Entrepreneurship Legal and Business Structure 2 — Questions and Answers
Question 1: What is intellectual property (IP)?
- Physical property owned by a technology company
- Creations of the mind legally protected by patents, trademarks, copyrights, or trade secrets (Correct answer)
- The brand value of a business calculated for sale
- Software infrastructure owned by a startup
Correct answer: Creations of the mind legally protected by patents, trademarks, copyrights, or trade secrets
Intellectual property refers to creations of the mind—inventions, designs, brand names, artistic works—that are legally protected from unauthorized use.
Question 2: What is a non-disclosure agreement (NDA)?
- A legal contract preventing a former employee from starting a competing business
- A contract requiring parties to keep specified information confidential (Correct answer)
- An agreement between partners to not disclose financial losses
- A government filing to protect a trade secret
Correct answer: A contract requiring parties to keep specified information confidential
An NDA (or confidentiality agreement) is a legal contract in which parties agree not to disclose certain shared information to third parties.
Question 3: What is a non-compete agreement?
- A contract that prevents a business from entering a government-regulated industry
- An agreement restricting an employee or partner from working for competitors for a set time after leaving (Correct answer)
- A partnership agreement between two non-competing firms
- A contract preventing a supplier from raising prices
Correct answer: An agreement restricting an employee or partner from working for competitors for a set time after leaving
A non-compete agreement legally restricts an employee or business partner from working with competitors or starting a competing business for a defined period and geographic area.
Question 4: What is 'double taxation' in the context of a C corporation?
- Paying both federal and state income taxes on the same income
- Corporate profits being taxed at the corporate level and again when dividends are paid to shareholders (Correct answer)
- Paying both payroll tax and self-employment tax simultaneously
- Being taxed in two countries for international business income
Correct answer: Corporate profits being taxed at the corporate level and again when dividends are paid to shareholders
C corporations face double taxation: profits are first taxed at the corporate rate, then shareholders pay personal income tax on dividends received.
Question 5: What is a franchise?
- A government license to operate a monopoly in a regulated industry
- A business model where a franchisor licenses its brand, systems, and support to franchisees (Correct answer)
- A type of business incubator for early-stage startups
- A joint venture between two established companies
Correct answer: A business model where a franchisor licenses its brand, systems, and support to franchisees
A franchise is a contractual arrangement where a franchisor grants franchisees the right to operate a business using its brand, systems, and ongoing support in exchange for fees and royalties.
Question 6: What does 'piercing the corporate veil' mean?
- Revealing confidential business plans to investors
- A legal action holding business owners personally liable when the business and personal affairs are improperly mixed (Correct answer)
- A hostile takeover of a corporation by outside investors
- The process of dissolving a corporation's charter
Correct answer: A legal action holding business owners personally liable when the business and personal affairs are improperly mixed
Piercing the corporate veil occurs when a court holds owners personally liable for business debts because they failed to maintain proper separation between personal and business finances.
Entrepreneurship Legal and Business Structure 2
What is intellectual property (IP)?