Legal Environment for Entrepreneurs
Textbook Exam Questions
Course Introduction
This course explores the fundamental legal principles and regulatory frameworks that influence entrepreneurs and new business ventures. Students will examine topics such as business formation, contract law, intellectual property, employment law, and liability management, with an emphasis on the legal challenges and strategic considerations unique to startups. The course equips future entrepreneurs with practical knowledge to make informed decisions, mitigate potential legal risks, and operate effectively within the complex legal environment of modern business.
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The Legal and Regulatory Environment of Business 16th Edition by O. Lee Reed
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Chapter 1: Law As a Foundation for Business
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Sample Questions
Q1) Natural law theory asserts that law contains universal moral principles.
A)True
B)False
Answer: True
Q2) Kate has entered into a binding agreement to sell a house to Michael. When Michael shows up to complete the deal as per the agreement, Kate refuses to go through with the transaction. Which of the following best categorizes Kate and Michael's issues with regard to classification of laws?
A) This is a public law issue regarding contract law.
B) This is a private law issue regarding contract law.
C) This is a public law issue regarding property law.
D) This is a private law issue regarding criminal law.
E) This is a public law issue regarding tort law.
Answer: B
Q3) Law and "rule of law" are synonymous terms.
A)True
B)False
Answer: False
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3
Chapter 2: The Role of Ethics in Decision Making
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Q1) Even with a code of ethics, why is it important for top management in a corporation to set an example for ethical conduct?
Answer: It is important for top management to set an ethical example to stress that any code of ethics is important and enforced. Also, as Jackall argues, employees want to 'fit in'; the employees fit in by emulating the top management. If the employees are going to act like the top management, then you want them to act ethically.
Q2) Those who argue that a system of property ownership is ethically moral do so by appealing to strict formalism, arguing that the morality of property rights should be determined on an individual basis.
A)True
B)False
Answer: False
Q3) The Protestant ethic proved to be a great influence on modern capitalism, but its focus on absolute moral values was replaced by a focus on wealth and mass consumption.
A)True
B)False
Answer: True
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Chapter 3: The Court System
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Sample Questions
Q1) The government cannot ban political spending by corporations.
A)True
B)False
Answer: True
Q2) The results arrived at by juries of 6 and juries of 12 show quite discernable differences.
A)True
B)False
Answer: False
Q3) Strict constructivism is also known as:
A) judicial liberalism.
B) judicial activism.
C) judicial review.
D) judicial abstention.
E) judicial formalism.
Answer: D
Q4) A lawyer's first duty is to his client.
A)True
B)False
Answer: False
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Chapter 4: Litigation
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Sample Questions
Q1) In a federal class-action law suit:
A) only one member of the class must meet the jurisdictional amount of $75,000.
B) at least 50% of the class must meet the jurisdictional amount of $75,000.
C) the total sued for by the class must add up to the jurisdictional amount of $75,000.
D) the average amount sued for by the class must meet the jurisdictional amount of $75,000 each.
E) the cost of trying the cases individually must exceed the jurisdictional amount of $75,000.
Q2) When might a third-party defendant be necessary in a trial, and what purpose dies this type of parry serve?
Q3) Members of a class must be given notice of the lawsuit; this notice must be given to all members of the class whose names and addresses can be found through _____.
A) res judicata
B) exceptional efforts
C) submission
D) extradition
E) reasonable efforts
Q4) What is the meaning of res judicata and what is its effect?
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Page 6
Chapter 5: Alternative Dispute Resolution
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Q1) A(n) _____ will be enforced by the courts as if it were a judgment of the courts.
A) award
B) submission
C) appeal
D) pleading
E) caucus
Q2) What impact has the Federal Arbitration Act had on how the courts view arbitration?
Q3) The meeting between a mediator and one disputant outside the presence of the other disputant is called a _____.
A) calumny.
B) consensus.
C) convention.
D) convocation.
E) caucus.
Q4) What are the advantages of using an expert rather than a judge as an arbitrator?
Q5) What is the role of judicial review in voluntary contract-based arbitration awards?
Q6) What is a caucus? How is it used in mediation?
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Page 7
Chapter 6: The Constitution
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Sample Questions
Q1) Under the minimum rationality approach, a _____ qualifies as a legitimate goal of government.
A) rational connection
B) prohibited state end
C) irrational state end
D) permissible state end
E) wholly arbitrary case
Q2) Which of the following is true about freedom of speech?
A) It covers both verbal and written communications.
B) It exists to protect the majority from the minority.
C) Its protection relates to private action that restricts our ability to express ourselves.
D) It covers written communications but not conduct or actions.
E) It is an absolute constitutional guarantee.
Q3) Constitutional guarantees exist in order to remove certain issues from the political process and the ballot box.
A)True
B)False
Q4) Explain the concept of the incorporation doctrine.
Q5) What is a libel?
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Chapter 7: The Property System
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Q1) Wally Wanderer finds an abandoned ranch in Wyoming and begins living there for many years. When the record owner finds out 23 years later, what is Wally's best legal argument that the land is his?
Q2) Upon the death of a joint tenant, his interest automatically transfers to the other tenants.
A)True
B)False
Q3) What is meant by a life estate in land and why might one give someone else a life estate rather than a fee simple ownership.
Q4) Ned's is the only house situated directly on the shore of a small lake just outside of the city of Heart Tree. Heart Tree's city council has decided to turn the lake into a city park, complete with waterslides, theatres, and a dog park. Heart Tree claims that this park will create jobs, increase city revenues, and give the citizens of Heart Tree much needed green space. The park will be run by Geoffrey Corp., a development agency associated with Heart Tree. To create the park, Geoffrey Corp. must use all of the land surrounding the lake, so it decides to initiate condemnation proceedings on the land currently owned by Ned. How could Ned fight this, and what would be the likely result?
Q5) Explain the rule of first possession.
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Chapter 8: Contract Formation
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Sample Questions
Q1) Mark entered into a written contract to sell Dobby his music collection for $10,000 payable in five installments. Mark then sells Cathy the right to collect the proceeds of his sale. Discuss Cathy's legal rights.
Q2) Which statement is true concerning silence as a method of acceptance?
A) An offeree's silence implies that the offree will make a counter offer.
B) Parties' prior course of dealing may allow silence as a valid acceptance.
C) If the offer states that silence means acceptance, then the offeree must respond or there will be a valid contract.
D) Silence alone can be acceptance and basis of a binding contract.
E) Silence leads to acceptance of an offer due to the mirror image rule.
Q3) Vanessa has assigned Leslie her rights to collect payments from Laura. Later, Vanessa assigned the same rights to collect her payments from Laura to Danielle. Discuss the legality of the case, and which assignee can claim rights to payments from Laura.
Q4) A unilateral contract is an agreement with only one promise, and only one party is committed to perform.
A)True
B)False
Q5) What is a novation?
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Chapter 9: Contractual Performance and Breach
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Sample Questions
Q1) Discuss substantial performance?
Q2) Jessica hires Bob Builders to construct a house for her. The contract specifies that grade A+ carpeting is to be installed on the entire second floor. Bob accidentally installs grade A shag carpeting instead. Few people except for carpeting experts can tell the difference. Jessica, however, refuses to pay for the construction citing that Bob has breached the contract. Which of the following is true of this situation?
A) This would likely be considered complete performance and Jessica will have to pay the contractor.
B) Jessica can claim a breach of contract and refuse to pay for the construction of the house.
C) This will be considered a substantial performance and Jessica would be entitled to monetary damages.
D) Jessica has materially breached the contract by refusing to pay Bob's, and hence cannot sue Bob's for the carpeting.
E) The court is likely to declare that Bob's has breached the contract, and will ask Jessica to pay half the cost decided as per contract.
Q3) What is delivery?
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Chapter 10: Torts Affecting Business
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Sample Questions
Q1) Kylie hosts a party inviting her best friend Minnie as well. Minnie is aware that Kylie has a pet dog, and is also friendly with it. However, during the party, Kylie's dog attacks Minnie, injuring her. Minnie holds Kylie responsible for the attack and files a suit against her. Which of the following defenses can Kylie use against the suit?
A) Assumption-of-the-risk
B) Statute of response
C) Strict liability
D) Willful and wanton negligence
E) False imprisonment
Q2) When does a strict products liability arise?
Q3) The defense comparative negligence absolutely bars the plaintiff from recovery if the plaintiff's own fault contributed to the injury.
A)True
B)False
Q4) What must the plaintiff prove in a negligence case?
Q5) Peter was riding his motorcycle when he ran into a pothole on the highway and met with an accident. He decided to sue the contractor and the department responsible for building roads for the harm caused to him. Discuss the case.
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Chapter 11: Intellectual Property
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Sample Questions
Q1) When the public is confused as to whether a term refers to a particular product/service or refers to a general class of products/services, the trademark is said to have become _____.
A) infringed
B) copied
C) generic
D) distinctive
E) substituted
Q2) It has been estimated that intangible assets represents a significant portion of the total assets of many large U.S. companies. Name some of the different intangible assets that businesses might possess.
Q3) As part of the trademark application process, the Patent and Trademark Office places a proposed mark in the ________ which gives existing mark owners notice and allows for objection.
A) Official Gazette
B) Federal Register
C) Legal section of major newspapers
D) Congressional Record
E) Principal Register
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Page 13
Chapter 12: International Law
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Sample Questions
Q1) The Convention on the International Sale of Goods does not require contracts for the sale of goods to be in writing.
A)True
B)False
Q2) The U.S. Export Control and Related Border Security Assistance Program, in order to control the export of technology flowing into dangerous hands, has issued three "red flags" that exporters should be aware of. Identify and discuss these "red flags".
Q3) What is NAFTA?
Q4) Briefly explain what is the doctrine of sovereign immunity?
Q5) What are some of the criticisms of the World Trade Organization?
Q6) Which of the following is true of licensing arrangements?
A) Licensing requires international businesses to make direct foreign investment to enter foreign markets.
B) Licensing often is used by firms as an expansion technique in the domestic market.
C) Licensing agreements must follow the local laws where they operate.
D) Licensing agreements are governed by international trade and business laws.
E) Licensing technology requires substantial capital to expand a company's market.
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Page 14
Chapter 13: Criminal Law and Business
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Sample Questions
Q1) Which of the following is an example of larceny?
A) A person caught for shoplifting.
B) A shoplifter threatening the manager with a gun.
C) A person breaks into a shop to steal but is unable to do so.
D) A cashier of a store steals money from the cash register.
E) Two people partner to rob a neighbourhood store.
Q2) The right to a jury trial does not extend to state juvenile court proceedings.
A)True
B)False
Q3) If a person acts under the direction of someone accused of criminal activities, this person might be held responsible for _____.
A) conspiracy
B) endangerment
C) embezzlement
D) aiding and abetting
E) accessory before crime
Q4) What are sentencing guidelines? Discuss their use in sentencing convicts today.
Q5) Discuss embezzlement and money laundering.
Q6) What are accessories before a crime and accessories after a fact?
Q7) Discuss intent as an important element in criminal laws.
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Chapter 14: Business Organizations
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Q1) A dissolution is any change in the ownership of an organization that changes the legal existence of the organization.
A)True
B)False
Q2) How is the liability factor a disadvantage of sole proprietorship?
Q3) A corporate charter is issued following an application made by individuals known as:
A) incorporators.
B) corporate officers.
C) board members.
D) corporate panel.
E) proxies.
Q4) All partners in a general partnership have unlimited liability for their organization's debts.
A)True
B)False
Q5) The IRS treats LLCs as taxable entities.
A)True
B)False
Q6) What are the advantages of an S corporation?
Page 16
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Chapter 15: The Regulatory Process
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Q1) What are the basic functions of administrative agencies?
Q2) The Environmental Protection Agency (EPA) regulates civil aviation to provide safe and efficient use of airspace.
A)True
B)False
Q3) The state and local government authority to regulate business activity arises from a concept called the eminent domain.
A)True
B)False
Q4) Business often fails to regulate itself, and the lack of self-regulation is contrary to the public interest. To counterbalance, administrative agencies exist to:
A) refer the problem or area to experts for solution and management.
B) protect the public, especially from the business community.
C) replace competition with regulation.
D) develop detailed rules and regulations to carry out the legislative policy.
E) provide services, having been arisen out of necessity.
Q5) How does the commerce clause prohibit discrimination against interstate commerce?
Q6) Regulation is often a substitute for competition. Explain with example.
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Chapter 16: Regulating Competition_Antitrust Laws
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Q1) A manufacturer announcing its prices and refusing to deal with those who fail to comply is a method of legally controlling the retail price.
A)True
B)False
Q2) The FTC prevents wrongful actions by the use of cease and desist orders.
A)True
B)False
Q3) Which of the following was established by the Noerr-Pennington doctrine?
A) Concerted efforts to lobby government officials, regardless of the anticompetitive purposes of the lobbying effort are exempt from the provisions of the Sherman Act.
B) When a state acts in its sovereign capacity, it is immune from federal antitrust scrutiny.
C) Price fixing is illegal whether the parties to it have control of the market or not and whether or not they are trying to raise or lower the market price.
D) Resale price maintenance is legal only if there is no coercion or pressure other than the announced policy and its implementation.
E) Conduct directed at price stabilization is per se anticompetitive.
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Page 18
Chapter 17: Financial and Securities Regulations
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Q1) The _____ is a disclosure law which makes it illegal to use mails or any other means of interstate communication or transportation to sell securities without disclosing certain financial information to potential investors.
A) Securities Exchange Act of 1934
B) Sherman Antitrust Act of 1890
C) Sarbanes-Oxley Act of 2002
D) Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
E) Securities Act of 1933
Q2) Securities laws are designed to protect the buying public by requiring accurate information so that they can make intelligent investment decisions based on factual information.
A)True
B)False
Q3) A plaintiff in a Rule 10b-5 suit is not required to prove damages in order to prevail.
A)True
B)False
Q4) What are the sanctions recognized by the 1933 Securities Act in case of untrue or misleading information being provided to a potential investor?
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Chapter 18: Privacy and Consumer Protection
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Q1) Under the FCRA, an injured consumer may only recover:
A) actual damages, attorney's fees, and in some instances speculative damages.
B) actual damages.
C) punitive damages and the attorney's fees but no actual damages.
D) actual damages, attorney's fees, and in some instances punitive damages.
E) actual damages and the attorney's fees but no punitive damages.
Q2) Section 5 of the _____ Act prohibits unfair or deceptive acts or trade practices.
A) Equal Credit Opportunity
B) Fair Credit Reporting
C) Truth-in-Lending
D) Fair Debt Collection Practices
E) Federal Trade Commission
Q3) What guidelines as issued by the Fair Debt Collection Practices Act (FDCPA) does a debt collector have to follow in order to contact a debtor?
Q4) What are the areas encompassed by the authority of the Consumer Financial Protection Bureau?
Q5) What are the two changes incorporated in the Truth-in-Lending Simplification Act that makes it different from the Truth-in-Lending Act?
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Chapter 19: Environmental Regulation and Resource
Sustainability
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Q1) What is the manifest system that is used by the RCRA for the disposal of hazardous wastes?
Q2) Under the Endangered Species Act, the right to declare a species as endangered rests with the:
A) director of the EPA.
B) Governors of states where the species habitat is located.
C) Secretary of the Interior.
D) president.
E) upper house of the U.S Congress.
Q3) Banes and Co. is spread over an area of 1,500 acre complex in Baytown consisting of an oil refinery and two petrochemical plants. The refinery produces over 200,000 barrels per day. Residential neighborhoods are within a mile downwind from each facility, and almost 15,000 people live within three miles of the oil giant's facility. It releases gases over 3.5 million pounds of sulfur dioxide, 6 million pounds of carbon monoxide, 2 million pounds of volatile organic compounds, 275,000 pounds of nitrogen oxides, 60,000 pounds of 1,3-butadiene, and 35,000 pounds of benzene. It violates the standards established by the federal authorities. Which Act does Banes violate?
Q4) Who is responsible for control of overall radiation pollution?
Q5) What are the civil and criminal penalties that enforce the Clean Air Act?
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Chapter 20: Discrimination in Employment
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Q1) In 1991, Congress amended the Civil Rights Act to allow the recovery of compensatory and punitive damages per person to be up to:
A) $100,000.
B) $250,000.
C) $300,000.
D) $1 million.
E) $400,000.
Q2) Undue hardship can be a reason for an employer not making reasonable accommodation for disabled employees.
A)True
B)False
Q3) The _____ requirement means that federally contracting employers must hire members of these groups when there are fewer minority workers in a given job category than one could reasonably expect, considering their availability.
A) disparate treatment
B) affirmative action
C) reverse discrimination
D) retaliation
E) business necessity defense
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Page 22
Chapter 21: Employment Laws
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Q1) Jack works as a mechanic in Cars Unlimited, an automobile manufacturing company. While employed as a service technician for the defendant, Jack suffered back injuries in March 2005 and April 2005. Though he requested to go home, he did not submit a written injury report and refused medical treatment. Jack was absent through the month of June, calling in sick each day without providing any other information and not seeking medical treatment during this time. As Jack had exhausted his available sick leave and vacation leave, he was terminated when he returned to work on July 3, 2005. Can Jack sue his former employer for failure to reinstate and wrongful discharge in violation of the Family and Medical Leave Act (FMLA)?
Q2) Under the Family Medical Leave Act, in order to take leave, the eligible employee:
A) must have worked for 12 consecutive months prior to requesting leave.
B) is entitled to one 12-week paid leave per year.
C) must have worked at least 1,950 hours during the preceding 12 months.
D) must have worked for the employer at least a total of 12 months.
E) must work at a location where at least 100 employees are employed.
Q3) What are the provisions of the IRS Whistleblowers Rewards Program?
Q4) What is meant by the term "paper fortress" and why would an employer amass a "paper fortress"?
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Page 23
Chapter 22: Labor-Management Relationship
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Q1) Workers in right-to-work states, who work at a unionized facility, must pay union dues.
A)True
B)False
Q2) The members of the NLRB are appointed by:
A) Congress.
B) the president.
C) the Senate.
D) the House of Representatives.
E) the Department of Labour
Q3) If an employer reports the existence of possible illegal aliens to the authorities when the report is near a time when the employees are approving a labor union as its bargaining agent such a report is considered an unfair labor practice.
A)True
B)False
Q4) An employer is not required to recognize the union based on a majority card showing and always has the option to insist on an election.
A)True
B)False
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