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BLAW346 > Midterm > Flashcards

Midterm Flashcards

1
Q

To help small businesses raise capital, the Securities and Exchange Commission allows companies to advertise investment opportunities to the public on the Internet. This most likely encourages:
a) venture capitalizing
b) crowdfunding
c) angel investors
d) private equity capitalizing

A

b) crowdfunding

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2
Q

All the following are types of securities EXCEPT:
a) a rare painting
b) a stock
c) a promissory Note
d) a bond

A

a) a rare painting

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3
Q

A negative of entering into a joint venture to assist with financing is:
a) Management issues
b) Cross-licensing of IP
c) Obtaining expertise in development and marketing
d) Sharing of resources

A

a) Management issues

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4
Q

Which of the following is not true about dilution:
a) It results in a loss of ownership
b) It may involve an increase in value of your stock
c) There is nothing you can do to avoid it
d) It almost always results after obtaining financing from venture capitalists and angel investors

A

c) There is nothing you can do to avoid it

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5
Q

In seeking funding from family and friends, it is best to do all of the following EXCEPT:
a) Put the deal in writing stating the amount borrowed, interest rate, and repayment schedule
b) Explain your business plan
c) Let them know that the business is a great idea and sure to make a profit
d) Ask for a specific amount for a specific need

A

c) Let them know that the business is a great idea and sure to make a profit

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6
Q

Bootstrapping an entrepreneurship with personal funds and savings is beneficial for all the following reasons EXCEPT:
a) it allows the founders to maintain control over the company
b) there is minimal risk to the founder
c) it allows the founder to focus on building the company
d) the founder can retain all of the company earnings

A

b) there is minimal risk to the founder

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7
Q

If a founder provides $15,000.00 for 5,000 shares of stock with a fair market value of $3.00 per share, she will not incur tax liability.
True
False

A

True

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8
Q

Venture Capitalists prefer to invest in S Corps
True
False

A

False

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9
Q

L & L, Inc. is formed to coordinate the delivery of products to help communities cope with the effects of climate change. The stated purposes of L&L include making a profit and have a positive impact on society and the environment. L&L is:
a) A nonprofit corporation
b) A public corporation
c) A Benefit Corporation
d) A S Corporation

A

c) A Benefit Corporation

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9
Q

Banks may require a personal guarantee from the founder for a loan to the business
True
False

A

True

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9
Q

To avoid future disputes and paying excessive taxes, founders should take time to structure the ownership of the company early in its formation.
True
False

A

True

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9
Q

Guy is a director of Healthcare Corporation. Guy attempts to use his best judgment in guiding a corporate management but makes a few honest mistakes. He may be protected from liability for these mistakes by:
a) business success insurance
b) the duty of loyalty
c) the business judgment rule
d) none of the above

A

c) the business judgment rule

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10
Q

Benny wants to form a corporation. To avoid income taxes at the corporate level and limit the personal liability of its shareholders, Benny’s should form a(n):
a) C Corporation
b) Closely held corporation
c) S Corporation
d) Benefit Corporation (B Corp)

A

c) S Corporation

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11
Q

Catherine, Maisie, and Sindi are limited partners in Total Profit Enterprises, a limited partnership. To avoid personal liability for partnership obligations, they must not
a) contribute property to Total Profit Enterprises
b) engage in activities outside of Total Profit Enterprises
c) acquire an interest in another company
d) participate in the partnership’s management

A

d) participate in the partnership’s management

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12
Q

Davis, a director of Active Corp., is entitled to:
a) Serve on the board of a competing business
b) Take advantage of a business opportunity that would benefit Active
c) Rely on information provided by a corporate officer
d) Unilaterally grant a corporate loan to one of Active’s shareholders

A

c) Rely on information provided by a corporate officer

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13
Q

Saatvika, Maria, and Xiangyu want to go into business to create a tutoring app. When deciding which form of business organization would be most appropriate, they should take into account all of the following EXCEPT:
a) their liability as owners
b) tax considerations
c) the need for capital
d) the forms of competitors’ business organizations

A

d) the forms of competitors’ business organizations

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14
Q

Shareholders are absolutely immune from corporate liabilities.
True
False

A

False

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15
Q

A corporation is NOT liable for the misconduct of its officers and employees.
True
False

A

False

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16
Q

Shareholders make the major corporate policy decisions.
True
False

A

False

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17
Q

All Benefit Corporations are certified as B-Corps
True
False

A

False

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18
Q

Business corporations exist to make a profit.
True
False

A

True

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19
Q

Once an entrepreneur has formed a business structure, that structure cannot be changed.
True
False

A

False

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20
Q

A corporation may properly exist without a name.
True
False

A

False

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21
Q

After deciding to form a business, entrepreneurs should first pick a name.
True
False

A

False

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22
Q

When a nationally known neurosurgeon in Chicago, IL sells her practice, the contract may specify that the seller will not open a competing business within Chicago for one year.
True
False

A

True

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23
Q

Which of the following clauses in an employment agreement prevents an employee from soliciting customers from their current employer?
a) Invention assignment clause
b) No moonlighting clause
c) Non-compete clause
d) Anti-raid clause

A

b) Non compete clause

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24
Q

Fiduciary agents include all the following EXCEPT:
a) CEO of company
b) Attorney of client
c) Sales clerk to store
d) Accountant to client

A

c) Sales clerk to store

25
Q

An employee owes all the following agency duties to their employer EXCEPT:
a) Duty of obedience
b) Duty of care
c) Duty to investigate
d) Duty of confidentiality

A

c) Duty to investigate

26
Q

If an employee has not signed a written employment agreement with an employer, the employee can always start planning and operating a competing business.
True
False

A

False

27
Q

The best way to find a lawyer is through a Google Search
True
False

A

False

28
Q

Alternatively, Marcus states that he will do the work for a 10% interest in the company. If Keyara says OK, can Marcus ethically obtain a 10% ownership interest in the company?
(a) Yes
(b) No

A

(b) No

29
Q

Keyara meets with Attorney Marcus who says that he can register her food truck business and prepare the necessary state and federal filings for $700.00. This is an example of:
(a) An Hourly Fee
(b) A Flat Fee
(c) A Contingent Fee
(d) A Retainer

A

(b) A Flat Fee

30
Q

In deciding upon a lawyer, Keyara should consider:
(a) Whether she likes the lawyer
(b) The lawyer’s experience with small businesses
(c) The lawyer’s connections to other lawyers and business persons
(d) The cost
(e) All of the above

A

(e) All of the above

31
Q

Keyara wants to open a food truck business. A good business lawyer can advise her about:

A

Permits for locations and food distribution and safety

32
Q

This document may set forth the legal duties of the employer and the
employee.

A

An employment agreement

33
Q

Because an employer hires an employee to act on behalf of the
employer, the employee is serving as the employer’s what?

A

Agent

34
Q

What are noncompete clauses?

A

A promise in an employment agreement not to work for a competing business.

35
Q

State three clauses from an employment agreement that may impact
an employee’s ability to start a new business.

A

Noncompete, no moonlighting, NDA, Anti-raid or no piracy clause,
invention assignment agreement

36
Q

State four agency duties owed by the employee to the employer.

A

Duty of obedience; duty of care; duty of confidentiality; duty of loyalty

37
Q

Name three things you should consider when hiring an attorney?

A

Experience with type of case; cost; response time; connections

38
Q

Is the client the agent or principal in an attorney-client relationship?

A

Principal

39
Q

State one benefit and one negative of using a large firm over a small
firm.

A

Benefits: Attorneys who practice in various areas; use of junior attorneys
and paralegals; Connections; Negatives: Cost, conflicts of interest

40
Q

What are three types of attorney fee arrangements?

A

Flat fee, hourly, contingent, retainer

41
Q

State three ethical duties of lawyers.

A

Provide competent representation; act with diligence and promptness;
charge reasonable fees; keep the client informed; avoid conflicts of interests

42
Q

Name three things an entrepreneur should consider in determining a
business structure?

A

Ability to form, liability, taxation, management, financing, ability to
transfer interest

43
Q

Describe 2 pros and 2 cons of a sole proprietorship?

A

Pros: easy creation; full control to owner; single taxationCons: personal
liability for business torts/contracts; difficult to obtain financing; ends with
owner

44
Q

What is the difference between a limited partnership and a limited
liability partnership.

A

Limited partnership - limited partners are not liable for any management
decisions if they are not involved in managementLimited liability partnership - partners are liable only for own management decisions

45
Q

State 2 pros and 2 cons of a corporation.

A

Pros: limited liability for all owners; good way to raise money; shares can
be easily transferred extending life of corporation

Cons: double taxation;
heavily regulated; many steps to formation.

46
Q

State three requirements to forming a corporation

A

File articles of incorporation in state of formation. Obtain corporate charter. Have organizational meeting. Election Directors. Pass Bylaws.

47
Q

When is the best time to structure the ownership of a business with
2+ members?

A

Early when the company has little value

48
Q

How should each member’s interest in the company be valued?

A

Based on their financial contributions, contributions of any property, and time/energy.

49
Q

What is dilution?

A

When the amount of an owner’s interest in the company has decreased.

50
Q

Why would a founder include a right of first refusal and a right to
repurchase in a founders’ agreement?

A

Right of first refusal - To prevent an owner from selling their interest to an outsider

Right to repurchase - To have the opportunity to buy out an owner if the owner is not working out

51
Q

What does it mean if an owner’s interest in the company is subject to
a four year vesting schedule with a one year cliff

A

Nothing vests until first year. At first year, entitled to full year of interest is
vested. It will then vest month to month for remaining 3 years

52
Q

What is debt?

A

A loan of money that has to be paid back generally with interest during a
certain period.

53
Q

What is equity?

A

Money for an ownership stake in the company.

54
Q

State 2 pros and 2 cons of bootstrapping the company.

A

Pros: founder maintains control; founder obtains all profits

Cons: loss of personal finances; limited amounts; could invest money elsewhere for better
return

55
Q

Name one positive and one negative of entering into a joint venture
for a new business.

A

Pros: sharing of resources; cross-licensing of IPCons: sharing of control; management problems; loss of IP rights

56
Q

Why do venture capitalists want businesses to be structured as a C
Corp.?

A

VCs generally include tax exempt investors, like pension plans, retirement accounts, foundations, that would have tax issues if the business passes its profits directly to them. They will have to file income tax return (unrelated business tax income).

57
Q

Name two purposes of security laws.

A

Protect investors; ensure that investors have equal access to information.

58
Q

What are state security laws called?

A

Blue Sky Laws

59
Q

If the sale of security is not exempt, what must be done before the
security can be sold?

A

The security must be registered with the SEC.

60
Q

Identify 3 sales of securities that do not need to be registered

A

Intrastate security sales; sales to accredited investors; sales to employees, directors, consultants, advisors; public sale offers up to 1M on Internet through funding portals

61
Q

Name one thing required by the Sarbanes-Oxley Act.

A

CEO and CFOs must certify financial statements; no personal loans can be
made to D&Os; protection to whistleblowers

62
Q

What is the business judgment rule?

A

It protects D&O for reasonably based business decisions made in good faith and in the best interests of the corporation.

BLAW346 (2 decks)

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