and employment law considerations. Students will analyze real-world case studies, examine legal risks and strategies for mitigation, and gain practical insights into navigating the legal challenges often encountered by entrepreneurs. By the end of the course, students will be equipped with foundational legal literacy to make informed decisions and avoid common pitfalls in launching and growing a business.
Recommended Textbook
Essentials of Business Law and the Legal Environment 11th Edition by Richard A. Mann
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50 Chapters
4286 Verified Questions
4286 Flashcards
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Chapter 1: Introduction to Law
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78 Verified Questions
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Sample Questions
Q1) A constitution restricts the powers of the government and specifies the rights and liberties of the people.
A)True
B)False
Answer: True
Q2) What is law? Discuss the various definitions of law by legal scholars.What is the relationship between law and morality and between law and justice?
Answer: Numerous philosophers and jurists have attempted to define law.American jurists Oliver Wendell Holmes and Benjamin Cardozo defined law as predictions of the way a court will decide specific legal questions.On the other hand,the English jurist Blackstone defined law as a "rule of civil conduct prescribed by the supreme power in a state,commanding what is right,and prohibiting what is wrong." Roscoe Pound,a distinguished American jurist,described law as having multiple meanings,including the legal order,the aggregate of laws or legal precepts,and the judicial process. Law and morality can be viewed as intersecting circles,but they are not concentric.They include some common area,but they are not exactly the same.Law and justice represent separate and distinct concepts.Without law,there can be no justice,but law is no guarantee of justice.
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Chapter 2: Business Ethics
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Sample Questions
Q1) Psychologist Lawrence Kohlberg observed that people progress through sequential stages of moral development according to the two major variables of age and reasoning.
A)True
B)False Answer: True
Q2) To a libertarian,it is not unjust for some people to accumulate fortunes while others live in poverty.
A)True
B)False Answer: True
Q3) It is possible for legal acts to be immoral.
A)True
B)False Answer: True
Q4) The "Television Test" is a test that is generally accepted by adherents of intuitionism.
A)True
B)False Answer: True
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Chapter 3: Civil Dispute Resolution
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Sample Questions
Q1) The federal courts and the state courts can never have concurrent jurisdiction over the same case.
A)True
B)False
Answer: False
Q2) The U.S.Supreme Court has held that a state may not exercise personal jurisdiction over a nonresident defendant who is temporarily present by personally serving the defendant in the state.
A)True
B)False Answer: False
Q3) Venue has to do with which court has jurisdiction over the subject matter of a lawsuit.
A)True
B)False Answer: False
Q4) Arbitration is a commonly used technique for resolving international disputes.
A)True
B)False Answer: True
Page 5
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Chapter 4: Constitutional Law
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Sample Questions
Q1) In relation to the Takings Clause,public use has been held to be synonymous with public purpose.
A)True
B)False
Q2) Most constitutional protections apply only to governmental,or state,action.
A)True
B)False
Q3) The First Amendment guarantee of free speech applies not only to individuals but also to corporations.
A)True
B)False
Q4) A classic and important example of strict scrutiny of classifications based upon race is the 1954 school desegregation case of:
A)Board of Curators of the University of Missouri v. Horowitz.
B)Brentwood Academy v. Tennessee Secondary School Athletic Association.
C)Parents Involved in Community Schools v. Seattle School District No. 1.
D)Brown v. Board of Education of Topeka.
Q5) Identify the purpose of the U.S.Constitution as stated in its preamble.
Q6) Briefly discuss the Contract Clause of the Constitution.
Page 6
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Chapter 5: Administrative Law
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Sample Questions
Q1) Rulemaking powers of federal agencies are primarily governed by the:
A)SEC.
B)APA.
C)FCC.
D)NHTSA.
Q2) The Government in the Sunshine Act covers all but which of the following agencies?
A)Consumer Product Safety Commission.
B)Commodity Futures Trading Commission.
C)Environmental Protection Agency.
D)Securities and Exchange Commission.
Q3) Which of the following statements is true regarding administrative law judges?
A)ALJs are appointed by the president with the approval of the Senate.
B)ALJs may be removed only for good cause.
C)There are more than twice as many federal judges as there are administrative law judges.
D)Administrative law judges preside over jury cases within the area of expertise of the agency.
Q4) Explain what is considered a "major rule" and the effect of an administrative rule's being in this category.
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Chapter 6: Criminal Law
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Sample Questions
Q1) Some states still recognize common law crimes.
A)True
B)False
Q2) In general,a crime consists of two elements: (1)the wrongful or overt act and (2)the criminal or mental intent.Discuss the following concepts of criminal law and how and why the general elements of criminal action are altered,extended,or eliminated.In addition,give examples corresponding to each concept of the type of conduct that could be a criminal act.
a.Objective fault
b.Vicarious liability
c.Corporate liability
Q3) Under what circumstances has it been held that a search warrant is not necessary?
Q4) At common law,__________ was defined as a breaking and entering of a dwelling house at night with the intent to commit a felony.
A)burglary
B)bribery
C)robbery
D)theft
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Chapter 7: Intentional Torts
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Sample Questions
Q1) Disparagement differs from defamation in that defamation pertains to personal reputation,whereas disparagement pertains to business interests.
A)True
B)False
Q2) Arthur offers Bob,an employee of Carl,a yearly salary of $10,000 more than Bob receives under the contractual relationship between Bob and Carl.Arthur knows about the contract between Bob and Carl and knows that the contract should run for another five years,but Arthur badly wants Bob to work for him.Arthur probably is liable to Carl for intentional interference with contractual relations.
A)True
B)False
Q3) Bodily contact that is harmful or offensive can give rise to the tort of:
A)assault.
B)battery.
C)defamation.
D)appropriation.
Q4) A privilege may result in immunity from tort liability.
A)True
B)False
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Chapter 8: Negligence and Strict Liability
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Sample Questions
Q1) While comparative negligence is generally not a defense in a strict liability case,contributory negligence generally is a successful defense.
A)True
B)False
Q2) If a statute is found to be applicable to a fact situation,then the courts will hold that an unexcused violation of that statute which causes an injury to another is:
A)strict liability.
B)res ipsa loquitur.
C)negligence per se.
D)assumption of the risk.
Q3) An action for negligence consists of which of the following elements which the plaintiff must prove?
A)Injury.
B)Res ipsa loquitur.
C)A reasonable person.
D)All of the above.
Q4) What activities give rise to strict liability and what defenses are available to strict liability?
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Chapter 9: Introduction to Contracts
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Sample Questions
Q1) Maria posted several signs in the neighborhood offering $50 for the return of her lost cat.Dave calls to get a description of the cat and tells Maria,"I'll look for your cat." A contract is formed by Dave's call to Maria.
A)True
B)False
Q2) __________ is/are any property other than an interest in real property.
A)Goods.
B)Personal property.
C)Tangible property.
D)None of the above.
Q3) A contract to sell life insurance is covered by Article 2 of the Uniform Commercial Code.
A)True B)False
Q4) A contract to sell five acres of land is governed by Article 2 of the UCC. A)True B)False
Q5) An implied in fact contract is formed by conduct. A)True
B)False
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Chapter 10: Mutual Assent
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Sample Questions
Q1) Which is not a revocable offer?
A)A bid to construct a bridge for the city.
B)An offer to buy stock in the ABC Corporation once it is formed.
C)A unilateral offer to pay John $30 to mow your lawn after he has completed half the job and indicates he wishes to finish.
D)None of the above are revocable offers.
Q2) The case in which the court held that a newspaper advertisement was an offer because it contained a promise of performance in definite terms in return for a requested act was:
A)Catamount Slate Products, Inc. v. Sheldon.
B)Sherrod v. Kidd.
C)Lefkowitz v. Great Minneapolis Surplus Store, Inc.
D)Giannetti v. Cornillie.
Q3) Death or insanity of either the offeror or the offeree ordinarily terminates the offer.
A)True
B)False
Q4) What are the ways in which an offer may be terminated?
Q5) Discuss silence as acceptance of an offer.
Q6) Distinguish between a rejection of an offer and a revocation of an offer.
Page 12
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Chapter 11: Conduct Invalidating Assent
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Sample Questions
Q1) Give an example of each of the following:
a.Unilateral mistake
b.Mistake in the meaning of a contract term.
Q2) The law will carefully scrutinize contracts between Pete,a trustee,and Mason,a beneficiary of the trust,to make sure there was no undue influence by Pete.
A)True
B)False
Q3) Harry was told that he had to pay $50 for filing his claim in small claims court.He did.If the fee is really $40,he cannot recover the $10 because it is a unilateral mistake of fact.
A)True
B)False
Q4) For rescission to be available as a remedy for a false statement,a misrepresentation must have been made with scienter.
A)True
B)False
Q5) Fraud in the inducement will render an agreement void.
A)True
B)False
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Chapter 12: Consideration
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Sample Questions
Q1) "Consideration" requires an actual benefit to both sides of an agreement.
A)True
B)False
Q2) In a contract for the sale of lawn care services,an issue arises about whether the homeowner would receive disproportionately less in service than the lawn care company would receive in compensation.This disparity may be relevant to the:
A)requirement of legally sufficient consideration.
B)availability of certain defenses.
C)availability of certain remedies.
D)All of the above.
E)Only (b) and (c).
Q3) D owes C a past-due undisputed debt of $500.D sees C in a bar and pays him $400.C then says to D,"Forget about the other $100 you owe me.I'm glad to get the $400." C's promise to discharge the remainder of the debt is binding.
A)True
B)False
Q4) Define legal detriment.
Q5) Define consideration.
Q6) Discuss the concept of adequacy of consideration.
Page 14
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Chapter 13: Illegal Bargains
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Sample Questions
Q1) B& B,Inc.pays an attorney to draft and lobby for a bill which will greatly lessen B & B's tax liability to the state and federal governments.B&B gives the attorney $20,000 in cash to pay legislators for taking the time to listen to him.This is an agreement which is a violation of public policy.
A)True
B)False
Q2) Edward,an engineer,is working on a new design for some highly technical equipment which Martus,Inc.hopes to market within the next five years.The employment agreement between Edward and Martus states that Edward will not go to work for another company in the same business for a period of two years after termination of his employment with Martus,Inc.This agreement is void and unenforceable because,although Martus is a very specialized company,it would make it difficult for Edward to find other employment.
A)True
B)False
Q3) An exculpatory clause attempts to excuse one from liability for her own tortious conduct.
A)True
B)False
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Chapter 14: Contractual Capacity
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Sample Questions
Q1) Disaffirmance must be express; it may not be implied.
A)True
B)False
Q2) Which of the following is untrue regarding the contracts of incompetent persons?
A)An incompetent person is liable for necessaries.
B)Unlike a minor, an incompetent person can never ratify a contract.
C)To avoid a contract, a person need not be permanently incompetent.
D)Under the cognitive ability test, a person is incompetent if he is unable to understand the nature and effect of his act.
Q3) The doctrine of necessaries applies in the same way to minors and mental incompetents.
A)True
B)False
Q4) Intoxicated persons are liable in quasi-contract for necessaries purchased during their incapacity.
A)True
B)False
Q5) Discuss the concept of ratification and the ways in which a minor may ratify a contract.Give an example.
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Chapter 15: Contracts in Writing
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Sample Questions
Q1) Define the statute of frauds and give an example of what is covered.
Q2) Bob sends Fred a letter offering to sell Fred his car for $2,500.Fred writes back that he'll take it.They now must get together and write a memorandum because it is a sale of goods for over $500.
A)True
B)False
Q3) Which of the following promises does not have to be evidenced by a writing or electronic record in order to be enforceable?
A)Jones's agreement with Smith to sell his condominium for $100,000.
B)Stewart's promise to work for Austin for a two-year period.
C)Dad's promise to the credit union that he will make payments on his son's truck.
D)Mindy's agreement with Susan to buy her bike for $400.
Q4) A collateral promise is an undertaking to be primarily liable for the principal debtor's debt.
A)True
B)False
Q5) On April 2,Derrick hires JoAnn to work for ten months starting on June 10.Does the employment contract have to be written?
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Chapter 16: Third Parties to Contracts
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Sample Questions
Q1) Anita owes Brad $75,000.Brad signs a written statement granting Cal a gratuitous assignment of his rights from Anita.If Brad dies prior to delivering the statement to Cal:
A)Brad's death has no effect on the assignment.
B)the assignment is terminated upon Brad's death.
C)the signing of the statement makes the assignment irrevocable.
D)the assignment is invalid, because it is gratuitous.
Q2) Which of the following involves a creditor beneficiary relationship?
A)A contract where the insured names a bank with which he has a loan as the beneficiary of a life insurance policy.
B)A contract between an employer and a union representing the employees which is made for the benefit of the employees.
C)A contract between the owner of a building and the contractor stating that the contractor will pay the contractor's employees at a stated rate.
D)A contract between a governmental unit and business for services to be rendered to area citizens.
Q3) Discuss defenses available to the promisor in an action by an intended third-party beneficiary to enforce the promise.
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Page 18
Chapter 17: Performance, Breach, and Discharge
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Sample Questions
Q1) An unauthorized alteration of ANY of the material terms in a written contract discharges the entire contract.
A)True
B)False
Q2) The majority of courts hold that the running of the statute of limitations operates to discharge a contract.
A)True
B)False
Q3) The "perfect tender rule" provides that only substantial deviations from the promised performance in a sales contract under the Code constitute a material breach and discharge the aggrieved party from the duty of performance.
A)True
B)False
Q4) After the coronation of Edward VII was postponed and parties who had entered into contracts in anticipation of the event filed numerous suits,the doctrine of frustration of purpose evolved.
A)True
B)False
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Chapter 18: Contract Remedies
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Sample Questions
Q1) According to the "American Rule," when contracting parties litigate over a breach:
A)each party pays its own attorney fees, regardless of who wins.
B)attorney fees are considered consequential damages.
C)the losing party has to pay the winner's attorney fees.
D)a provision for attorney fees in the written contract will not be given effect.
Q2) Which of the following is correct with respect to election of remedies?
A)The Code follows the doctrine of election of remedies with respect to contracts for the sale of goods.
B)The remedy of specific performance is consistent with that of restitution.
C)A person who seeks an injunction may also seek incidental damages for the breach.
D)All of the above are correct.
Q3) The majority of states allow the injured party who has been induced to enter into a contract by fraud to recover only "out-of-pocket" damages equal to the difference between the value of what she has received and the value of what she has given for it.
A)True
B)False
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Chapter 19: Introduction to Sales and Leases
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Sample Questions
Q1) The CISG governs only the formation of the contract of sales and the rights and obligations of the seller and buyer.It does not cover the validity of the contract or any of its provisions.
A)True
B)False
Q2) Mary and Remaldi Co.have dealt with each other for many years.Mary's Boutique orders 100 assorted lipsticks at $2.00 each from Remaldi Co.Remaldi sends back a confirmation letter with an additional,nonmaterial term.There is:
A)no contract, but a counteroffer.
B)a contract with the additional term unless Mary objects.
C)a contract with the additional term only if Mary agrees.
D)a contract without the additional term.
Q3) What does Article 2 say with regard to the following?
a.Good faith.
b.Unconscionability.
c.Expansion of commercial practices.
Q4) Contracts containing unconscionable clauses are void and unenforceable.
A)True
B)False
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Chapter 20: Performance
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Sample Questions
Q1) When is a buyer deemed to have accepted goods that are delivered pursuant to a contract?
A)If he fails to reject the goods after he has had a reasonable opportunity to inspect them.
B)Immediately upon delivery.
C)Only when he pays for them.
D)Only after an express acceptance.
Q2) Vernon is an accountant for a major accounting firm.One day at work,he is discussing his collection of rare coins with one of his co-workers.Vernon tells his co-worker that he keeps his collection at home and that he has recently purchased several Chinese gold Panda coins at an exceptional price.The co-worker expresses an interest in buying two of the coins at a price of $250,and a contract is duly formed.If no place for delivery is expressed,where are the coins to be delivered?
A)At the office of the major accounting firm where the parties to the contract work.
B)At Vernon's home.
C)At the co-worker's home.
D)In the parking lot of the major accounting firm.
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Page 22
Chapter 21: Transfer of Title and Risk of Loss
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Sample Questions
Q1) In Robinson v.Durham,the court found:
A)the Robinsons were good faith purchasers for value when they bought the car for their business, and they had good title which they passed to Durham.
B)the Robinsons had a voidable title, and they passed good title to Durham, who was a good faith purchaser for value.
C)there was a breach of warranty of title between the Robinsons and Durham.
D)the Robinsons obtained no title from the thief, but they passed good title to Durham since he was a good faith purchaser for value.
Q2) The bulk sales portion (Article 6)of the Code applies only to transfers in the ordinary course of business.
A)True
B)False
Q3) Title to goods passes according to rules under the Code if the parties have no explicit agreement as to transfer of title.
A)True
B)False
Q4) How has the Code affected the rights of good faith purchasers with respect to minors?
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Page 23
Chapter 22: Product Liability: Warranties and Strict Liability
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Sample Questions
Q1) Article 2A carries over the warranty provisions of Article 2 with relatively minor revisions that reflect differences in:
A)style.
B)leasing terminology.
C)leasing practices.
D)All of the above.
E)(a) and (c) but not (b)
Q2) Jared drives his car knowing that the brakes are defective and has an accident in which the car is damaged and he is injured.He will likely be unable to recover from the manufacturer,because he voluntarily assumed the risk of the defective brakes.
A)True
B)False
Q3) Horizontal privity pertains to remote sellers within the chain of distribution. A)True
B)False
Q4) Bradley buys a television set that turns out to be stolen.He can sue the seller for breach of warranty.
A)True
B)False
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Chapter 23: Sales Remedies
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Sample Questions
Q1) Since the purpose of remedies under the Code is compensation,punitive damages are generally available.
A)True
B)False
Q2) If the buyer makes a wrongful rejection,the seller may resell the goods in good faith and in a commercially reasonable manner and the seller may recover from the buyer the difference between the contract price and the resale price,plus any incidental damages,minus expenses saved.
A)True
B)False
Q3) A seller's remedies upon the buyer's default:
A)may be goods oriented, money oriented, or obligation oriented.
B)are subject to the doctrine of election of remedies.
C)are, under the UCC, the same as a buyer's remedies for the seller's breach.
D)All of the above.
Q4) Under the UCC,the aggrieved party must choose one remedy to ask for and forfeit the others.
A)True
B)False
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Chapter 24: Form and Content
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Sample Questions
Q1) Elmore purchases goods from Grady,and Elmore executes and delivers a negotiable note to Grady for $1,200,payable to Grady's order in 30 days.Two weeks later,Grady negotiates the note to McDaniel.Which of the following is true?
A)McDaniel is required to notify Elmore that he acquired the note.
B)If the goods are defective, Elmore's defense will necessarily be available against McDaniel.
C)Whether Elmore's defense is available against McDaniel will depend on whether McDaniel acquired the note in good faith and for value, had no knowledge of the defense, and took the note without reason to question its authenticity.
D)McDaniel can acquire no greater rights than Grady had in the note.
Q2) An authorization to confess judgment on the instrument destroys its negotiability.
A)True
B)False
Q3) A promise or order is payable at a definite time if it is payable:
A)at a time readily ascertainable at the time the promise or order is issued.
B)at a fixed date or dates.
C)at a definite period of time after sight or acceptance.
D)All of the above.
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Chapter 25: Transfer and Holder in Due Course
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Sample Questions
Q1) Marie is the bookkeeper for the Buildco Construction Company.She makes out the payroll; prepares all of the payroll checks and reconciles the bank statements for the firm.She decides to increase her income by padding the payroll; accordingly,she makes out a check in the name of someone who does not exist.She then indorses the check with the payee's name and her name and cashes the check herself at First Bank where the company has its account.Under the fictitious payee rule,Buildco and not the bank will be liable for this check.
A)True
B)False
Q2) Whether a transfer is by assignment or by negotiation,the transferee does not acquire the rights the transferor had.
A)True
B)False
Q3) The Code provides an exception to the executory promise rule in:
A)the giving of a negotiable instrument.
B)the making of an irrevocable obligation to a third party.
C)the lack of notice.
D)Both (a) and (b) are correct.
Q4) What is negotiation? How does one become a "holder" of an instrument?
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Chapter 26: Liability of Parties
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Sample Questions
Q1) "Presentment" is necessary within 10 days of the date of issuance of a check.
A)True
B)False
Q2) To certify a check,the bank must:
A)tell the one who presents it.
B)send a letter to the drawer.
C)write the acceptance on the check.
D)Any of the above will be sufficient.
Q3) Notice of dishonor of an instrument must be given:
A)by a bank before midnight of the third banking day following the banking day on which it receives notice of dishonor.
B)by a bank before midnight on the next banking day following the banking day on which it receives notice of dishonor.
C)by a nonbank, with respect to an instrument taken for collection, within three business days following the day on which it received notice.
D)in all situations within seven calendar days following the day on which dishonor occurred.
Q4) List and generally explain the warranties on presentment.
Q5) Discuss the effect of an unauthorized signature on an instrument.
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Chapter 27: Bank Deposits, Collections, and Funds Transfers
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Sample Questions
Q1) The relationship between the payor bank and its checking account customer is exclusively governed by statute and leaves no room for contractual modifications.
A)True
B)False
Q2) The Electronic Funds Transfer Act governs electronic transfers between financial institutions,between financial institutions and businesses,and between businesses.
A)True
B)False
Q3) If a depositor in First Bank takes a check written on Valley Bank to First Bank to deposit,it will not normally be credited to his account until collected from the payor bank. A)True
B)False
Q4) A bank may pay a check after the death of its customer for ten days following the date of his death unless a person claiming an interest in the account orders the bank to stop making such payments.
A)True
B)False
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Chapter 28: Relationship of Principal and Agent
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Questions
Q1) An agent may lose the right to compensation:
A)by breaching the agency contract willfully and deliberately.
B)if the specified result of the contract is not obtained.
C)if the duty of loyalty is breached.
D)All of the above
E)None of the above.
Q2) The power of a gratuitous agent to affect the principal's relationship with third parties is the same as that of a paid agent.
A)True
B)False
Q3) An agent may not make a secret profit from any transaction subject to the agency.
A)True
B)False
Q4) What is an independent contractor? Can an independent contractor also be an agent?
Q5) Agency relationships are governed primarily by federal statute.
A)True
B)False
Q6) Discuss the nature of agency,including the scope of agency purposes.
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Chapter 29: Relationship With Third Parties
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Q1) Gaines delivers a chair for Jasper Furniture and,before he goes back to the store,he goes 15 miles out of the way to visit a friend.On the way,he negligently runs a stop sign and hits Rick.Who can be held liable for the accident,and why?
A)Jasper Furniture under the doctrine of respondeat superior.
B)Gaines since his negligence caused the accident.
C)Gaines, but not Jasper Furniture, since Gaines had deviated from the purpose of his employment.
D)Both (a) and (b).
E)Both (b) and (c).
Q2) Usually in cases where there is a known principal,the agent has liability for,and rights under,contracts made on behalf of a principal.
A)True
B)False
Q3) A person may ratify a prior unauthorized act and may later revoke the ratification.
A)True
B)False
Q4) Compare and contrast ratification and adoption of unauthorized contracts.
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Chapter 30: Formation and Internal Relations of General Partnerships
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Q1) Burnside Corporation and the D.Stewart Trust can be partners in a partnership if they carry on as co-owners a business for profit.
A)True
B)False
Q2) The UPA treats a partnership as a legal entity for all purposes.
A)True
B)False
Q3) A sole proprietorship dissolves upon the death of the owner.
A)True
B)False
Q4) Each partner,unless otherwise agreed,has equal rights in the management and conduct of the business of a general or a limited partnership.
A)True
B)False
Q5) Any natural person having full capacity may enter a partnership.
A)True
B)False
Q6) What are the ways the RUPA recognizes a partnership as an entity?
Page 32
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Chapter 31: Operation and Dissolution of General Partnerships
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Q1) The withdrawal of a partner in a partnership at will may be either a rightful or wrongful dissociation.
A)True
B)False
Q2) Under the UPA,absent an agreement otherwise,upon dissolution,a partner is entitled to which of the following after payment of partnership creditors?
A)A share of profits in proportion to his capital contribution.
B)Shares of profits dependent upon the capital and time he contributed to the partnership.
C)Repayment of his loans to the partnership, capital contribution, and a share of the profits.
D)The UPA requires that the partners have an agreement or else they must seek a court order distributing the remaining assets.
Q3) A person who represents himself to third persons as being a partner when in fact he is not,may have the liability of a partner.
A)True
B)False
Q4) Define dissolution under the UPA and discuss its three causes.
Page 33
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Chapter 32: Limited Partnerships and Limited Liability Companies
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Q1) Ordinarily,members of manager-managed LLCs have duties to the LLC and its members by reason of being members.
A)True
B)False
Q2) Typically,members of a limited liability company have the right to vote on proposals to:
A)adopt or amend the operating agreement.
B)admit any person as a member.
C)sell all or substantially all of the limited liability company's assets prior to dissolution.
D)merge the limited liability company with another limited liability company.
E)All of the above.
Q3) The laws of the state in which a foreign limited partnership is organized govern its organization,its internal affairs,and the liability of its limited partners.
A)True
B)False
Q4) Describe an LLC and the rights of its members.
Q5) Discuss the duties of general partners to limited partners.
Page 34
Q6) What are the liabilities of a limited partner in a limited partnership?
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Chapter 33: Nature and Formation of Corporations
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Q1) In many states,the services of the incorporators are perfunctory and short-lived.
A)True
B)False
Q2) Zeron Corporation is incorporated in the state of West Virginia.It now wants to open a retail outlet in Kentucky.Zeron must obtain a certificate qualifying it to do business in the state of Kentucky.
A)True
B)False
Q3) The president of Hi-Glow Cosmetics sends his top chemist to Hi-Glow's competitor's labs to steal its formula for shiny lipstick.The chemist gets caught and is sent to jail.Can Hi-Glow be found to be criminally liable?
A)Yes, under the doctrine of ultra vires.
B)Yes, since the president authorized the crime.
C)No, because a corporation cannot go to jail.
D)Both (a) and (b).
Q4) Bylaws are rules governing a corporation's internal management.
A)True
B)False
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Chapter 34: Financial Structure of Corporations
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Q1) Caverun Co.has two classes of stock.The company may:
A)issue stock warrants, which are short-term options to buy shares.
B)issue stock rights, which are long-term options to buy shares.
C)not use stock options to make one class of stock more attractive than the other.
D)use stock options and warrants, the form and content of which are determined by the board of directors, to supplement compensation plans for directors, officers, and employees.
E)Both (a) and (b).
Q2) If 100 shares of $50 par value stock were issued at $75 per share,how much would constitute capital surplus?
A)$750
B)$7,500
C)$2,500
D)A corporation cannot issue stock for higher than the par value.
Q3) Yields on "junk bonds" are higher than the rate of safe government bonds.
A)True
B)False
Q4) What are the two major issues regarding payment for shares?
Q5) Discuss the use of and types of stock options.
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Chapter 35: Management Structure of Corporations
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Q1) With respect to the board of directors of a corporation,which of the following is NOT correct?
A)They manage the business and affairs of the corporation.
B)They are the shareholders' elected representatives.
C)They must always obtain shareholder approval before deciding questions of operating policy.
D)They have the authority to delegate power to officers and agents.
Q2) Discuss whether officers and directors may entrust important work to others and their potential liability if they do.
Q3) The 2002 Sarbanes-Oxley Act forbids use of an audit committee by the board of a publicly held corporation; the full board must oversee the work of the public accounting firm employed to audit the corporate books.
A)True
B)False
Q4) A proxy is revocable to the same extent as an agency.
A)True
B)False
Q5) Discuss the business judgment rule.
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Chapter 36: Fundamental Changes of Corporations
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Q1) The courts may grant a petition of involuntary dissolution if shareholders:
A)do not approve of fundamental changes of the board.
B)show that the corporation has not kept adequate records or filed annual reports.
C)did not receive their dividends.
D)show that corporate assets are being squandered.
Q2) The Revised Act takes the position that consolidations are,for all practical purposes,obsolete.
A)True
B)False
Q3) AB Corporation consolidates with ZX Corporation to form A-Z Corporation.The debts of AB Corporation are:
A)assumed by the stockholders of AB Corporation.
B)discharged by the process of consolidation.
C)assumed by A-Z Corporation.
D)discharged by the issuance of new stock in A-Z Corporation.
Q4) A "short-form merger" requires shareholder approval of both corporations.
A)True
B)False
Q5) Discuss the similarity between a management buyout and a cash-out combination.
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Chapter 37: Secured Transactions and Suretyship
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Q1) If Regency Services,Inc.wishes to protect itself against the possible dishonesty of Chad,an employee who will be handling corporate funds,Regency may purchase a(n):
A)performance bond.
B)fidelity bond.
C)judicial bond.
D)official bond.
Q2) A purchaser of a house who buys the property "subject to" the mortgage is not personally liable for the mortgage,nor is he a surety for the mortgage obligation.
A)True
B)False
Q3) Diane,who is seventeen years old,purchased an auto from Elvira on credit.Florence agreed to act as surety and signed a written surety agreement.At the time of purchase,Diane specifically asked Elvira about the condition of the car's motor and was told that it had just been replaced with a new one and was in fine condition.This was blatantly untrue,because Elvira knew it was in terrible shape and would only last a short time.The auto has now stopped running and Diane refuses to make any more payments.Elvira is now proceeding against Diane and Florence.What defenses,if any,are available to (a)Diane and (b)Florence?
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Chapter 38: Bankruptcy
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Q1) The court has the sole right to accept or reject a proposed plan of reorganization under Chapter 11.
A)True
B)False
Q2) A court will not grant a discharge under Chapter 7 to a debtor who:
A)has been granted a Chapter 7 or 11 discharge within eight years prior to filing.
B)has made false claims to the court.
C)has destroyed collateral.
D)All of the above.
Q3) The 2005 Act establishes a means test which determines a creditor's eligibility for a priority claim.
A)True
B)False
Q4) An involuntary petition in bankruptcy:
A)eliminates the operation of an automatic stay.
B)may only be filed under Chapter 7 or 11.
C)must be filed by the trustee.
D)eliminates the need for the court to order a discharge.
Q5) Bankruptcy legislation serves a dual purpose.What are these purposes?
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Chapter 39: Securities Regulation
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Q1) Insiders would violate the short-swing profits rule (16b)of the 1934 Act by buying stock on January 1 and selling on May 1.
A)True
B)False
Q2) Which of the following is not one of the situations in which the 1934 Securities Exchange Act requires disclosure during a "tender offer"?
A)When a person or group acquires more than 5 percent of a class of voting securities registered under the 1934 Act.
B)When a person makes a tender offer for more than 5 percent of a class of registered equity securities.
C)When a company makes a tender offer for any voting stock in another company.
D)When the issuer makes an offer to repurchase its own registered shares.
Q3) In 2006,the SEC abolished the requirement that a registration statement disclose compensation paid to senior executives and directors.
A)True
B)False
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Chapter 40: Intellectual Property
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Q1) Two years of nonuse raises a presumption of abandonment and loss of a federally protected trademark.
A)True
B)False
Q2) The international treaty to which the United States is a party and which protects copyrighted works is known as the:
A)Berne Convention.
B)Convention on International Copyright Protection (CICP).
C)Geneva Convention.
D)Madrid Protocol.
Q3) The Digital Millennium Copyright Act of 1998 amended the Copyright Act to create limitations on the liability of online providers for copyright infringement when they are engaging in certain activities.
A)True
B)False
Q4) Electronic surveillance for the purpose of acquiring trade secrets is permissible under the law of unfair competition.
A)True
B)False
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Chapter 41: Employment Law
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Q1) Which of the following are remedies for violation of the Americans with Disabilities Act (ADA)?
A)Injunctive relief.
B)Reinstatement.
C)Back pay.
D)Compensatory and punitive damages.
E)All of the above.
Q2) Under the Title VII's prohibition of sex discrimination in the workplace:
A)a sexual harassment suit can be maintained even if the person who is harassed suffers no economic loss and the only injury is a hostile work environment.
B)sexual harassment is not covered unless the harassed person is not promoted or is fired for not complying with the person seeking the sexual favors.
C)same-sex harassment is not actionable under Title VII according to a ruling of the U.S. Supreme Court.
D)sexual harassment charges cannot be maintained against an employer who tolerates sexual harassment, but only against the person instigating the harassment.
Q3) What are the remedies available for violations of the Civil Rights Act of 1964?
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Chapter 42: Antitrust
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Q1) Discuss the validity and effect of each of the following:
a.Two manufacturers of the same product decide to allocate territories with one taking the southern states.
b.A labor union encourages its members and all consumers to boycott a product manufactured by a company that refuses to honor a union contract.
c.Betty's Bargain Department Store sells its products for 10% under the suggested retail price. One manufacturer tells the store it will not supply wholesale goods to it unless it charges at least the suggested retail price.
Q2) Monopoly power is tested by determining how big the corporation is in terms of total assets.
A)True
B)False
Q3) The main goal of antitrust regulation is to prevent competitive behavior among firms.
A)True
B)False
Q4) What are the major functions of the Federal Trade Commission (FTC)and what power does the FTC have?
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Chapter 43: Accountants Legal Liability
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Q1) Which of the following is untrue regarding the relationship of an accountant and the client?
A)It is based upon mutual agreement.
B)The accountant is under an ethical obligation not to disclose confidential information.
C)The accountant must act in a competent and professional manner.
D)The accountant is under a contractual obligation to follow all of the client's instructions and to use the client's figures without question.
Q2) Edmund,who is auditing the books of Windgrove Co.,becomes aware of information indicating an illegal act within the company.Edmund must:
A)determine whether an illegal act occurred and, if it did, the possible effect on Windgrove's financial statements.
B)notify the SEC immediately so it can conduct an investigation.
C)resign immediately to avoid criminal liability.
D)notify local law enforcement and remove himself from any association with the company.
Q3) What is the basis of an accountant's potential criminal liability in rendering professional services?
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Chapter 44: Consumer Protection
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Q1) The Truth-in-Lending Act establishes maximum amounts of interest that can be charged for credit cards.
A)True
B)False
Q2) A warranty creates a duty on the seller's part that the goods and services she sells will conform to certain qualities,characteristics,or conditions.
A)True B)False
Q3) Lemon laws are generally understood to be laws that:
A)apply to the safety of food additives for fruits and vegetables.
B)are federal legislation designed specifically to protect state consumers from fraudulent car manufacturers.
C)are state laws that attempt to provide new car purchasers with rights that are similar to full warranties under the Magnuson-Moss Act.
D)are Interstate Compacts to uniformly deal with lemon cars.
Q4) Discuss ARMs and their regulation.
Q5) Discuss the role of the state attorneys general in consumer protection.
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Chapter 45: Environmental Law
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Q1) There is currently a law promoting the purchase,development,and use of industrially polluted property.
A)True
B)False
Q2) Which of the following is not true about chlorofluorocarbons (CFCs)?
A)They deplete the ozone layer.
B)By 1985, scientists believed that the release of CFCs into the atmosphere had caused a hole in the ozone layer in the stratosphere.
C)There are no synthetic substitutes for CFCs.
D)CFCs are extremely potent greenhouse gases.
Q3) To establish a private nuisance,a plaintiff:
A)must show that the defendant has substantially and unreasonably interfered with the use and enjoyment of the plaintiff's land.
B)must show that in an action for damages in conjunction with private nuisance, the defendant's conduct was unreasonable.
C)need not show that the interference was unreasonable.
D)need only show that the quiet enjoyment of plaintiff's land was substantially impacted.
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Chapter 46: International Business Law
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Q1) Why do governments impose tariffs?
A)To protect domestic industries from foreign competition.
B)To raise revenues.
C)To attempt to improve their balance of trade.
D)Governments impose tariffs for all of the above reasons.
Q2) The U.N.Convention on Contracts for the International Sales of Goods (CISG)includes provisions relating to which of the following?
A)Interpretation and trade usage.
B)Intellectual property rights.
C)Obligations and remedies of sellers, but not buyers.
D)Sharing of profits.
Q3) The ICJ is:
A)the Internal Court of Jurisdiction of the U.N. to deal with disputes within the United Nations organization.
B)a U.S. court created specifically to deal with international contracts.
C)the judicial branch of the United Nations, which has advisory jurisdiction if requested by a U.N. organ or specialized U.N. agency.
D)one of the many regional trade communities.
Q4) What is the basic purpose of the World Trade Organization (WTO)?
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Chapter 47: Introduction to Property, property Insurance,
Bailments, and Documents of Title
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Q1) Melissa cannot transfer control of the goods held by a bailee by transferring a document of title.
A)True
B)False
Q2) Patent rights are considered to be personal property.
A)True
B)False
Q3) Bailments for the bailee's sole benefit are usually limited to the gratuitous loan of personal property for use by the bailee.
A)True
B)False
Q4) If Jim,Ken,and Lee each deposit 10,000 bushels of wheat in a grain elevator,they would own one-third of the mixture by:
A)accession.
B)adverse possession.
C)prescription.
D)confusion.
Q5) Why are delivery and acceptance both necessary to have a valid gift?
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Chapter 48: Interests in Real Property
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Q1) Which of the following represents concurrent property ownership?
A)A cooperative.
B)A life estate.
C)A lease.
D)A fee simple absolute.
Q2) If Dan subleases his apartment to Susan for the summer,Susan is primarily liable to pay the landlord the rent.
A)True
B)False
Q3) A possibility of reverter is the complementary estate to a:
A)fee simple.
B)qualified fee.
C)life estate.
D)reversion.
Q4) Community property does not include a ring owned by the wife prior to the marriage.
A)True
B)False
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Chapter 49: Transfer and Control of Real Property
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Q1) The Dodd-Frank Act of 2010:
A)requires that lenders ensure borrowers will repay their mortgage loans.
B)prohibits unfair and deceptive lending practices, although subprime mortgages are excluded from the scope of the Act.
C)expands protection for borrowers of high-cost mortgage loans.
D)requires that lenders disclose the minimum amount a consumer could pay on a variable rate mortgage.
Q2) Someone who expressly assumes a mortgage is personally obligated to pay it.
A)True
B)False
Q3) A deed is not effective to transfer title to land until delivery.
A)True
B)False
Q4) There are four major types of deeds.
A)True
B)False
Q5) In most states,it is not necessary to record a deed for title to pass to the grantee.
A)True
B)False
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Chapter 50: Trusts and Wills
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Q1) In most states,there is no lower age limit for testators as long as they understand the extent of their property.
A)True
B)False
Q2) Rayshawn served as a witness to Samuel's will,but died before Samuel.When Samuel's will is probated,proof of Rayshawn's handwriting is necessary unless there are enough other witnesses to meet the statutory requirements without Rayshawn.
A)True
B)False
Q3) An amendment to a will is called a(n):
A)stipulated addition.
B)statutory adjustment.
C)codicil.
D)attestation.
Q4) A minor's declaration of trust is voidable.
A)True
B)False
Q5) Under what conditions do courts impose a constructive trust?
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