Deck 12: Legal and Tax Issues, Including Intellectual Property

Question 1

Corporations do not necessarily operate in the same state where they were formed.

Answer 1

True

Question 2

There are conditions under which a corporation can be taxed as a partnership.

Answer 2

True

Question 3

Persuading your co-workers to leave your employer is not very risky, as long as their defections do not impact the company's ability to function and the conversations are occurring after working hours.

Answer 3

True

Question 4

If a business is not able to pay its debts, under a general partnership, the debt is transferred to the owners.

Question 5

The corporate opportunity doctrine basically claims that a director cannot use his position to decide which acquisition deals the company should enter to.

Question 6

Every start-up should concentrate on hiring a litigation attorney from the very beginning.

Question 7

Legally, an employee may not compete with his or her employer.

Question 8

Some corporations give their boards of directors the authority to bind the companies into contracts.

Question 9

Double taxation is not necessarily a problem for a company.

Question 10

The law protects companies from their employees disclosing trade secrets even if those employees did not sign confidentiality contracts.

Question 11

S corporations have the same restrictions as the LLCs, while allocating profit, loss and control more creatively.

Question 12

The number of workers you draw from your former employer to your new company does not matter from the viewpoint of liability.

Question 13

The "Internet bubble" bust caused many law firms to refuse equity as payment for legal fees.

Question 14

You can use any information you gathered at your previous job as long as it is not patented or copyright protected.

Question 15

Although formally there is only one owner in the sole proprietorship, two or more people control the company.

Question 16

Most national accounting firms have sufficient experience with startups.

Question 17

Certain states do not enforce non-compete agreements.

Question 18

Business angels prefer to invest in sole proprietorships.

Question 19

It is illegal to sue a former employee's startup for using trade secrets if such a lawsuit can ruin the new venture.

Question 20

Most corporate statutes prohibit issuing stock in exchange for intangible assets.

Question 21

If you decided to leave your current employer and establish your own venture, what actions will decrease the likelihood of being sued for convincing other employees from the company to leave with you?

A)Working in the Human Resources department of the employer
B)Talking to them after the business hours
C)Talking to them over e-mail or/phone
D)Offering them better working conditions in the new company
E)None of the above

Question 22

National statutes prohibit employment discrimination on the basis of sex, race, national
origin, religion, sexual orientation, age, and disability.

Question 23

Why are restraining orders dangerous for a startup?

A)They paralyze the company until the court battle is resolved
B)They forbid the company to go public
C)It's a first step of bankruptcy
D)The board of directors has to be reelected, which is a very long process
E)They violate the rights of minority shareholders

Question 24

An S corporation can be distinguished from other types of corporations in:

A)Tax status
B)Number of employees
C)Areas of expertise
D)Geographic location
E)Annual income

Question 25

How long does an organization have to file for and secure non-profit status?

A)14 weeks
B)1 year
C)18 months
D)2 years
E)26 months

Question 26

The minimum number of owners in a general partnership is equal to:

A)1
B)2
C)4
D)5
E)6

Question 27

In the context of this chapter, IRC stands for:

A)Investment Recovery Center
B)International Residential Code
C)International Relations Center
D)Initial Ready Company
E)Internal Revenue Code

Question 28

Under what condition will the law consider the company to have taken reasonable protection of its information?

A)If the company made its employees sign non-disclosure agreements
B)If the company successfully kept the information confidential
C)If the company protected the information through copyright laws
D)If the company protected the information by registering patents
E)All of the above

Question 29

What, if possible, must the employer do to make its employees not compete with the company for a year after they quit the job?

A)Issue an internal order
B)Does not have to do anything - the obligation is imposed on any employee by statutes
C)Obtain a court order
D)Have the employees sign a non-competition agreement
E)It cannot be done

Question 30

What concept requires that an employee does not knowingly take action designed to harm the employer's business?

A)Reasonable protection
B)Employee's obligation
C)Duty of loyalty
D)Corporate tact
E)Generally accepted protection principle

Question 31

When choosing an official name, every company has to receive an approval from its respective state regulatory board.

Question 32

Which of the following cannot be considered non-profit entities?

A)Social welfare organizations
B)Educational institutions
C)Churches
D)Limited liability corporations
E)Industry associations

Question 33

The employer is responsible for any damage done by the employees occurring within the scope of their employment.

Question 34

What is the advantage of hiring a local attorney for a startup?

A)Usually good at suing multinationals
B)Will gladly accept equity as the fee
C)May agree upon installment payments
D)May substitute expensive software at the early stage
E)Good at representing your national interests

Question 35

Which state is famous for its management-friendly corporate laws?

A)Ohio
B)Massachusetts
C)New Mexico
D)California
E)Delaware

Question 36

Which form of legal entity is the easiest to understand from the viewpoint of tax issues?

A)Limited liability company
B)Sole proprietorship
C)Limited partnership
D)S corporation
E)Not-for-profit

Question 37

The business is not recognized as a legal entity separate from its owners under which form?

A)Professional corporation
B)Limited Liability Company
C)Partnership
D)S corporation
E)Non-profit

Question 38

As can be learned from the chapter, a redemption agreement is the covenant, in which:

A)The business owns insurance policies on the owners and is obligated to use the proceeds to purchase each stockholder's equity upon his or her death.
B)Each owner is required to take out insurance on the others and to buy a proportional amount of the deceased's equity.
C)Business assets, such as inventory or marketable securities, equal to the value of owner's share of the equity in the company will be transferred to relatives upon his or her death.
D)Internal Revenue Service allows installment tax payments to be received within 2 years after an owner's death.
E)None of the above.

Question 39

Generally, the company going public must be incorporated under the laws of the state where it is offering securities.

Question 40

All of the following forms of legal entities must file an annual report with the state government in addition to their tax return except:

A)General partnerships
B)Limited liability companies
C)Limited partnerships
D)Corporations
E)Limited liability partnerships

Question 41

A tax-friendly form of stock option is called a _______ .

A)pension
B)incentive stock option
C)phantom stock
D)municipal stock option
E)None of the above.

Question 42

List the common business entities and describe them.

Question 43

Give several reasons for choosing a C corporation entity for a start-up.

Question 44

What is the main attraction of an employment agreement for the employee?

A)Social benefits
B)Protection against firing without cause
C)Guaranteed promotion on a regular basis
D)Fewer responsibilities
E)Higher wages

Question 45

How can the employer motivate its key employees to stay in a startup company?

Question 46

Which of the following criteria must a deal meet in order for it to be eligible for intra-state securities offering exemption from registration?

A)Buyers and offerees of the securities have to be residents of one state
B)The company must be incorporated under the laws of that state
C)The company offering the securities must have most of its assets in the same state
D)The company must do the most of its business in the same state
E)All of the above.

Question 47

What type of business can always provide group life, disability, and health insurance policies tax-free and deduct the costs of premiums?

A)S corporation
B)Partnership
C)C corporation
D)LLC
E)All of the above

Question 48

The doctrine of vicarious liability states that:

A)The employer's liability for the employee's actions is limited to a specific amount of money (the amount differs from state to state)
B)The employer is responsible for any contract signed by the employee.
C)The employer is responsible for any actions of the employee occurring within the scope of his/her employment
D)The employee always answers for the consequences of his/her criminal actions without transferring the responsibility to the employer
E)Employees can be held criminally liable if they contribute to the unlawful actions of an employer and should have reasonably understood the consequences.

Question 49

What is the maximum dollar amount of a securities offering for it to still qualify for private placement exemption?

A)$100,000
B)$500,000
C)$1,000,000
D)$2,000,000
E)$5,000,000

Question 50

What are the possible negative consequences of a company co-owner's death and how can a company prepare itself to minimize them?

Question 51

What types of insurance should a startup consider and why?

Question 52

What are the pros and cons of patenting a product?

Question 53

Why would a company hire a contractor instead of a full-time employee? What are the downsides of that?

Question 54

How can a company protect itself from its employees competing against the company after they leave? What problems may the company face when preventing this kind of competition?

Question 55

An employer may not discriminate against anyone for any of the following characteristics, except for:

A)Religion
B)Age
C)National origin
D)Sexual orientation
E)Disability

Question 56

What type of insurance can a typical startup not afford?

A)Health insurance for employees.
B)Key person insurance.
C)Business interruption insurance.
D)Liability insurance.
E)Property insurance.

Question 57

According to the chapter, what type of insurance should an entrepreneur purchase first?

A)Health insurance for employees.
B)Key person insurance.
C)Business interruption insurance.
D)Liability insurance.
E)Property insurance.

Question 58

Briefly explain the ideas behind the "corporate opportunity" and the "duty of loyalty" doctrines.

Question 59

What legal issues can a company face when selling securities to investors? What are some of the misconceptions about stock and securities issuance?