Deck 31: Franchise and Special Forms of Business

Question 1

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

Answer 1

B

Question 2

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) A 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.

Answer 2

B

Question 3

The area franchisee is also called a ________.

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

Answer 3

C

Question 4

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 5

If Venusia Records wanted to enter a foreign country to operate its music stores,it could grant a franchise to a foreign company operating in the foreign country,which would then choose the individual franchisees in that country.This is a form of a(n)________ franchise.

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

Question 6

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

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

Question 7

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

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

Question 8

The Ross's Choice Corporation franchises independently owned restaurant franchises to make and sell burgers and pizzas to the public under the Ross's brand name.This is a form of a(n)________ franchise.

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

Question 9

Hybrid Motor Company manufactures automobiles and franchises independently owned automobile dealers (franchisees)to sell them to the public.This is a form of ________ franchise.

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

Question 10

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

A) Burger Palace franchises an independently owned restaurant to make and sell its products in New Wilshire.
B) FreshoCo. ships Fresho in the form of a drink concentrate which is prepared and bottled locally in Almia.
C) Victory gin licenses a retail dealer to retail its products in Ambrosia.
D) Ashbury King wants to start operating in Rolland and hires a Rolland subfranchisor to sell the franchise on behalf of Ashbury King.

Question 11

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 12

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 13

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 14

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

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

Question 15

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 16

In a(n)________ 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 17

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 18

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 19

Where does 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 20

Limonelle Corporation owns the secret formula for a popular beverage brand called 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 21

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 22

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 23

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 24

The ________ set out in a franchise agreement-such as the franchisor's right to make periodic inspections of the franchisee's premises and operations-are intended to protect the franchisor's name and reputation.

A) training requirements
B) quality-control standards
C) quantity-control standards
D) total investment

Question 25

Silvar,a chain of automotive showrooms,charges its franchisees approximately four percent of new sales and puts this money in a special fund to pay for advertising and promotion.In this instance,the franchisees are paying ________ fees.

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

Question 26

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 27

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 28

________ fees are payments for any land or equipment leased from the franchisor,billed either as a flat monthly or an annual fee.

A) Lease
B) Royalty
C) Assessment
D) Contingency

Question 29

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 30

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 31

A(n)________ fee is a lump-sum payment for the privilege of being granted a franchise.

A) royalty
B) initial license
C) lease
D) consulting

Question 32

Franchisors charge a monthly or annual ________ fee for having experts from the franchisor help the franchisee better conduct business.

A) lease
B) consulting
C) assessment
D) royalty

Question 33

A ________ is a symbol,name,word,motto,or device that identifies the goods or services of a particular franchisor.

A) trademark
B) franchise
C) copyright
D) patent

Question 34

Sky Toys,a chain of toy stores,charges its franchisees a fee for the use of its name that is approximately 12.5 percent of monthly gross sales.In this instance,the franchisees are paying ________ fees.

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

Question 35

________ involves payment for items purchased from the franchisor.

A) Leasing
B) Cost of supplies
C) Royalty fees
D) Initial license fee

Question 36

An ________ 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 37

A(n)________ fee is a fee for such things as advertising and promotional campaigns and administrative costs.

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

Question 38

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

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

Question 39

Zen's Choice,a chain of sports equipment stores,owns the real estate on which a franchisee operates its franchise.Zen's Choice's charges a franchisee rent,which is calculated as a percentage of monthly net sales.In this instance,the franchisee is paying ________ fees.

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

Question 40

________ are ideas that make a franchise successful but that do not qualify for patent or copyright protection.

A) Trade secrets
B) Trademarks
C) Service marks
D) Franchise agreements

Question 41

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

A) licensor
B) bailee
C) licensee
D) acceptor

Question 42

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 43

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 44

________ 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 45

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

Question 46

Which of the following closely resembles a joint venture?

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

Question 47

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

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

Question 48

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 49

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 50

A ________ 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) sole proprietorship
D) franchise

Question 51

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 52

Which of the following statements 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 53

If a franchisor terminates a franchise agreement without just cause,the franchisee can sue the franchisor for ________ termination.

A) rightful
B) illegal
C) legal
D) wrongful

Question 54

Fun Toons is a publisher of comic books.It grants the Daily Beacon,a newspaper,the rights to use a few of their popular comic strips for the paper's weekend edition for a high fee.In this instance,the Daily Beacon is the ________.

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

Question 55

James Rodriguez,a composer,allows the makers of a popular television show titled "Back in the Day" to use multiple songs from his album on the television show for a price.In this instance,James Rodriguez is the ________.

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

Question 56

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 57

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 ________.

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

Question 58

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 59

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 60

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 61

If a franchisor violates FTC disclosure rules,the wrongdoer is subject to an injunction against further franchise sales,to civil fines,and an FTC civil action on behalf of injured franchisees.

Question 62

The Uniform Franchise Offering Circular refers to a uniform disclosure document that requires a franchisee to make specific presale disclosures to prospective franchisors.

Question 63

A franchise agreement is an agreement that a franchisor and franchisee enter into that sets forth the terms and conditions of a franchise.

Question 64

In a distributorship franchise,the franchisor provides a secret formula or the like to the franchisee.

Question 65

Franchisees and franchisors are always liable for the contracts or torts of each other.

Question 66

The Uniform Franchise Offering Circular (UFOC)satisfies both state regulations and the FTC.

Question 67

Trade secrets qualify for copyright protection.

Question 68

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

Question 69

In an area franchise,the franchisor manufactures a product and licenses a retail dealer to distribute a product to the public.

Question 70

In a chain-style 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 71

An area franchisee is also called a subfranchisor.

Question 72

The Uniform Franchise Offering Circular (UFOC)is used in conjunction with state laws regarding franchises.

Question 73

The Federal Communications Commission (FCC)is a federal government agency that is empowered to enforce federal franchising rules.

Question 74

An initial license fee is a lump-sum payment for the privilege of being granted a franchise.

Question 75

A franchise is established when one party licenses another party to use the franchisor's trade name,trademarks,commercial symbols,patents,copyrights,and business model in the distribution and selling of goods and services.

Question 76

According to the FTC franchise rule,a franchisor that makes sales or earnings projections based on real examples must disclose the number and percentage of actual franchises that have obtained such results.

Question 77

A royalty fee is a fee for such things as advertising and promotional campaigns and administrative costs.

Question 78

The FTC requires the registration of the disclosure document with the Federal Trade Commission prior to its use.

Question 79

Lease fees are payments for any land or equipment leased from the franchisor,billed either as a flat monthly or an annual fee.

Question 80

According to the FTC franchise rule,a franchisor that makes sales or earnings projections based on hypothetical examples must disclose the assumptions underlying the estimates.