Entrepreneurship Law Exam Practice Tests
Course Introduction
Entrepreneurship Law explores the legal frameworks and practical legal challenges faced by entrepreneurs in launching and growing new ventures. The course covers topics such as business entity formation, intellectual property protection, financing arrangements, contract negotiation, regulatory compliance, employment issues, and risk management. Through case studies and practical assignments, students learn to identify and navigate key legal issues that impact startups, with special attention to the dynamic intersection of innovation, law, and business strategy. This course equips future entrepreneurs and legal professionals with the foundational legal knowledge necessary to support business success in entrepreneurial environments.
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) The "systems approach" to business and society builds on which of the following stakeholder theory insights?
A) That firms have relationships with many constituent groups, which both affect and are affected by the actions of the firm.
B) That firms have relationships with many constituent groups, and that these groups must be managed to best promote value to stockholders.
C) That although firms have relationships with many constituent groups, these groups have little impact on the ongoing management of business firms.
D) That firms have relationships with only a few groups, such as employees, that are directly connected with business operations.
Answer: A
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
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3
Chapter 2: Ethics and the Law
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Q1) Employees can never be stakeholders of a corporation.
A)True
B)False
Answer: False
Q2) Nobel Prize winner in economics Milton Friedman asserts that the only guiding criterion for the corporation should be profitability within the confines of the law.
A)True
B)False
Answer: True
Q3) Which of the following statements regarding the teleological theory is NOT true?
A) Teleological theory is concerned with consequences.
B) Teleological theory judges the ethical good of an action by the effect of the action on others.
C) Teleological theory focuses more on the motivation and principle behind an action.
D) Both that teleological theory is concerned with consequences and that teleological theory judges the ethical good of an action by the effect of the action on others.
Answer: C
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Page 4
Chapter 3: Sources of Law, Courts, and Dispute Resolution
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Q1) Under the __________ doctrine,the outcome of a diversity case in federal court will be similar to the outcome in a state court because the same substantive law will govern either adjudication.
A) Erie
B) common law
C) venue
D) substantial activity
Answer: A
Q2) Refer to Fact Pattern 3-2.What would you tell Sally regarding her request that you go with her,as her friend,to see her lawyer?
A) That you would be glad to do so because you want to provide emotional support.
B) That you should not go because your presence would destroy the attorney-client privilege.
C) That you should not go because your presence would destroy the work-product privilege.
D) That you should not go because your presence would destroy both the attorney-client privilege and the work-product privilege.
Answer: B
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Chapter 4: Constitutional Bases for Business Regulation
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Q1) __________ gives the President a type of legal immunity which protects against the forced disclosure of Presidential communications made in the exercise of executive power.
A) Immunity privilege
B) Federal privilege
C) Executive privilege
D) Mandated privilege
Q2) Even when Congress has taken no action in regard to a matter,the __________ or __________ Commerce Clause may impose restrictions on state action.
A) dormant; negative
B) dormant; positive
C) relative; positive
D) relative; negative
Q3) Which of the following is NOT one of the three branches of government?
A) The legislative branch
B) The judicial branch
C) The administrative branch
D) The executive branch
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Chapter 5: Agency
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Q1) The "Inside Story" discusses how the Telephone Records and Privacy Protection Act of 2006 made it illegal for a person to use fraud to obtain individual customer billing records and other customer information from telephone companies.
A)True
B)False
Q2) Which of the following is true regarding a principal's duty to pay unemployment taxes?
A) A principal must pay unemployment taxes for both an employee and an independent contractor.
B) A principal must pay unemployment taxes for an independent contractor but not for an employee.
C) A principal must pay unemployment taxes for an employee but not for an independent contractor.
D) A principal is not required to pay unemployment taxes for either an employee or an independent contractor.
Q3) Agents owe a fiduciary duty to the principal.Describe the specific responsibilities that are generated by this duty.Discuss fully.
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) Reasons for creating administrative agencies include:
A) Congress lacks the time to address all of the areas that it controls.
B) Congress lacks the necessary expertise in all of the areas it controls.
C) Congress does not have the power to regulate certain areas.
D) Both that Congress lacks the time to address all of the areas that it controls and that Congress lacks the necessary expertise in all of the areas it controls.
Q2) __________ by administrative agencies provide a practical decision-making process for repetitive,frequent actions that are inappropriate to litigate in courts.
A) De novo decisions
B) Informal discretionary actions
C) Formal rule making
D) Informal rule making
Q3) Failure to comply with regulations set in place by agencies may result in the imposition of fines as well as the revocation of licenses and permits.
A)True
B)False
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8
Chapter 7: Contracts
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Q1) An objective standard is used in determining whether an offer has been made.
A)True
B)False
Q2) A minor may ratify a contract after reaching the age of majority.
A)True
B)False
Q3) Under the doctrine of __________,a court may invalidate an agreement if one party had sufficient influence and power over the other as to make genuine assent impossible.
A) fraud
B) mistake
C) undue influence
D) detrimental reliance
Q4) In certain cases a court may order specific performance rather than monetary damages.
A)True
B)False
Q5) List the elements necessary for the doctrine of promissory estoppel to be applied.
Q6) Define the term "consideration" as it is used in contract law.
Page 9
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Chapter 8: Sales, Licensing, and E-Commerce
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Q1) The UCC applies identical rules concerning the sales of goods to merchants and nonmerchants.
A)True
B)False
Q2) Indicate how a seller may disclaim warranties under the UCC.
Q3) Between merchants,what is the affect of an acceptance that includes additional terms without expressly making the contract subject to the offeror's agreeing to those terms?
Q4) If the contracted goods are unique and fail to be delivered,the buyer can ask a court under 2-716 of the UCC to order:
A) allocation of risk of loss.
B) consequential damages.
C) cover.
D) specific performance.
Q5) Under the UCC,a firm offer only applies to:
A) merchants.
B) merchants and non-merchants.
C) non-merchants.
D) option contracts.
Q6) What does Section 201 of the UCC provide regarding a Statute of Frauds?
Page 10
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Chapter 9: Torts and Privacy Protection
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Q1) A tort is a type of civil or criminal wrong.
A)True
B)False
Q2) Under the doctrine of __________ liability,once the court determines that multiple defendants are at fault,the plaintiff may collect the entire judgment from any one of them,regardless of the degree of that defendant's fault.
A) joint and individual liability
B) cumulative liability
C) contributory liability
D) joint and several
Q3) A court order prohibiting a defendant from continuing a certain activity would be called a(n):
A) injunction.
B) indictment.
C) edict.
D) due care order.
Q4) Assumption of risk is a defense to the tort of negligence.
A)True
B)False
Q5) Define and explain the theory behind the economic loss rule.
Page 11
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Chapter 10: Product Liability
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Q1) What are the four basic parts of the rationale for strict product liability?
Q2) The preemption defense involves certain __________,which set minimum safety standards for products.
A) federal laws
B) court decisions
C) state laws
D) private guidelines
Q3) ThePLIVA,Inc.v.Mensing case discussed in the text,involved theissue of whether the federal law requirement that generic drugs must bear the same FDA-approved labels as their brand-name counterparts preempts state law claims for failure to warn.What was the holding by the US Supreme Court?
A) That federal law did not preempt state law claims for failure to warn.
B) That federal law preempted state law claims for failure to warn.
C) That federal law preempted state law claims for failure to warn based on strict liability but that failure to warn claims based on negligence could proceed.
D) That federal law preempted state law claims for failure to warn based on negligence but that failure to warn claims based on strict liability could proceed.
Q4) Set forth the elements of a strict liability claim.
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Page 12
Chapter 11: Intellectual Property
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Q1) Which of the following is NOT true regarding current U.S.copyright law?
A) The material must be sufficiently original.
B) Protection is automatic.
C) Use of a copyright notice is required.
D) Registration is not required.
Q2) Which of the following is considered in determining whether use of copyrighted material constitutes fair use?
A) Only the amount of the work used.
B) (1) The amount of the work used, and (2) the economic effect of the use on the copyright owner.
C) (1) The economic effect of the use on the copyright owner, (2) the nature of the work used, and (3) the amount of the work used.
D) (1) The purpose and character of the use, (2) the economic effect of the use on the copyright owner, (3) the nature of the work used, and (4) the amount of the work used.
Q3) Copyright protection does not extend to derivative works.
A)True
B)False
Q4) Discuss in detail common law rights,if any,in a trademark in the U.S.
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Page 13
Chapter 12: The Employment Agreement
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Q1) The WARN act requires employers to give employees at least 120 days advance notice of a plant closure affecting at least 50 employees.
A)True
B)False
Q2) Bertha works for Bad Taste,Inc.She has been employed for over 12 years by the company without a written employment contract.Last year Bertha was promoted to the position of executive secretary.The company policy manual issued 6 years ago promises that no employee may be terminated without 2 prior written warnings regarding poor job performance.Bertha has always received excellent job reviews.Recently the president resigned and was replaced by Fred,who promised to improve productivity by 20%.Bertha has just learned from Fred that she is being replaced by Sheila,who was Fred's former executive secretary.What claims may Bertha make against Bad Taste,Inc.for wrongful discharge? Does the company have any defenses? Discuss fully.
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) Under federal law,individuals under the age _____ have no protection from discrimination based on age.
A) 40
B) 50
C) 55
D) 60
Q2) An impairment is a disability under the ADA only if it__________ an individual's ability to perform __________ as compared with most people in the general population.
A) completely prohibits, a major life activity
B) excludes, a major life activity
C) substantially limits, a major life activity
D) impairs in any way, any life activity
Q3) The __________ is the primary enforcer of civil rights legislation in the United States.
A) Department of Commerce
B) Department of the Treasury
C) Equal Employment Opportunity Commission (EEOC)
D) Section 1981 requirement
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Page 15
Chapter 14: Criminal Law
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Q1) In relation to the obligation to provide business records and papers for a criminal prosecution,discuss fully the Fifth Amendment protection for such business records and papers in regard to corporations and also in regard to any custodian of such records.
Q2) Which of the following is true of the death penalty in China?
A) More than 60 crimes carry the death penalty including tax fraud and bribery.
B) Less than 5 crimes carry the death penalty because it is limited to crimes involving the most serious offenses such as murder.
C) While it is currently in effect for some crimes, it is outlawed beginning in 2015.
D) The death penalty is currently outlawed.
Q3) Set forth five of the nine factors used by the Department of Justice to decide whether to indict a corporation.
Q4) A sales representative cannot legally accept a kickback from a purchaser of his or her employer's products.
A)True
B)False
Q5) Fully discuss limitations on the protection against double jeopardy.
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Page 16
Chapter 15: Environmental Law and Sustainability
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Q1) When can a corporate officer be held civilly liable under the Clean Water Act?
A) Corporate officers are strictly liable whenever a violation by their company is established.
B) Only if the corporate officer specifically ordered the unlawful discharge.
C) If the corporate officer had the authority to exercise control over the activity that caused the unlawful discharge or if the officer knowingly violated the act.
D) Corporate officers may never be held liable in an individual capacity.
Q2) The principal regulatory program established by the Clean Water Act is the:
A) National Pollutant Discharge Elimination System.
B) Federal Pollutant Reduction System.
C) Uniform Water Pollution Requirements.
D) Nationwide Clean Water Policy.
Q3) The Clean Air Act requires that national ambient air quality standards be set without regard for cost considerations.
A)True
B)False
Q4) Compare the substantial continuity test in regard to successor liability with the mere continuation test.Which test is applied by the majority of states?
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Page 17
Chapter 16: Antitrust
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Q1) The European Union takes a stricter view of vertical territorial restraints because of their tendency to impede continent-wide market integration.
A)True
B)False
Q2) Under which of the following situations will courts usually find pricing legal?
A) When the prices are above average variable cost but below average total cost and the company has excess capacity.
B) When the prices are above average variable cost but below average total cost and the company does not have excess capacity.
C) When the prices are below average variable cost and below average total cost and the company does not have excess capacity.
D) Only when prices are above both average variable cost and average total cost.
Q3) With a(n)__________ distributorship,a manufacturer limits itself to a single distributor in a given territory.
A) dual
B) exclusive
C) franchise
D) market-power
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18
Chapter 17: Consumer Protection
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Q1) State laws regulating genetically modified food are typically declared unconstitutional on the basis that they are preempted by federal law.
A)True
B)False
Q2) The Food and Drug Administration shares with the __________ the responsibility for regulating pesticide residues on food.
A) Department of Agriculture
B) Department of Insecticide
C) Federal Trade Commission
D) Environmental Protection Agency
Q3) Unsolicited merchandise sent by U.S.mail may be kept by the recipient without incurring any obligation to the sender.
A)True
B)False
Q4) The Wool Products Labeling Act is an example of a federal law regulating the labeling of clothing.
A)True
B)False
Q5) 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) CASE 18.1 Eaton v.Federal National Mortgage Association (2012)dealt with the underlying promissory note,the assignments to a third party,andthe true mortgagee-in-fact.After reviewing the relevant common and statutory laws,the court concluded that the true __________ means the party __________.
A) mortgagee, securing the note on the real property
B) mortgagor, transferring legal title of the real property to the lender
C) mortgagee, transferring legal title of the real property to the lender
D) mortgagee, holding the underlying mortgage note
Q2) John owns a 20-acre parcel of land in Smallville.Bob is a developer that wants to build a subdivision in Smallville.He offers John $1,000 for a 30-day option to purchase the land for $1 million.John agrees.Clara is John's sister and has a valid right of first refusal on the same land.Bob has been told by his bank that the bank will provide a construction loan for the development.What rights did Bob legally obtain when he purchased his option? What effect will Clara's rights have on Bob's option? Explain the three types of loans construction,gap,and take-financing that could be involved to complete the development.Discuss fully.
Q3) Real estate law has its roots in both English common law and Spanish civil law. A)True B)False
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Page 20
Chapter 19: Forms of Business Organizations
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Q1) Set forth four of the shareholder proposals that must be included in proxy materials according to the Securities and Exchange Commission.
Q2) In __________ voting,a shareholder can cast one vote for each share the shareholder owns for each nominee whereas in __________ voting,a shareholder may cast all of his or her votes for one nominee or allocate them among the nominees as the shareholder sees fit.
A) cumulative; straight
B) absolute; cumulative
C) straight; cumulative
D) straight; absolute
Q3) __________ of a general partnership occurs when all the affairs are wound up and the partners' authority to act for the partnership is completely extinguished.
A) Dissolution
B) Termination
C) Winding up
D) Staged end
Q4) A partnership may acquire property in its own name.
A)True
B)False
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Chapter 20: Directors, Officers, and Controlling Shareholders
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Q1) A controlling shareholder has a duty not to transfer the power of management to a purchaser that he knows or has reason to believe will use that power to the detriment of the corporation.
A)True
B)False
Q2) Which of the following is NOT a prime consideration in determining whether a fiduciary has taken an opportunity that belongs to a corporation?
A) Whether the opportunity is in the corporation's line of business.
B) The amount of money the fiduciary stands to make.
C) Whether the fiduciary developed the idea using corporation resources.
D) Whether the involvement by the fiduciary will hinder the corporation's purposes.
Q3) Which of the following is considered an inside director of a corporation?
A) A director who is also an officer of the corporation.
B) A director who is also an officer of any corporation.
C) A director who is both an officer of any corporation and who stands to personally profit by an action being considered by the board.
D) A director who is qualified as an expert in regard to any product of the company.
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Page 22
Chapter 21: Public and Private Offerings of Securities
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Q1) The __________ Act permits __________ companies to make a(n)__________ public offering without meeting all the onerous SEC registration requirements.
A) JOBS, emerging growth, secondary
B) JOBS, farming, initial
C) Sarbanes-Oxley, multinational, secondary
D) JOBS, emerging growth, initial
Q2) Under the Sarbanes-Oxley Act,discriminating against or discharging an informant is:
A) punishable by a fine only.
B) punishable by a substantial fine or imprisonment for as long as ten years, but not both.
C) punishable by a substantial fine or imprisonment for as long as ten years, or both. D) not addressed.
Q3) Any security offered by the United States Government or any national bank would be considered an exempt security under the 1933 Act's registration requirements.
A)True
B)False
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23
Chapter 22: Securities Fraud and Insider Trading
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Q1) Under the Sarbanes-Oxley Act of 2002,it is a misdemeanor to knowingly execute a scheme to defraud any person in connection with any security of a publicly traded company.
A)True
B)False
Q2) A controlling shareholder is traditionally considered an insider.
A)True
B)False
Q3) 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
Q4) To prevail on a securities fraud claim,a plaintiff must prove "loss causation",that the defendant's misstatement caused her to suffer economic loss.
A)True
B)False
Q5) May private plaintiffs,the SEC,or both bring aider and abettor actions under Rule 10(b)? What must be proven? What type of relief may be sought?
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Chapter 23: Debtor-Creditor Relations and Bankruptcy
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Q1) What is required in a filing for a voluntary petition in bankruptcy? An involuntary petition?
Q2) Interest is generally computed on a __________ basis.
A) yearly
B) monthly
C) weekly
D) daily
Q3) If the collateral from one loan is used to secure the obligations on another loan,this is called __________,or sometimes called a "__________" clause.
A) perfection, default
B) cross-collateralization, dragnet
C) floating lien, dragnet
D) attached loan, dragnet
Q4) National banks acting as lenders are subject to state usury laws.
A)True
B)False
Q5) Set forth the five events referenced in the text that usually constitute events of default.
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Page 25
Chapter 24: International Law and Transactions
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Q1) In a series of laws,known collectively as the __________ laws,Congress has authorized the President to raise U.S.tariffs on specified products and to provide other forms of import protection to U.S.businesses.
A) export-relief
B) domestic-relief
C) import-relief
D) international-relief
Q2) A __________ is created when a group of states reduce or eliminate tariffs between themselves but maintain their own individual tariffs as to other states.
A) free trade area
B) Caribbean basin initiative
C) customs union
D) most favored nation
Q3) Civil law systems are found in areas besides Europe.
A)True
B)False
Q4) Set forth the seven principle European Institutions primarily responsible for governing the European Union.
Q5) What is the act-of-state doctrine,and how is it generally applied by U.S.courts?
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