Deck 16: Small Businesses and Franchises

Question 1

The intent to associate is irrelevant in terms of the elements of a partnership.

Answer 1

False

Question 2

When lending capital to a small business,a bank may require a personal guaranty of its repayment from the owner.

Answer 2

True

Question 3

A partnership is forced to terminate every time a partner dissociates from the firm.

Answer 3

False

Question 4

A sole proprietorship offers less flexibility than does a partnership or a corporation.

Question 5

A majority of the states treat a partnership as an entity for most purposes.

Question 6

Limited legal liability generally is necessary for small businesses that wish to raise outside capital.

Question 7

Most states treat a partnership as an aggregate for most purposes.

Question 8

A partner's devoting time,energy,and skill to partnership business is a compensable service.

Question 9

If no fixed duration of the partnership is specified,the partnership is a partnership at will,which means that it cannot be dissolved.

Question 10

A partner always has the power to dissociate from the partnership.

Question 11

Withdrawal from a partnership before the end of its express term constitutes a breach of the partnership agreement.

Question 12

Any business-except a sole proprietorship-must comply with business registration and licensing requirements.

Question 13

The law considers all new businesses to be sole proprietorships regardless of the number of owners.

Question 14

In a general partnership,the senior partner manages the partnership.

Question 15

Any suit against the business or its employees can lead to unlimited personal liability for the owner of a sole proprietorship.

Question 16

In choosing a form of business organization for a new enterprise,important factors include tax considerations.

Question 17

In a general partnership,the acts of one partner in the ordinary course of business can subject the other partners to personal liability.

Question 18

With respect to taxes,a partnership is a pass-through entity.

Question 19

A partner may not have the right to dissociate from the partnership.

Question 20

A partner has a duty to devote time,skill and energy on behalf of the partnership business.

Question 21

For two years after a partner dissociates from a continuing partnership,the partnership may be bound by the acts of the dissociated partner.

Question 22

Without creating a separate business organization,Roy starts up Sole Savers,a new,pre-owned auto sales enterprise.Roy is​

A)none of the choices.
B)a partner.
C)a franchisee.
D)a sole proprietor.

Question 23

State deceptive trade practices acts apply to actions by franchisors.

Question 24

Some states require the termination of a franchise when there is no "good cause" for it to continue.

Question 25

The franchise agreement may specify whether the premises for the business must be leased or purchased outright.

Question 26

Franchise agreements typically limit the franchisee's ability to sell the franchise to another party.

Question 27

A franchise agreement may allow the franchisee to cure a breach of the franchise agreement within a certain time so as to avoid termination.

Question 28

Lee wants to go into the business of architectural design.Among the reasons that might convince Lee to set up his business as a sole proprietorship would be​

A)its greater organizational flexibility.
B)its limited liability.
C)its perpetual existence.
D)the ease of transferring the business to other family members.

Question 29

The federal government regulates franchising in part through the Franchise Rule.

Question 30

Most franchise contracts provide that notice of termination must be given.

Question 31

Nina,the owner of Organic Farm,a sole proprietorship,wants to obtain additional capital to operate.This can be accomplished by​

A)a bank loan.
B)a Small Business Administration Loan.
C)a state grant.
D)any of the choices.

Question 32

A franchisee is generally economically independent of the franchisor's integrated business system.

Question 33

A franchisor can mandate retail prices for the goods that a franchisee sells.

Question 34

On dissolution,the creditors of the individual partners can make claims on the partnership's assets.

Question 35

Carl starts up,and assumes the financial risk of,DataWorks,a new Web marketing enterprise.Carl and DataWorks must meet legal requirements relating to​

A)business name and state tax registration.
B)occupational licensing.
C)intellectual property laws.
D)all of the choices.

Question 36

In winding up a general partnership,creditors are paid before partners receive their capital contributions.

Question 37

Laura owns and operates Meditation Center without creating a separate business organization.She receives all the profits from the fees for the classes and the sales of the center's merchandise.This is most likely​

A)a partnership.
B)a franchise.
C)a sole proprietorship.
D)none of the choices.

Question 38

Typically,the franchisee determines the territory to be served by the franchise.

Question 39

The laws governing franchising are primarily designed to protect franchisors from dishonest franchisees.

Question 40

State regulation of franchising is often aimed at protecting franchisees from unfair practices.

Question 41

Stefani and Tyler agree in an exchange of e-mail to form a partnership to buy and sell real property.Their partnership agreement is legally binding​

A)only if a copy of the agreement is filed in the appropriate state office.
B)only if the agreement is printed in hard copy and signed by the parties.
C)only if the parties exchange valid consideration.
D)without more.

Question 42

Kim and Lyle are partners in K&L Sales,which exports technical equipment.If Congress declares that the equipment can no longer be exported,K&L​

A)can continue its business for one twelve-month period.
B)can continue its business indefinitely.
C)dissolves immediately unless the partners change its business.
D)is immediately subject to criminal prosecution and penalties.

Question 43

Fact Pattern 16-2
Bryn,Cornell,and Duke are general partners in Equity Lending,a consumer credit,mortgage,and investment firm.Their agreement states that it is a breach of the agreement for any partner to assign his or her interest to a creditor without the consent of the other partners.
Refer to Fact Pattern 16-2.Bryn,Cornell,and Duke decide to admit Giselle as a new partner in Equity Lending.Giselle's liability for partnership debts incurred before her admission is​

A)limited to her capital contribution to the firm.
B)limited to her personal assets.
C)nothing.
D)unlimited.

Question 44

Champions Corporation licenses the trademarks to its products to Direct Marketing,Inc. ,to reproduce on caps,sweatshirts,and similar goods for sale.This is​

A)a franchise.
B)none of the choices.
C)a business loan.
D)a sole proprietorship.

Question 45

Bill sells Corner Deli,a sole proprietorship,to Debra.This is​

A)a franchise.
B)not a transfer of ownership without the other owners' approval.
C)not a transfer of ownership-a sole proprietorship cannot be transferred.
D)a transfer of the ownership of the business.

Question 46

Chet is a partner in Diligent Accounting Service.Chet can inspect Diligent's books and records​

A)in their entirety.
B)only as the firm's management permits.
C)only for a reasonable purpose.
D)only in relation to Chet's capital contribution.

Question 47

Fact Pattern 16-2
Bryn,Cornell,and Duke are general partners in Equity Lending,a consumer credit,mortgage,and investment firm.Their agreement states that it is a breach of the agreement for any partner to assign his or her interest to a creditor without the consent of the other partners.
Refer to Fact Pattern 16-2.Cornell's assignment of his interest in Equity Lending to Financial Consultants Corporation results in​

A)nothing with respect to Cornell or Equity Lending.
B)the automatic termination of Equity Lending's legal existence.
C)Cornell's liability for all of Equity Lending's debts.
D)Cornell's wrongful dissociation and liability for any damages.

Question 48

Craig,Donna,and Eve do business as Fast-Track Career Consultants.Eve's relationship to Fast-Track ends,but the firm continues to do business.This is​

A)dissociation.
B)dissolution.
C)most likely illegal.
D)unethical.

Question 49

Fact Pattern 16-1
Kristin and Lindsey are partners in Mobile Devise,an online marketing firm.
Refer to Fact Pattern 16-1.Lindsey dissociates from Mobile.Kristin signs a contract with Organic Olives,a food seller,apparently on Mobile's behalf.Organic Olives does not know of Lindsey's dissociation.The contract is binding on​

A)Kristin,Lindsey,and Mobile.
B)Kristin only.
C)Mobile only.
D)Organic Olives only.

Question 50

Fact Pattern 16-2
Bryn,Cornell,and Duke are general partners in Equity Lending,a consumer credit,mortgage,and investment firm.Their agreement states that it is a breach of the agreement for any partner to assign his or her interest to a creditor without the consent of the other partners.
Refer to Fact Pattern 16-2.The partners decide to dissolve Equity Lending.Duke collects and distributes the firm's assets.This results in​

A)nothing with respect to the firm's existence.
B)the continuation of the firm's business.
C)the termination of the firm's legal existence.
D)the temporary suspension of the firm's business.

Question 51

Gwen and Hugo do business as Gwen & Hugo Civil Engineers,a partnership.This firm is governed by the Uniform Partnership Act​

A)in the absence of an express agreement.
B)in the absence of an implied agreement.
C)only under an express agreement.
D)under all circumstances.

Question 52

Diane organized,and owns and operates,Reliable Roofing,a construction outfit,in the simplest form of business organization.This is​

A)a partnership.
B)a limited liability company.
C)a corporation.
D)a sole proprietorship.

Question 53

Beth and Connie do business as Diamond Investments.In acting on the firm's behalf,Beth makes an honest error in overestimating the value of a particular stock purchase.To her firm,Beth is​

A)liable for breach of the duty of care.
B)liable for breach of the duty of accounting.
C)liable for breach of the duty of loyalty.
D)not liable.

Question 54

Kay and Linda decide to do business as Marketing & Promotion.To be a partnership,this association can result from an agreement that is​

A)express,but not implied.
B)implied,but not express.
C)oral,written,or implied by conduct.
D)written,but not oral or implied.

Question 55

Quisa and Reilly are partners in Sport Bikes,which rents and sells bikes,bike accessories,and related gear.Quisa manages the business.Unless the partnership agreement states otherwise,Quisa is​

A)entitled to compensation in proportion to her effect on the business.
B)entitled to compensation in proportion to her effort.
C)entitled to compensation in proportion to her capital contribution.
D)not entitled to compensation.

Question 56

Fact Pattern 16-1
Kristin and Lindsey are partners in Mobile Devise,an online marketing firm.
Nora and Owen do business as Profit & Property,a real estate investment partnership.In acting on the firm's behalf in a deal with Village Mall,Nora takes advantage of an opportunity to make a secret profit on her own behalf.To her firm,Nora is liable for​

A)breach of the duty of care.
B)breach of contract.
C)breach of the duty of loyalty.
D)nothing.

Question 57

Fact Pattern 16-1
Kristin and Lindsey are partners in Mobile Devise,an online marketing firm.
Refer to Fact Pattern 16-1.Kristin signs a contract with Nature's Best Chocolate,a candy maker,apparently on Mobile's behalf.The contract is binding on​

A)Kristin,Lindsey,and Mobile.
B)Kristin only.
C)Mobile only.
D)Nature's Best only.

Question 58

Riverside,a general partnership,operates a bait-and-tackle shop.Riverside has five partners.Steve has a one-third interest in the partnership.Each of the other partners has a one-sixth interest.With respect to management decisions​

A)a majority of the partners must agree.
B)Steve rules.
C)the senior partner decides.
D)four of the partners must agree.

Question 59

Rosa is a partner in Silver Dragon,a partnership consisting of the owners of a restaurant.Silver Dragon incurs debt for new dining tables and chairs.With respect to this debt,Rosa is​

A)not liable.
B)only liable to the amount of her capital contribution.
C)only liable in proportion to the number of partners in the firm.
D)personally liable to the full extent.

Question 60

Haute Dogs,Inc. ,sells a franchise to Irene's Cuisine,a lunch truck.Irene's Cuisine is​

A)a franchisee.
B)a franchisor.
C)a partner.
D)a principal.

Question 61

Frank enters into an agreement with Grab n' Eat Burgers,Inc. ,to operate a franchise in Homeville.Later,the franchisor grants franchises to others within the same territory,causing Frank to suffer a significant loss in profits.In Frank's suit against the franchisor,his best argument is that Grab n' Eat​

A)violated the antitrust laws.
B)violated the implied covenant of good faith and fair dealing.
C)violated the Federal Trade Commission's Franchise Rule.
D)granted Frank the first Grab n' Eat franchise in Homeville.

Question 62

Rico,the owner of Simply Sushi,is a sole proprietor.What are the chief characteristics,advantages,and disadvantages of this form of business organization? Rico wants to obtain additional capital to expand Simply Sushi,but she does not want to lose control of the firm.As a sole proprietor,what is her best option to attain these goals?​

Question 63

Soup Factory,Inc. ,uses a Web site to provide downloadable information to prospective franchisees.This electronic information is the equivalent of an offer that must comply with​

A)no law.
B)federal antitrust laws.
C)the Federal Trade Commission's Franchise Rule.
D)the Petroleum Marketing Practices Act.

Question 64

Instead of setting up a business to market her own products,Rita considers entering into a distributorship franchise with Sports Equipment Corporation.This involves the transfer of​

A)a license.
B)a trade name.
C)the formula to make a certain product.
D)the ownership of the business.

Question 65

Pay-Mor Convenience Stores,Inc. ,is a franchisor.Randy operates a Pay-Mor franchise.Sam is one of Randy's employees.As a franchisor,if Pay-Mor controls the day-to-day operations of the business to a significant degree,it may be liable for tortious acts by​

A)no one.
B)any person on the franchise premises.
C)only persons with legitimate reasons to be on the franchise premises.
D)Pay-Mor,Randy,or Sam.

Question 66

Made in the USA Clothing Inc.gives notice to Neely that it is terminating their franchise arrangement.Winding up the business requires​

A)a new franchise agreement.
B)nothing more than closing immediately.
C)Neely's death,disability,or insolvency.
D)the return of the franchisor's property.

Question 67

Digital Wizards,Inc. ,a franchisor of computer technicians,wishes to standardize the pricing practices of its franchisees because they have engaged in price-cutting to increase their respective shares of the market.The most prudent action might be for Digital Wizards to​

A)mandate the prices at which its franchisees sell their services.
B)suggest the prices at which its franchisees sell their services.
C)require its franchisees to pay a premium based on their market share.
D)threaten its franchisees with a suit for material breach of contract.

Question 68

Spicy Sauces,Inc. ,and Tom's Bottling Plant have a manufacturing franchise arrangement.This involves the transfer of​

A)a license.
B)a trade name.
C)the formula to make a certain product.
D)the ownership of the business.

Question 69

Big Sandwiches LLC wants to present information in "disclosure documents" via the Internet to prospective franchisees.Among other legal requirements with which the franchisor must comply,prospective franchisees must​

A)agree to settle any lawsuits that may arise over the documents.
B)be able to download or save all electronic documents.
C)provide e-mail addresses for the franchisor to verify users' authenticity.
D)register with the Federal Trade Commission via the franchisor's Web site.

Question 70

Faye is interested in buying a franchise from Gas n' Snax Stores Inc.This transaction,like other franchise deals,is regulated to protect

A)certain types of anticompetitive agreements.
B)franchisors from dishonest prospective franchisees.
C)prospective franchisees from dishonest franchisors.
D)the government's power to restrict freedom of contract.

Question 71

Cathy buys an exclusive territory in which she is authorized to set up a plant to make Delite Dairy products.After receiving the recipes,Cathy begins making Evie's-brand yogurt and other Delite products.This is​

A)a chain-style franchise.
B)a distributorship franchise.
C)a manufacturing franchise.
D)not a franchise.

Question 72

Mucho Tacos,Inc. ,sells franchises.Mucho Tacos imposes on its franchisees standards of operation and personnel training methods.What is the potential pitfall to Mucho Tacos if it exercises too much control over its franchisees?​