Deck 26: Sole Proprietorships and Private Franchises

Question 1

Starting a sole proprietorship is easier and less costly than starting any other form of business.

Answer 1

True

Question 2

In a chain-style business operation,a franchise operates under a franchisor's trade name.

Answer 2

True

Question 3

In choosing a form of business organization for a new enterprise,important factors include the titles of the organization's officers.

Answer 3

False

Question 4

A sole proprietorship continues in business despite the death of the owner.

Question 5

One of the advantages of a sole proprietorship is that the owner is not liable for the actions of the business.

Question 6

In choosing a form of business organization for a new enterprise,important factors include the ease of creation.

Question 7

Most fast-food chains are distributorships.

Question 8

A franchise exists when the owner of a trademark licenses its use to an?other party to sell goods or services.

Question 9

A franchise is a form of business organization.

Question 10

Contract law governs franchise relationships.

Question 11

A sole proprietor may own and manage any type of business.

Question 12

In choosing a form of business organization for a new enterprise,important factors include the ambiance of the home office.

Question 13

A franchise exists when the owner of a copyright licenses its use to an?other party to sell goods or services.

Question 14

A state deceptive trade practice statute may limit the actions of franchisors.

Question 15

One of the disadvantages of a sole proprietorship is that the owner is liable for the losses of the business.

Question 16

A sole proprietorship is a separate legal entity for tax pur?poses.

Question 17

A manufacturer's license to an outside dealer to sell a product is a distributorship.

Question 18

A franchisee is a party who sells a franchise.

Question 19

An owner's license of a formula to make a certain product to an outside party is a franchise.

Question 20

A sole proprietorship's income is taxed as the owner's personal income.

Question 21

A franchisor can suggest retail prices but cannot mandate them.

Question 22

In determining whether a franchisor acted in good faith in terminating a franchise relationship,a court would balance the rights of both parties.

Question 23

Under no circumstances may a franchisor establish an additional fran?chise in a territory allotted to a franchisee.

Question 24

The termination provision of a franchise contract is usually more favorable to the franchisor.

Question 25

The parties to a franchise agreement may determine what constitutes the grounds for the termination of their relationship.

Question 26

Kelly,the owner of Llama Farms,a sole proprietorship,wants to obtain additional busi?ness capital but to maintain control.This can best be accomplished by

A) borrowing funds.
B) bringing in partners.
C) issuing stock.
D) selling the business.

Question 27

Most franchise agreements provide that termination must be "for cause."

Question 28

A franchisee may be required to pay for certain of the franchisor's administrative expenses.

Question 29

Fred starts up,and assumes the financial risk of,Graphic Ads,a new marketing enterprise.Fred is

A) a franchisee.
B) a franchisor.
C) an agent.
D) a sole proprietor.

Question 30

A franchisee normally pays an initial lump sum for a franchise license.

Question 31

If a party to a franchise contract fails to perform,he or she may be subject to a suit for breach of contract.

Question 32

Normally,a franchisee determines the territory that it will serve.

Question 33

An agreement that requires a franchisee to buy materials exclusively from the franchisor may violate antitrust laws.

Question 34

Cal sells "DownSize," a weight-reduction program,from a Web site,in competition with Eat-Less Inc.'s product "Fit 'n Trim." Eat-Less files a suit against Cal,alleging in part that he is a sole proprietor,but his enterprise should be deemed a different form of business.Cal's enter?prise should most likely be considered

A) a corporation because DownSize is sold online.
B) a franchisee because DownSize is sold in competition to Fit 'n Trim.
C) a sole proprietorship because Cal is a sole proprietor.
D) no form of business entity because Cal has no formal organization.

Question 35

State law determines the duration of a franchise.

Question 36

A franchisee normally does not pay a fee for a franchise license until after the first year of using it.

Question 37

Much franchise litigation involves claims of wrongful termination.

Question 38

Carl sells Direct Marketing Enterprises,a sole proprietorship,to Erv.This is a transfer of

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

Question 39

A franchisor cannot impose quality stan?dards on a franchisee.

Question 40

Leigh wants to go into the business of construction contracting.Among the reasons that would probably convince Leigh 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 41

Pat enters into an agreement with Ole! Food,Inc.,to operate a franchise in Region City.Later,Ole! grants franchises to others within the city,Pat files a suit to close them.This suit will likely

A) fail because excluding competitors violates the an?titrust laws.
B) fail if Ole! did not give Pat exclusive rights to Region City.
C) succeed if Pat paid a franchise fee.
D) succeed if Pat was the first Ole! representative in Region City.

Question 42

Frooty Drinx,Inc.,and Gert have a processing-plant franchise arrange?ment.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 43

Mello Coffee Shops,Inc.,sells a franchise to Noah's Arch,a café.Mello is

A) a franchisee.
B) a franchisor.
C) an agent.
D) a principal.

Question 44

Jim organized,and owns and operates,Jim's Landscaping Service in the simplest form of business organization.This is

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

Question 45

Nico is interested in buying a franchise from Oz Inc.For Nico to make an informed decision concerning this purchase,Oz must disclose in writing or online

A) general estimates of costs and sales, but not the basis for them.
B) material facts such as the basis of projected earnings figures.
C) no information.
D) start-up requirements, but not renewal conditions.

Question 46

Fern contracts to buy a franchise from Green Grocery Company.The contract is silent on the issue of territorial rights.Green allows a competing franchise to be established near Fern's store,which suffers a significant loss in profits.This is most likely a violation of

A) no law.
B) the ban on certain types of anticompetitive agreements.
C) the Federal Trade Commission's Franchise Rule.
D) the implied covenant of good faith and fair dealing.

Question 47

Jody owns KuppaJava Kiosks,a sole proprietorship.Jody's liability is

A) limited by state statute and varies from state to state.
B) limited to the extent of capital expenditures.
C) limited to the extent of his or her original investment.
D) unlimited.

Question 48

Roller Rinks,Inc.(RRI)grants a franchise to Sven to operate an RRI rink.RRI may require Sven to pay a percentage of his

A) annual sales only.
B) annual sales or annual volume of business.
C) annual volume of business only.
D) neither annual sales nor annual volume of business.

Question 49

Instead of setting up a business to market her own products,Krissy con?sid?ers entering into a distributorship franchise with Little Breweries 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 50

Events Promotion Corporation licenses trademarks to Fandom Souvenirs,Inc.,to use in selling caps,sweatshirts,and similar goods.This is

A) a franchise.
B) an entrepreneur.
C) a principal-agent relationship.
D) a sole proprietorship.

Question 51

Chicago Coca-Cola Bottling Company is

A) a chain-style franchise.
B) a distributorship franchise.
C) a manufacturing franchise.
D) no franchise.

Question 52

Euro Autos & Trucks,Inc.,licenses Fancy Vehicles Corporation,an auto?mobile dealership,to sell its products.This is

A) a chain-style franchise.
B) a distributorship franchise.
C) a manufacturing franchise.
D) no franchise.

Question 53

Otis is interested in buying a franchise from Plentiful 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 54

CheezBurger Heaven,Inc.,conducts a chain-style franchise.This involves the transfer to Clive,one of its franchisees,of

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

Question 55

Leo buys an exclusive territory in which he is authorized to set up a plant to make Midwest Dairy,Inc.,products.After receiving the formula,Leo begins making Nice-brand ice cream and other Midwest products.This is

A) a chain-style franchise.
B) a distributorship franchise.
C) a manufacturing franchise.
D) no franchise.

Question 56

Opie buys a franchise from Paradise Clothing Corporation.Because this franchise relationship is,like all other franchise relationships,primarily of a certain type,it is governed by

A) contract law.
B) the federal service-station franchise termination law.
C) the Federal Trade Commission's Franchise Rule.
D) the Illinois Franchise Disclosure Act.

Question 57

Riley is interested in buying a franchise from Soft Shoe Corporation.Soft Shoe must disclose material facts that Riley needs to make an informed decision concerning this purchase,according to

A) no law.
B) the federal service-station franchise termination law.
C) the Federal Trade Commission's Franchise Rule.
D) the Illinois Franchise Disclosure Act.

Question 58

Rafe is interested in buying a franchise from Sportz Rulez Company.In this transaction,the Federal Trade Commission's Franchise Rule

A) does not apply.
B) enables Rafe to weigh the deal's risks and benefits.
C) enables Sportz Rulez to weigh the deal's risks and benefits.
D) prohibits certain types of anticompetitive agreements.

Question 59

Handee Hardware,Inc.,grants a franchise to Ivan to open and operate a Handee Hardware store.Handee will likely charge Ivan

A) a license fee and a price for supplies.
B) a license fee only.
C) a price for supplies only.
D) neither a license fee nor a price for supplies.

Question 60

Worldwide Realtors,Inc.,sells a franchise to XL Sales Company.XL is

A) a franchisee.
B) a franchisor.
C) an agent.
D) a principal.

Question 61

Comfort Wear,Inc.,a franchisor of shoe stores,wishes to standardize the pricing practices of its franchisees that have engaged in price-cutting to increase their respective shares of the market.The most prudent rem?edy might be for Comfort to

A) reduce the quantity of the products that it sells to its franchisees.
B) suggest the prices at which its franchisees sell their products.
C) terminate the franchisees who cut prices.
D) undercut the business of those franchisees who cut prices by open?ing competing stores in the franchisees' territory.

Question 62

Bob operated a pet grooming shop under a franchise agreement with Clean Pets Corp (CPC).The agreement allowed CPC to terminate the franchise if Bob was fined for cruelty to animals.After an investigation initiated by a customer complaint,Bob was fined for cruelty.CPC termi?nated the franchise.Bob filed a suit against CPC for wrongful termina?tion.Based on the decision in Case 26.3,Chic Miller's Chevrolet,Inc.v.General Motors Corp.,the court will most likely rule in favor of

A) Bob, because CPC had no good cause to terminate the franchise.
B) Bob, because the fine for cruelty was based on a customer complaint.
C) CPC, because a franchisor can terminate a franchise at any time.
D) CPC, because the franchise was ter?minated for good cause.

Question 63

Owen plans to open Owen's Pets Store,a pet sales and pet supplies outlet,and to hire Quimby and Ruth.Owen will invest only his own money.He does not ex?pect to make any profit for at least two years and to make almost no profit for the first three years,but he hopes to expand eventually.Which form of business organization would be most appropriate? What are the chief characteristics,advantages,and disadvantages of this form of busi?ness organization? If Owen wants to obtain additional capital to expand the business,but does not want to lose control of the firm,what is his best option?

Question 64

Doc's Sports Club enters into a franchise agreement with Elite Fitness Centers that provides for termination at any time for "cause." Doc's fails to meet Elite's "Friends and Family" membership sales quota.Is this "cause" for termination? Explain.

Question 65

Pricey Auto Corporation gives notice to Quint that Pricey is terminating their franchise arrangement.Winding up the business requires

A) a new franchise agreement.
B) nothing more than closing immediately.
C) Quint's death, disability, or insolvency.
D) returning Pricey's property.

Question 66

Rita buys a Super Grill franchise.Super Grill requires that its fran?chi?sees buy its products for every phase of their op?erations.Be?cause Rita wishes to buy less expensive products,she challenges the re?quirement.Her best argument is probably that the re?quirement violates

A) the commerce clause.
B) the Equal Protection Clause.
C) the federal antitrust laws.
D) the First Amendment.

Question 67

Star Resorts Corporation wants to terminate its franchise arrangement with Tony.Their contract does not provide for notice of termination or set a time for winding up the business.This means that to wind up,Tony

A) has a reasonable time, with notice.
B) has whatever time A determines, with or without notice.
C) is entitled to notice, but nothing more.
D) must close immediately.

Question 68

Bret buys a franchise from Comida Mexicano Ltd.If their agreement is like most franchise agree?ments,it will specify that Comida can ter?minate the franchise

A) at will.
B) for any reason.
C) for cause only.
D) for no reason.

Question 69

Nina wants the exclusive right to sell Oven-Rite Corporation appliances in a certain area.If Oven-Rite agrees,it will likely require Nina to pay

A) a license fee and a percentage of the sales.
B) a license fee only.
C) a percent?age of the sales only.
D) neither a license fee nor a percentage of the sales.

Question 70

Jack buys a Kitchens,Inc.,franchise,which the franchisor later termi?nates.In determining whether the termination was proper,a court will generally

A) balance the rights of both parties.
B) emphasize the right of Kitchens, Inc., to its business operation.
C) focus on the right of Jack to be dealt with fairly.
D) underscore the interest of consumers in affordability.

Question 71

A franchise agreement between Simple Software Company and Total Game,Inc.,is silent on a time for termination of the franchise.Simple may

A) never terminate.
B) terminate at any time.
C) terminate on reasonable notice.
D) terminate on three days notice.

Question 72

Stacy contracts to buy a franchise from Tender Steak House Company.In this contract,as in most franchise contracts,the determination of the territory to be served is made by

A) a court.
B) Stacy.
C) Tender Steak House.
D) the Federal Trade Commission.