Chapter 16 Addressing legal issues and managing risk

Question 1

Sole proprietorship

Answer 1

owned by one person with unlimited liability and unlimited rights to profits

Question 2

Partnership

Answer 2

two or more owners who make joint decisions and share profits, losses, assets, and liabilities

Question 3

Corporation

Answer 3

legal entity composed of stockholders under a common name

Question 4

Sole Proprietorship Pros

Answer 4

• Relatively easy to start
• Registration is low cost, with little paperwork
• Fewer government regulations
• Owner can make quick decisions
• Owner is entitled to all profits

Question 5

Sole Proprietorship Cons

Answer 5

• May be difficult to raise funds by oneself
• Often long hours alone, without help or feedback from others
• No way to limit personal legal responsibility
• All profits are taxed personally

Question 6

Limited partnership

Answer 6

one or more “limited” partners are not liable and have no official say in daily operations

Question 7

C corporation

Answer 7

• Most common type of corporate structure
• Can sell ownership as shares of stock
• Income taxed twice: as corporate income, and as personal income when dividends are distributed to shareholders

Question 8

Subchapter S corporation

Answer 8

• Has a limit of 75 stockholders

- Income taxed once, as personal income of owners

Question 9

Professional corporation (PC)

Answer 9

• Used by doctors, lawyers, and small groups of professionals
• Subject to special rules, such as licensing requirements

Question 10

Nonprofit corporation

Answer 10

• Purpose is to improve society; all net profits go toward advancing the mission
• Tax exempt; must follow applicable laws and regulations to keep this status
• May not sell stock or pay dividends

Question 11

Limited liability company (LLC)

Answer 11

• Combines features of partnership and corporation
• Good choice for small business owners seeking liability protection
• Income taxed once, as personal income of owners
• Less rules on number/type of shareholders than S corp.

Question 12

A Successful Contract Achieves the Four A’s

Answer 12

Avoid misunderstanding

Assure work

Assure payment

Avoid liability

Question 13

***Chapter 11:

Answer 13

Reorganization—creating a plan and continuing operations

Question 14

***Chapter 7:

Answer 14

Liquidation—converting assets to cash with a business closure

Question 15

***Chapter 13:

Answer 15

Individual Debt Reorganization—consumer version of Chapter 11

Question 16

***Copyright

Answer 16

is good for a lifetime + 70 years. After 70 years it expires and becomes a public domain

Question 17

***Patents

Answer 17

You have invented a product that you intend to market yourself or sell to a manufacturer.

Question 18

***Trademark

Answer 18

all trademarks are brands that have legal protection

Question 19

***Three forms of patents:

Answer 19

• Utility (process or improvement)
• Design
• Plant (varieties of vegetation)

Question 20

***Brandmark

Answer 20

is like your logo, symbol, etc, but not all brands are legally protected.

Question 21

A contract is:

Answer 21

A formal, written agreement between two or more parties that is enforceable by law

A “building block” of business, defining relationships in the production–distribution chain

Question 22

Never sign a contract without:

Answer 22

Having an attorney examine it for you

Reading and understanding every word

Question 23

Breach of Contract

Answer 23

• A contract is broken (breached) when a signatory fails to fulfill it.
• The injured party may sue for breach of contract.
• A lawsuit is an attempt to recover a right or claim through legal action.
• Options aside from lawsuits include small claims court and arbitration.

Question 24

Uniform Commercial Code (UCC)

Answer 24

Directs a broad range of transactions, such as loans and contracts, for the purpose of consistency

A recommendation for laws that U.S. states can choose to adopt or modify

Focuses on movable property rather than real (immovable) property

Question 25

Service mark

Answer 25

word, phrase, symbol, and/or design that distinguishes a service

Question 26

You need a patent if…

Answer 26

• You have invented a product that you intend to market yourself or sell to a manufacturer.
• You believe that someone else could successfully sell your invention by copying it.

Question 27

Insurance:

Answer 27

system of protection which reimburses people/businesses when their property or wealth is damaged or destroyed

Question 28

Premium:

Answer 28

amount paid for insurance

Question 29

Deductible:

Answer 29

amount of loss or damage you agree to cover before insurance pays a claim

• A lower deductible = a higher premium
• A higher deductible = a lower premium

Question 30

Communications:

Answer 30

Identify who will get in touch with employees, vendors, and customers. Maintain a detailed contact list.

Question 31

Base of operations:

Answer 31

Decide where people should go if business location is inaccessible.

Question 32

Priority activities:

Answer 32

Identify which business activities are most essential/time-sensitive.

Question 33

Return to facilities:

Answer 33

Outline a process for regrouping and planning.

Question 34

Permit:

Answer 34

official document that gives the right to put on a specific event

Question 35

License:

Answer 35

official document that gives the right to engage in an activity for as long as the license is valid

Question 36

Certificate:

Answer 36

official document that verifies or proves something