Entrepreneurship and the Law
Textbook Exam Questions
Course Introduction
Entrepreneurship and the Law explores the critical legal issues and frameworks that entrepreneurs and startup founders must navigate throughout the business lifecycle. The course examines topics such as business formation and structuring, intellectual property protection, financing and securities regulation, employment law, contract negotiation, regulatory compliance, and exit strategies. Through case studies and real-world scenarios, students develop a practical understanding of how legal considerations impact entrepreneurial decision-making, risk assessment, and growth, equipping them with essential skills to launch, manage, and scale new ventures in todays dynamic business environment.
Recommended Textbook Managers and the Legal Environment Strategies for the 21st Century 8th Edition by Bagley
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Chapter 1: Law, Value Creation, and Risk Management
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Q1) Assume that after paying a large fine,a company survives charges of illegal activity.In what ways does illegal conduct put a company at a competitive disadvantage?
Answer: Illegal conduct can put a firm at a competitive disadvantage by diverting funds from strategic investments,tarnishing the firm's image with customers and other stakeholders,raising capital costs,and reducing sales volume.
Q2) Promoting economic growth is one of the primary public policy objectives of laws and regulations applicable to business.
A)True
B)False
Answer: True
Q3) How does U.S.business law provide worker protection?
Answer: By regulating certain terms and conditions of employment,by requiring the employer to provide certain benefits,and by protecting workers' civil rights.
Q4) The European Union's center of operations is in Brussels,Belgium.
A)True
B)False
Answer: True
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Chapter 2: Ethics and the Law
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Q1) All fifty states have constituency statutes.
A)True
B)False
Answer: False
Q2) The main issue in CASE 2.1 Northeast General v.Wellington Advertising(1993)was whether:
A) the finder's fee agreement was valid and enforceable.
B) the CEOs had conspired to deny a finder's fee to Sternau.
C) a relationship of trust with fiduciary-like obligations was created under the parties' finder-seller agreement.
D) Margolis engaged in fraud when he signed the agreement without his employer's permission.
Answer: C
Q3) Which one of the following is NOT a manner in which a company can promote ethical behavior?
A) Lobby legislators for more ethical guidelines
B) Craft an ethical mission statement
C) Provide ethics training
D) Adopt a Code of Ethics
Answer: A
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Chapter 3: Sources of Law, Courts, and Dispute Resolution
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Q1) The process of questioning the witnesses in a trial is called voir dire.
A)True
B)False
Answer: False
Q2) Federal courts are generally referred to as courts of limited jurisdiction.Over what three types of cases do federal district courts have jurisdiction?
Answer: Federal district courts have power to hear cases involving federal questions,cases in which diversity jurisdiction is established,and cases in which the United States is a party.
Q3) Any corporate employee can communicate with corporate counsel and be protected by the attorney-client privilege.
A)True
B)False
Answer: False
Q4) The federal court system has thirteen courts of appeal.
A)True
B)False
Answer: True
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Chapter 4: Constitutional Bases for Business Regulation
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Q1) The Free Exercise Clause prohibits all restrictions on the practice of religion.
A)True
B)False
Q2) In CASE 4.4,United States v.Windsor (2103),the U.S.Supreme Court addressed the question of:
A) whether the case should be analyzed using a 'strict scrutiny' analysis.
B) the constitutionality of a state statute denying state benefits to same-sex couples who were married in states where same-sex marriage is legal.
C) the constitutionality of a federal statute denying federal benefits to same-sex couples who were married in states where same-sex marriage is legal.
D) whether the case should be analyzed using a 'rational basis' analysis.
Q3) A law enacted to punish a specific individual would be an example of a(n):
A) bill of attainder.
B) ex post facto law.
C) proscriptive law.
D) per se law.
Q4) Obscene material is protected speech under the First Amendment.
A)True
B)False
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Chapter 5: Agency
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Q1) The most basic legal characteristic of the employer-employee relationship is that the employer has the right to:
A) deduct taxes.
B) control the conduct of the employee.
C) provide health care.
D) deduct taxes, control the conduct of the employee, and provide health care.
Q2) In all cases,an agency agreement must be written in order to be enforceable. A)True
B)False
Q3) Sam is an employee of Binky,Inc.While delivering a truckload of binkies to a local retailer,Sam decided to stop at his bank to deposit his paycheck.The bank is three blocks from the retailer and it takes approximately 15 minutes to deposit a check.While Sam is in the bank,the truck rolled down the street because Sam negligently forgot to set the parking brake.The truck crashed through the window of Market,killing two people and causing $500,000 in damage.Discuss the issues involved in determining whether Binky,Inc.is liable for the damages at issue.If Binky,Inc.is liable,can it recover against Sam for the damages?
Q4) What is considered in determining the scope of an agent's implied authority?
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Chapter 6: Administrative Law
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Q1) A final agency rule is codified and added to the:
A) Code of Federal Regulations.
B) Code of Uniform Regulations.
C) Code of Legislative Regulations.
D) Code of Federal Reporting.
Q2) A rule made by a federal agency is not final until approved by Congress.
A)True
B)False
Q3) Administrative agencies have subpoena power to make mandatory requests for information.
A)True
B)False
Q4) Agencies lack the authority to conduct formal adjudications.
A)True
B)False
Q5) Agencies are usually part of which branch of government?
A) Judicial
B) Legislative
C) Executive
D) They are equally split between the legislative and executive branches
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Chapter 7: Contracts
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Q1) Refer to Fact Pattern 7-1.What damages,if any,could Danny likely collect against Prudence in litigation over the car?
A) None
B) Reliance damages consisting of $500
C) Incidental damages consisting of $50
D) Compensatory damages consisting of $500
Q2) Mutuality of obligation applies only to bilateral contracts.
A)True
B)False
Q3) If the promisee entered into the contract in order to discharge a duty he or she owed the third party,then the third party is a(n)__________ beneficiary.
A) express
B) implied
C) creditor
D) donee
Q4) An objective standard is used in determining whether an offer has been made. A)True
B)False
Q5) Define the term "consideration" as it is used in contract law.
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Chapter 8: Sales, Licensing, and E-Commerce
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Q1) The courts that have considered click-wrap licenses have generally found that the licenses are:
A) enforceable.
B) enforceable only for software costing $100 or less.
C) enforceable only for software costing $100 or less and that is designed for business, not consumer use.
D) unenforceable.
Q2) Most courts require that a plaintiff prove reliance on an express warranty in order to recover damages.
A)True
B)False
Q3) A contract is __________ if its terms are unduly harsh or oppressive or unreasonably favorable to one side.
A) substantively unconscionable
B) procedurally unconscionable
C) procedurally impracticable
D) substantively impracticable
Q4) What does Section 201 of the UCC provide regarding a Statute of Frauds?
Q5) Explain the different types of warranties that exist under the UCC.
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Chapter 9: Torts and Privacy Protection
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Q1) Bill,a student at State University,needed a way to get some cash quickly.He took a photograph of State University's head cheerleader,Marla,and started selling jerseys with her photograph on the back under the caption of "She's Hot." Marla wants to sue for defamation.She asks you if she could win on a defamation claim and if there is anything else for which she should sue.Discuss the elements of the legal theories involved and what you should tell Marla.
Q2) Which of the following is true regarding assault?
A) Assault is an intentional, nonconsensual act that gives rise to the apprehension that a harmful or offensive contact is imminent.
B) Assault is an intentional, nonconsensual act that gives rise to the fear that a harmful or offensive contact is imminent.
C) Assault is a negligent, nonconsensual act that gives rise to the apprehension that a harmful or offensive contact is imminent.
D) Assault is a negligent, nonconsensual act that gives rise to the fear that a harmful or offensive contact is imminent.
Q3) Define and explain the theory behind the economic loss rule.
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Chapter 10: Product Liability
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Q1) Refer to Fact Pattern 10-1.What type of damages would likely give Polly the most significant recovery?
A) Punitive
B) Compensatory
C) Nominal
D) Benefit of the bargain
Q2) Which of the following is true under the UCC regarding the requirement of privity in regard to a breach of warranty action?
A) The UCC limits liability to those in privity with the seller who are injured by the goods.
B) The UCC extends protection to those in privity with the seller who are injured by the goods and also to those in the buyer's household reasonably expected to use, consume, or be affected by the goods and who are injured by the goods.
C) The UCC extends protection not only to those in privity with the seller, but also to any person who may reasonably be expected to use, consume or be affected by the goods and who is injured by the goods.
D) The UCC has alternate provisions regarding the need for privity from which adopting states may choose.
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Page 12
Chapter 11: Intellectual Property
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Q1) A(n)__________ mark is a coined term having no prior meaning until used as a trademark in connection with a particular product.
A) arbitrary
B) suggestive
C) descriptive
D) fanciful
Q2) Once the Patent and Trademark Office issues a patent,a court may not find it invalid.
A)True
B)False
Q3) The __________ doctrine provides that copyright protection does not extend to the useful application of an idea.
A) useful article
B) utility
C) equivalents
D) design
Q4) Set forth the requirements an invention must meet in order to be eligible for a utility patent as well as the requirements for patentable subject matter.
Q5) Discuss in detail common law rights,if any,in a trademark in the U.S.
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Chapter 12: The Employment Agreement
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Q1) Which of the following are generally NOT subject to the employment-at-will rule?
A) Public employees
B) Employees who have express employment contracts for a fixed term and public employees
C) Public employees and union employees
D) Public employees, employees who have express employment contracts for a fixed term, and union employees
Q2) A(n)__________ plan is a defined contribution pension plan funded with contributions by the participants or a combination of participant and employer contributions.
A) 630(b)
B) 401(k)
C) employee stock ownership
D) defined benefit pension
Q3) The Employee Polygraph Protection Act completely bans the use of polygraph exams.
A)True
B)False
Q4) List exceptions,if any,to the Employee Polygraph Protection Act's ban on polygraph testing.
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Chapter 13: Civil Rights and Employment Discrimination
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Q1) Miranda is a cashier at Super Store.Saturday is their busiest day.She tells her supervisor Sam that she needs to be off every Saturday because that is the religious holiday for the religion to which she has recently converted.What are Sam's obligations to Miranda?
A) He has an absolute obligation under the law to let her off every Saturday unless he can prove that she is not using the time for religious observance.
B) He cannot fire her based on her religious beliefs, but he has no duty to let her off on the busiest day of the week.
C) Under the law, he must allow her to be off as requested, but only if she can establish that under the tenants of her religious beliefs she is doomed if she does not attend worship services regularly.
D) He must make reasonable accommodations for her unless doing so would cause undue hardship on the business.
Q2) Discrimination on the basis of pregnancy is a form of sex discrimination under Title VII.
A)True
B)False
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Chapter 14: Criminal Law
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Q1) A jury trial is not required in cases in which the authorized punishment for the charged offense is six months or less.
A)True
B)False
Q2) The United States v.Jones case discussed in the text,involved a question of a GPS tracking device placed on car that was tracked for over a month.The U.S.Supreme Court held that installing the device was:
A) a search incident to a lawful arrest, and did not require a search warrant.
B) analogous to a traffic stop in plain view, and therefore did not require a traffic stop.
C) "negligible" trespass on private property, which did not require a search warrant.
D) a trespass on private property, which required a search warrant.
Q3) A sales representative cannot legally accept a kickback from a purchaser of his or her employer's products.
A)True
B)False
Q4) Set forth five of the nine factors used by the Department of Justice to decide whether to indict a corporation.
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Page 16
Chapter 15: Environmental Law and Sustainability
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Q1) The federal government originally did not regulate the pollution created by industry.As environmental law developed,the government began to issue permits to businesses to control and regulate the amount of their pollution.Many industries claim that the cost of compliance with current environmental laws unduly hampers their ability to compete effectively in the marketplace.Is it fair to business owners to be burdened with these costs? Are the strict liability provisions in the federal environmental acts ethical and fair? Discuss fully.
Q2) According to the EPA,in order to avail itself of the third-party defense,one of the steps a prospective purchaser must do is hire an environmental professional to conduct a site assessment.
A)True
B)False
Q3) What is the Kyoto Protocol? Is the U.S.a signatory?
Q4) Lenders are immune from liability under CERCLA if a contaminated property goes through foreclosure.
A)True
B)False
Q5) Set forth the Clean Air Act's four types of air quality goals.
Q6) Who are potentially responsible parties under CERCLA?
Page 17
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Chapter 16: Antitrust
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Q1) In the European Union,the principal rules of competition law are set forth in which of the following?
A) The Treaty of Amsterdam and the Merger Control Regulation
B) The European Union Regulation and the Treaty of Amsterdam
C) Only the European Union Regulation
D) Only the Treaty of Amsterdam
Q2) Discuss the basic U.S.rule for evaluating whether monopolistic action under the Sherman Act is violated by acts affecting U.S.imports where the anticompetitive conduct occurs offshore,but the adverse impact is felt in the United States.When,if ever,is conflicting law between a foreign country and the U.S.a defense?
Q3) Which of the following is the objective of the rule of reason rule?
A) To determine whether the requirements of the per se rule have been satisfied.
B) To determine whether, on balance, the activity at issue promotes or restrains competition.
C) To determine whether in a particular situation a horizontal price fixing has actually harmed consumers.
D) To determine if providers of a good acted reasonably in engaging in a boycott.
Q4) What types of price-fixing agreements are considered horizontal price-fixing?
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Chapter 17: Consumer Protection
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Q1) Generic drugs can be approved for use on a showing that they are identical to approved brand-name drugs.
A)True
B)False
Q2) The Truth-in-Lending Act provides consumers a right of __________ whenever their home is used as collateral for credit except for original construction or acquisition.
A) rescission
B) redemption
C) new mortgage
D) refinance
Q3) Refer to Fact Pattern 17-1.Which of the following is true regarding the legality of Dr.Glover prescribing Cream X for the elimination of wrinkles and cellulite?
A) It is legal, and the Food and Drug Administration would take no action against him.
B) It is legal only because the cream is not ingested.
C) It is legal only because Dr.Glover is using it for cosmetic reasons.
D) It is illegal.
Q4) Set forth the four main provisions of the CAN-SPAM Act.
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Chapter 18: Real Property and Land Use
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Q1) Describe in detail the three basic types of deeds including any warranties or guarantees the deeds provide.
Q2) In the simplest type of ownership,property is owned by a partnership.
A)True
B)False
Q3) As opposed to a general partnership,property may not be held in a limited partnership.
A)True
B)False
Q4) In relation to notice in connection with a property interest,courts may find __________ notice if a reasonable inquiry would have disclosed a prior interest.
A) actual B) absolute C) constructive D) necessary
Q5) Inverse condemnation by the government constitutes a taking requiring just compensation.
A)True
B)False
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Chapter 19: Forms of Business Organizations
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Q1) A corporation is a private entity that can be created by a mere handshake,as long as the shareholders have completed a certificate of incorporation.
A)True
B)False
Q2) A(n)__________ is a for-profit corporation that uses the power of business to solve social and environmental problems.
A) C corporation
B) S corporation
C) B corporation
D) Benevolent Recognized Group
Q3) In a(n)__________ a stock purchase is financed by debt.
A) cash out merger
B) freeze out acquisition
C) leveraged buyout
D) illegal purchase
Q4) Mike owns a small but successful coffee house.He decides to incorporate.Considering only tax benefits,should Mike form a C corporation or a subchapter S corporation and why? Discuss taxation under both forms.
Q5) Explain requirements for formation of an S corporation.
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Chapter 20: Directors, Officers, and Controlling Shareholders
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Q1) In 2013,the SEC proposed an amendment to the Dodd-Frank Act,which requires disclosure of the pay ratio of the median of the annual total compensation of all employees to the annual total compensation of the CEO.
A)True
B)False
Q2) A contractual provision insisted upon by a bidder limiting the ability of board members to negotiate with other bidders is referred to as a(n)__________ clause.
A) obedience
B) loyalty
C) negotiation
D) no-talk
Q3) The duty of __________ requires officers to exercise reasonable supervision over the business affairs of the corporation.
A) care
B) loyalty
C) obedience
D) ethics
Q4) What is a poison pill? What factors favor keeping a poison pill in place?
Page 22
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Chapter 21: Public and Private Offerings of Securities
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Q1) The term "security," for purposes of the Securities Act of 1933,is narrowly interpreted to include only such traditional investments as a stock or a bond.
A)True
B)False
Q2) Which of the following may be sued under Section 11 of the Securities Act of 1933,which provides a remedy for a person who purchases a security pursuant to a misleading registration statement?
A) The underwriters.
B) Persons who gave their consent to be named in the registration statement as future directors.
C) Both underwriters and persons who gave their consent to be named in the registration statement as future directors.
D) Any officer as well as underwriters and persons who gave their consent to be named in the registration statement as future directors..
Q3) Set forth the three tests under which a general partnership may be found to be a security?
Q4) Set forth the difference between firm commitment underwriting and best-efforts underwriting.
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Chapter 22: Securities Fraud and Insider Trading
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Q1) Under Rule 10b-5 a company may not have a "no comment" policy,and must act to dispel untrue rumors.
A)True
B)False
Q2) If an insider resigns before trading,he or she cannot be held liable for improper insider trading.
A)True
B)False
Q3) According to Rule 10b-5,a company's silence or "no comment" to a rumor will make it liable,but only if the company has not previously spoken on the subject and insiders are not trading or tipping.
A)True
B)False
Q4) A prediction about the future can be a misstatement under Rule 10b-5,but only if the person making the prediction does not believe it at the time.
A)True
B)False
Q5) List the seven elements of a Rule 10b-5 cause of action.
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Chapter 23: Debtor-Creditor Relations and Bankruptcy
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Q1) In a __________ bankruptcy under Chapter 11,the debtor solicits votes on its plan of reorganization and only files for Chapter 11 protection after it has obtained the required votes in favor of the plan.
A) preapproved
B) preplanned
C) prepackaged
D) prenegotiated
Q2) A purchase-money security interest in consumer goods is automatically perfected. A)True
B)False
Q3) One popular method in Chapter 11 cases is called a(n)__________ bankruptcy,in which the company solicits votes on its plan of reorganization prior to filing bankruptcy.
A) prepackaged
B) cramdown
C) workout
D) confirmation
Q4) Chapter 13 does not provide a bankruptcy discharge for corporations.
A)True
B)False
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Chapter 24: International Law and Transactions
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Q1) The antidumping law is the most frequently used U.S.import-relief law.
A)True
B)False
Q2) A product is __________ when it is sold abroad below the current selling price in the exporter's home market or below the exporter's cost of production.
A) subsidized
B) dumped
C) underpriced
D) undervalued
Q3) If a country exerts nationalization over a company's assets provides compensation,__________ has occurred.
A) expropriation
B) privatization
C) extraterritoriality
D) confiscation
Q4) Set forth the seven principle European Institutions primarily responsible for governing the European Union.
Q5) What is the principle of comity? What conditions must usually exist for the principle to be applied?
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