Deck 29: Sole Proprietorships and Franchises

Question 1

A franchisor can suggest retail prices for the goods that a franchisee sells but cannot mandate them.

Answer 1

True

Question 2

The franchise is not strictly speaking a business organizational form.

Answer 2

True

Question 3

Kari is the sole proprietor of Living Earth Garden Shop.As a sole proprietor,on the business's profits,Kari pays

A)no income taxes.
B)only personal income taxes.
C)only business income taxes.
D)both personal and business income taxes.

Answer 3

B

Question 4

A sole proprietor is free to make any decision he or she wishes concerning the business.

Question 5

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

Question 6

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

Question 7

Some states require that a franchisor submit advertising aimed at prospective franchisees to the state for approval.

Question 8

In choosing a form of business organization for a new enterprise,important factors include the ability to raise capital.

Question 9

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

Question 10

Any lawsuit against the business or its employees does not lead to unlimited personal liability for the owner of a sole proprietorship.

Question 11

A sole proprietor does not own the entire business.

Question 12

A franchisee ordinarily does not pay a fee for a franchise license (the privilege of being granted a franchise).

Question 13

The franchise agreement is not likely to set out standards such as sales quotas and record-keeping requirements.

Question 14

The duration of a franchise is a matter determined by federal or state statutes.

Question 15

If a franchisor's decision to terminate a franchise is made in the normal course of business and reasonable notice is given,it is less likely that the termination will be considered wrongful.

Question 16

When a franchise agreement contains a notice-and-cure provision,a franchisee's breach of the duty of honesty and fidelity is not enough to allow the franchisor to terminate the franchise.

Question 17

In a manufacturing arrangement,a franchisor transmits to a franchisee the essential ingredients or formula to make a particular product.

Question 18

No state requires franchisors to provide presale disclosures to prospective franchisees.

Question 19

If a franchisee is induced to enter into a franchise contract by the franchisor's fraudulent misrepresentation,the franchisor may be liable for damages.

Question 20

The franchisor may require that the business use a particular organizational form and capital structure.

Question 21

Cookie Shops,Inc.,sells a franchise to Donuts & Desserts,a mall food-court vendor.Cookie Shops is

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

Question 22

Rooster Red,LLC,grants a franchise to Qiana to open and operate a Rooster Red restaurant.Rooster Red will likely charge Qiana

A)an initial fee or lump sum price for the franchise license.
B)a percentage of Qiana's weekly payroll expense.
C)an amount of Qiana's monthly overhead savings,if any.
D)none of the choices.

Question 23

Fletcher buys a Great Big Burgers,Inc.,franchise.Great Big Burgers requires that its franchisees buy its products exclusively for every phase of their operations.Because Fletcher wishes to buy less expensive products,he challenges the requirement.His best argument is probably that the requirement violates

A)the implied covenant of good faith and fair dealing.
B)the Federal Trade Commission's Franchise Rule.
C)federal antitrust laws.
D)Great Big Burgers's marketing image.

Question 24

FreezE Yogurt Corporation provides its prospective franchisees with projected earnings figures based on actual data.FreezE Yogurt must also disclose

A)the number and percentage of franchisees that achieved the figures.
B)hypothetical examples of potential earnings.
C)an answer to the entrepreneur's question,"How much will I make?"
D)none of the choices.

Question 25

Sauces n' Syrups,Inc.,and Thad's Sweet & Spicy 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 26

Silvano owns Textbooks Plus,a sole proprietorship that sells textbooks and other school supplies.When Silvano dies,Textbooks Plus will automatically

A)dissolve.
B)pass to Silvano's heirs.
C)pass to the state.
D)be offered for sale to its creditors and competitors.

Question 27

Fact Pattern 29-1 (Questions B10-B11 apply)
Jumbo Juice Inc.offers entrepreneurs the opportunity to operate a franchise under the Jumbo Juice trade name as a member of a select group of dealers that engage in retail juice sales.
Refer to Fact Pattern 29-1.To potential investors,Jumbo Juice must provide

A)actual earnings figures.
B)hypothetical earnings figures.
C)projected earnings figures.
D)none of the choices.

Question 28

Level Fencing Company wants to present information in "disclosure documents" via the Internet to prospective franchisees.Among other legal requirements with which Level Fencing 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 Level Fencing to verify users' authenticity.
D)register with the Federal Trade Commission via Level Fencing's Web site.

Question 29

Shop n' Pay Convenience Stores,Inc.,is a franchisor.Tonya operates a Shop n' Pay franchise.Ulysses is one of Tonya's employees.As a franchisor,if Shop n' Pay 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)Shop n' Pay only.
C)Shop n' Pay and Tonya,but not Ulysses.
D)Shop n' Pay,Tonya,or Ulysses.

Question 30

Fact Pattern 29-1 (Questions B10-B11 apply)
Jumbo Juice Inc.offers entrepreneurs the opportunity to operate a franchise under the Jumbo Juice trade name as a member of a select group of dealers that engage in retail juice sales.
Refer to Fact Pattern 29-1.Jumbo Juice makes earnings claims to potential investors.For those claims,the franchisor

A)can have a hypothetical basis.
B)must have a reasonable basis.
C)must have an actual basis.
D)can have any or no basis.

Question 31

Eudora is interested in buying a franchise from First Home Realty Company.In this transaction,the Federal Trade Commission's Franchise Rule

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

Question 32

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 33

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

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

Question 34

A franchise agreement between Grid Tools Company and Hometown Hardware,Inc.,is silent on a time for termination of the franchise.Grid Tools may

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

Question 35

Sasha contracts to buy a franchise from TrustMe Financial Consultants,Inc.The contract is silent on the issue of territorial rights.When TrustMe allows a competing franchise to be established near Sasha's office,she 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 36

Ralph is interested in buying a franchise from Sparkle Beverages Inc.For Ralph to make an informed decision concerning this purchase,Sparkle Beverages 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 37

Mix n' Match Clothing Corporation gives notice to Neely that Mix n' Match 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 Mix n' Match's property.

Question 38

George buys from Haul-U Corporation the exclusive right to use the Haul-U trademark and sell and lease Haul-U-brand products in a certain area.Their franchise agreement requires George to pay certain administrative expenses.Their agreement may also require George to pay a percentage of the franchisor's

A)advertising costs.
B)personal expenses.
C)retirement income.
D)none of the choices.

Question 39

Paradise Footwear buys a franchise from Quadrangle Athletic Shoes,Inc.This relationship,like all other franchise relationships,is governed by

A)contract law.
B)no law.
C)the Franchise Disclosure Document,or FDD.
D)Article 2 of the Uniform Commercial Code.

Question 40

Rini,the owner of Simply Sushi,is a sole proprietor.What are the chief characteristics,advantages,and disadvantages of this form of business organization Rini 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 41

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