Deck 40: Franchises and Special Forms of Businesses

Question 1

In a franchise agreement,by default,the franchisor and franchisee are separate legal entities.

Answer 1

True

Question 2

A distributorship franchisee is called a subfranchisor.

Answer 2

False

Question 3

A franchisor is not permitted to terminate a franchise under any cause.

Answer 3

False

Question 4

Apparent agency arises when a franchisee creates the appearance of being a franchisor's agent when in fact an actual agency does not exist.

Question 5

Unless otherwise states,the franchisor is liable for the torts of its franchisee.

Question 6

A franchisor deals with the franchisee as an independent contractor.

Question 7

In a processing plant franchise,the franchisor licenses the franchisee to make and sell its products or services to the public from a retail outlet serving an exclusive geographical territory.

Question 8

An apparent agency is created when a franchisor and franchisee use the same trade name and trademarks but make no effort to inform the public of their separate legal status.

Question 9

In an area franchise,the franchisor authorizes the franchisee to negotiate and sell franchises on behalf of the franchisor.

Question 10

A franchisee is established when parties of a general partnership conduct business outside the state of their incorporation.

Question 11

A royalty fee is an amount paid by the franchisor to the franchisee for the continuous use of its trademarks and maintenance of quality.

Question 12

The UFOC satisfies only the FTC and a separate disclosure document should be prepared by the franchisor in accordance with state regulations.

Question 13

The franchisor is liable for the contracts entered into and torts committed by the franchisee while the franchisee is acting within the scope of the apparent agency.

Question 14

A franchisor that makes sales or earnings projections based on hypothetical examples need not disclose the assumptions underlying the estimates.

Question 15

If the product or service offered by a franchisor has not been tested,it should appear on the FTC franchise notice.

Question 16

FTC franchise rule is a rule that requires franchisors to make full presale disclosures to prospective franchisees.

Question 17

The FTC does not require the registration of the disclosure document with the FTC prior to its use.

Question 18

Franchisors are not permitted to disclose trade secrets and product formulas to franchisees.

Question 19

Trade secrets do not qualify for copyright protection.

Question 20

Uniform Franchise Offering Circular refers to a uniform disclosure document that requires a franchisor to make specific presale disclosures to prospective franchisees.

Question 21

Which of the following is true of a franchise?

A)The franchisor and franchisee are established as separate legal entities.
B)A franchisee does not need a license to use the franchisor's trademark.
C)The franchisee does not have access to the franchisor's knowledge.
D)A franchise is considered as a joint venture.

Question 22

The termination-at-will clause allows franchisees to sue a franchisor in case of an unjust termination of franchise.

Question 23

In which of the following types of franchise does a franchisor provide a secret formula or process to the franchisee?

A)chain-style franchise
B)area franchise
C)distributorship franchise
D)processing plant franchise

Question 24

A franchise is an example of a license.

Question 25

A joint venturer is not personally liable for the debts and obligations of the joint venture partnership.

Question 26

Termination-at-will clauses in franchise agreements are generally held to be void.

Question 27

Joint venturers generally have equal rights to manage a joint venture.

Question 28

A single failure by a franchise to meet a quality-control standard is sufficient cause for termination.

Question 29

Joint venturers do not owe each other fiduciary duties of a loyalty and care as they are not bound by a contract.

Question 30

Licensing refers to a business arrangement that occurs when the owner of intellectual property contracts to permit another party to use the intellectual property.

Question 31

Joint venturers are permitted to create a corporation that operates the joint venture.

Question 32

A(n)________ is established when one party licenses another party to use the first party's trade name,trademarks,commercial symbols,patents,copyrights,and other property in the distribution and selling of goods and services.

A)proprietorship
B)franchise
C)implicit contract
D)general partnership

Question 33

A franchisee subject to wrongful termination can only recover damages,and not the franchise.

Question 34

A joint venture is generally an implied contract that lasts until a party disassociated at will.

Question 35

A joint venture is an arrangement in which two or more business entities combine their resources to pursue an ongoing business operation.

Question 36

A strategic alliance is an arrangement between two or more companies whereby they agree to ally themselves and work together to accomplish a designated objective.

Question 37

A joint venture resembles a conglomeration,with a parent company and subsidiaries.

Question 38

Partners to a strategic alliance can be potential competitors to each other.

Question 39

In a(n)________ franchise,the franchisor manufactures a product and licenses a retail dealer to sell the product to the public.

A)processing plant
B)area
C)distributorship
D)chain-style

Question 40

Limonelle Corporation owns the secret formula for a popular beverage brand Limonelle.The corporation operates through franchises in over 50 countries.It uses a secret formula to prepare the drink concentrate which is dispatched to the franchises world over.These franchises then prepare and bottle the beverage for distribution.Which of these types of franchises has Limonelle adopted?

A)chain-style franchise
B)processing plant franchise
C)distributorship franchise
D)area franchise

Question 41

Which of the following data must a franchisor disclose if the franchisor makes sales or earnings projections for a potential franchise location that are based on the actual sales,income,or profit figures of an existing franchise?

A)contract details of the franchisor and the existing franchises
B)management methods that have been adopted by the existing franchises
C)the number and percentage of its actual franchises that have obtained such results
D)any sales or marketing strategy employed by the franchisor in acquiring such results

Question 42

A(n)________ is an amount paid by the franchisee to the franchisor for the continued use of the franchisor's trade name,property,and assistance that is often computed as a percentage of the franchisee's gross sales.

A)royalty fee
B)assessment fee
C)lease fee
D)contingency fee

Question 43

The area franchisee is also called a ________.

A)joint venturer
B)limited partner
C)subfranchisor
D)strategic partner

Question 44

Which of the following is true of the liabilities of a franchisor and a franchisee?

A)The franchisor is not liable for any tort arising out of the franchise.
B)Both franchisee and franchisor are jointly liable for torts committed by either.
C)Franchisees are only liable on their own contracts.
D)Franchisors are always liable for the torts of the franchisees.

Question 45

Where should the FTC franchise notice appear?

A)in the licensing agreement between the franchisor and franchise
B)as a separate clause in the franchise agreement
C)on the cover of a franchisor's required disclosure statement
D)on the cover of a franchisee's required disclosure statement

Question 46

Which of the following documents sets forth the terms and conditions of a franchise?

A)the FTC disclosure document
B)the franchise agreement
C)the articles of incorporation
D)the articles of organization

Question 47

The ________ is a uniform disclosure document that requires a franchisor to make specific presale disclosures to prospective franchisees.

A)UFOC
B)UCC
C)UCITA
D)SEA

Question 48

If a franchisor makes sales or earnings projections based on hypothetical examples,the franchisor must ________.

A)display a cautionary statement that warns against misuse of the franchisor's intellectual properties
B)disclose the assumptions underlying the estimates
C)register the disclosure document with the FTC prior to its use
D)state that all data disclosed is only hypothetical and that actual data will be made available at the earliest

Question 49

Rio-Werner Corporation owns Rio's Sandwiches,a fast-food restaurant in New Jersey.It wants to operate in five cities on the west coast by means of franchisees which make and sell all menu items from Rio's Sandwiches.Which of the following would best suit the Rio-Werner Corporation's franchise plan?

A)processing plant
B)area
C)distributorship
D)chain-style

Question 50

Which of the following types of clauses,in a franchise agreement,provides that any claim or controversy arising from the franchise agreement or an alleged breach thereof will be settled outside the courts?

A)reserve clause
B)arbitration clause
C)integration clause
D)covenant not to compete

Question 51

A franchisor discloses a cautionary statement that reads,"Caution: These figures are only estimates of what we think you may earn.There is no assurance you'll do as well.If you rely upon our figures,you must accept the risk of not doing so well." This is an instance of ________.

A)disclosure of earning projections based on actual data
B)disclosure of earning projections based on hypothetical data
C)non-disclosure of sales or earnings projections
D)fraudulent disclosure by the franchisor

Question 52

Which of the following is imposed upon a franchisor that violates the FTC franchise disclosure rule?

A)FTC criminal action on behalf of the franchisee
B)loss of intellectual property to the franchisee
C)suspension of all business operations in the area
D)an injunction against further franchise sales

Question 53

A franchisor discloses a cautionary statement that reads,"Caution: Some outlets have sold this amount.There is no assurance you'll do as well.If you rely upon our figures,you must accept the risk of not doing so well." This is an instance of ________.

A)disclosure of earning projections based on actual data
B)disclosure of sales projections based on hypothetical data
C)non-disclosure of sales or earnings projections
D)fraudulent disclosure by the franchisor

Question 54

In a(n)________ franchise,the franchisor authorizes the franchisee to negotiate and sell franchises on behalf of the franchisor.

A)chain-style
B)area
C)distributorship
D)processing plant

Question 55

Which of the following does the FTC franchise rule require from franchisors?

A)registration of the disclosure document with the FTC before it's used
B)full presale disclosures to prospective franchisees nationwide
C)statement to fully finance the infrastructure necessary to bring the franchisee to the franchisor's standard
D)disclosure of license agreement made with franchisee that lets the franchisee use the franchisor's service mark

Question 56

Which of the following is true of a franchise agreement?

A)A franchise application is not necessary to qualify for entering into a franchise agreement.
B)The UFOC sets forth the terms and conditions for the franchise agreement.
C)The terms and conditions of the franchise agreement must always be first drawn by the franchisee.
D)A franchisee can only obtain a license to use the franchisor's intellectual property after entering into a franchise agreement.

Question 57

Which of the following is an instance of an area franchise?

A)McDonald's franchises an independently owned restaurant to make and sell its products in Pennsylvania.
B)Pepsi Co.ships Pepsi in the form of a drink concentrate which is prepared and bottled locally in Canada.
C)Nokia licenses a retail dealer to retail its products in Jacksonville.
D)Burger King wants to start operating in Mexico and hires a Mexican subfranchisor to sell the franchise on behalf of Burger King.

Question 58

Which of the following is true of intellectual property of a franchisor?

A)Trademarks do not qualify for patents.
B)A word or motto that identifies a franchisor does not qualify for trademark protection.
C)A service mark is exclusive to the franchisor and cannot be licensed to franchisees.
D)Trade secrets of a franchisor do not qualify for patent protection.

Question 59

Which of the following federal agencies is empowered to enforce federal franchising rules?

A)the Federal Trade Commission (FTC)
B)the Securities and Exchange Commission (SEC)
C)the Federal Communications Commission (FCC)
D)the Commodity Futures Trading Commission (CFTC)

Question 60

In a ________ franchise,the franchisor licenses the franchisee to make and sell its products or services to the public from a retail outlet serving an exclusive geographical territory.

A)chain-style
B)area
C)distributorship
D)processing plant

Question 61

YouKnow Inc.is a corporation that creates educational resources.It grants Middlewest Public School the right to exclusively use its online encyclopedias for three years,in return for a fee.In this arrangement,YouKnow Inc.is the ________.

A)donor
B)trustee
C)grantor
D)licensor

Question 62

________ is a business arrangement that occurs when the owner of intellectual property contracts to permit another party to use the intellectual property.

A)General partnership
B)Leasing
C)Licensing
D)Joint venturing

Question 63

Explain in brief the four basic types of franchises.

Question 64

Ubiquitous Enterprises is a franchisee of HotPan chain of restaurants.One afternoon,Linda,an employee of a HotPan restaurant owned by the franchisee is mopping the floor.Gary,a customer who enters the restaurant is talking on his cell phone and does not notice Linda mopping the floor.He slips on the wet floor while walking to the counter and is injured.Who among the following is liable for Gary's injuries?

A)HotPan,for not providing a "Caution: Wet Floor!" sign
B)Ubiquitous Enterprises,for not having its own "Caution" sign
C)Linda,for not alerting Gary
D)Gary,for not noticing that the floor was wet

Question 65

Concreate Development requires architects to design its latest venture-a 64-storeyed skyscraper.It makes a business arrangement with Excellent Architecture and acquires four architects on contract for the ongoing project.This is an instance of a(n)________.

A)licensing arrangement
B)franchise
C)limited partnership
D)joint venture

Question 66

A(n)________ refers to an agency that arises when a franchisor creates the image that a franchisee is its agent when in fact an actual agency does not exist.

A)apparent agency
B)implicit agency
C)agency by ratification
D)implied agency

Question 67

Which of the following is true of a joint venture?

A)The parties to a joint venture are considered as limited partners.
B)Both parties to a joint venture have equal rights to manage the venture.
C)A joint venture is a partnership that lasts for multiple projects.
D)Parties to a joint venture are exempt from fiduciary duties to each other.

Question 68

Which of the following is true of a strategic alliance?

A)Strategic alliances cannot have more than two entities involved.
B)Strategic alliances cannot be formed between fellow competitors.
C)Strategic alliances are usually formed to accomplish multiple business ventures.
D)Strategic alliances do not provide the same protection and stability as mergers.

Question 69

A(n)________ refers to an arrangement between two or more companies whereby they agree to ally themselves and work together to accomplish a designated objective.

A)limited partnership
B)strategic alliance
C)joint venture
D)franchise

Question 70

Which of the following mandatorily requires a license to be operational and legal?

A)a general partnership
B)a conglomerate
C)a joint venture
D)a franchise

Question 71

Which of the following is true for a franchisee that was terminated-at-will by a franchisor?

A)The franchisee can only recover damages.
B)The franchisor cannot be held liable for a termination-at-will.
C)The franchisee cannot apply for a franchisee again in the same field of business.
D)The franchisee can sue to recover damages,and the franchise.

Question 72

The party who grants a license is known as the ________.

A)licensee
B)licensor
C)grantee
D)grantor

Question 73

A ________ is an arrangement in which two or more business entities combine their resources to pursue a single project or transaction.

A)limited partnership
B)license agreement
C)joint venture
D)franchise

Question 74

JK Developers and KL Designs,who are experts in architectural engineering,form a business agreement whereby they agree to work together for two years,in order to complete the design of a planetarium.This is an example of a(n)________.

A)franchise
B)licensing agreement
C)strategic alliance
D)limited partnership

Question 75

Intrepid Creations is a product design institute which provides educational courses in package design.It manages to acquire the right to use simulation software from Marco Software for a payment of $2,000 a year.There is no clause of expiration on this arrangement and the right to access the software is renewed annually.Which of the following kinds of business arrangements does the aforementioned scenario indicate?

A)a licensing arrangement
B)a general partnership
C)a limited partnership
D)a franchise

Question 76

Which of the following is true of a joint venture corporation?

A)The joint venturers are personally liable for debts of the joint venture corporation.
B)Joint venturers do not owe each other fiduciary duties as a venture is a single business transaction.
C)The management rights of joint venturers in a joint venture are divided by the ratio of their capital investment.
D)Each joint venture is liable for the debts and obligations of the joint venture.

Question 77

My-Wear Inc.is an apparel retailer based in San Francisco.It operates through a franchise named KL Apparels Ltd.in Santa Clara.After about six years of operation,My-Wear Inc.cancelled the franchise with KL Apparels without any notification.The franchise period specified in the contract has not expired and the franchisee had met all standards stated by the franchisor.This constitutes a ________.

A)termination at will
B)termination for cause
C)contractual termination
D)suspension by franchisor

Question 78

Most franchise agreements permit a franchisor to terminate the franchise ________.

A)at will
B)after five years of franchising
C)for cause
D)without just cause

Question 79

The party to whom a license is granted is known as the ________.

A)licensee
B)licensor
C)grantee
D)grantor

Question 80

Which of the following closely resembles a joint venture?

A)a conglomerate
B)a merged company
C)a franchise
D)a partnership