Deck 36: B: Sole Proprietorships and Franchises

Question 1

In a sole proprietorship,the proprietor shares the burden of any losses or liabilities incurred by the business enterprise with the government.

Answer 1

False

Question 2

Good faith and fair dealing are not important in terminating a franchise relationship.

Answer 2

False

Question 3

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

Answer 3

False

Question 4

The simplest form of business is a sole proprietorship.

Question 5

A manufacturer's license to a dealer to sell a product is a chain-style business operation.

Question 6

Some states require franchisors to provide presale disclosures to pro?spective franchisees.

Question 7

A franchisor can require a franchisee to purchase certain supplies from the franchisor at an established price.

Question 8

Laws governing franchising are designed in part to prevent franchisors from terminating franchises without good cause.

Question 9

The day-to-day operation of franchise business normally is left up to the franchisee.

Question 10

A franchisee can operate as an independent businessperson but cannot then obtain the advantages of a national organization.

Question 11

A franchise contract may use only one type of business organization-the sole proprietorship.

Question 12

A franchise relationship may be governed by the law covering sales con?tracts as expressed in Article 2 of the Uniform Commercial Code.

Question 13

If a party to a franchise contract fails to perform its contractual duties,the other party may be subject to a lawsuit for breach of contract.

Question 14

A franchisor is the purchaser of a franchise.

Question 15

A franchise is a contractual arrangement.

Question 16

A sole proprietorship lacks continuity on the death of the proprietor.

Question 17

The duration of a franchise is a matter to be determined between the parties.

Question 18

A franchisee ordinarily pays an initial fee or lump sum price for a fran?chise license.

Question 19

Normally,a franchisee receives a windfall on the termination of a franchise.

Question 20

A franchisor's decision to terminate a franchise may be made in the normal course of business operations.

Question 21

Inger is a franchisee of Honey Bear Restaurants,LLC Their contract gives Honey Bear the right to control virtually all aspects of Inger's op?eration,including the hiring of employees.One of the employees,Joris commits a tort against Kiley,one of Inger's customers.Kiley files a suit against Honey Bear.Honey Bear is most likely

A)liable because Honey Bear exercises control over Inger's operation.
B)liable because Kiley was Honey Bear's customer.
C)not liable because Inger is responsible for the employees.
D)not liable because Kiley was Inger's customer.

Question 22

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 23

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 Ice-brand ice cream and other Midwest prod?ucts.This is

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

Question 24

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.

Question 25

Pilar is interested in buying a franchise from Quixotic Bike Corporation.Quixotic must disclose material facts that Pilar needs to make an in?formed decision concerning this purchase,according to

A)no law.
B)the Petroleum Marketing Practices Act of 1979.
C)the Federal Trade Commission's Franchise Rule.
D)the Uniform Commercial Code.

Question 26

Otis is interested in buying a franchise from Plentiful Markets 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 27

Burger Heaven,Inc. ,conducts a chain-style franchise.This involves the transfer to Chester,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 28

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 29

Sweet Styles,Inc. ,a franchisor of clothing 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 pru?dent action might be for Sweet to

A)mandate the prices at which its franchisees sell their products.
B)suggest the prices at which its franchisees sell their products.
C)require its franchisees to buy inventory exclusively from Sweet.
D)threaten its franchisees with a material breach of contract.

Question 30

In-Home Maid Service Company uses a Web site to provide downloadable in?formation to prospective franchises.This online information is the equivalent of an offer that must comply with

A)the Automobile Dealers' Franchise Act of 1965.
B)the Petroleum Marketing Practices Act of 1979.
C)the Federal Trade Commission's Franchise Rule.
D)the state Franchise Disclosure Document,or FDD.

Question 31

Carl sells Direct Marketing Enterprises,a sole proprietorship,to Eve.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 32

Mika buys a Nuance Cabinets,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 Nuance to its business operation.
C)focus on the right of Mika to be dealt with fairly.
D)underscore the interest of consumers in affordability.

Question 33

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

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

Question 34

Flip Gymnastics & Karate,Inc. ,grants a franchise to Gibby to operate a Flip gym.Flip may require Gibby to pay the franchisor a percentage of his

A)annual sales or volume of business.
B)weekly payroll expense.
C)monthly overhead savings.
D)none of the choices.

Question 35

Effervescent Soda Bottling Company is

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

Question 36

Echo enters into an agreement with Deep Pan Pies,Inc. ,to operate a franchise in Centre City.Later,Deep grants franchises to others within the city.Echo files a suit to close them.If the court rules in Echo's favor it will most likely be on the ground that

A)Deep violated the an?titrust laws.
B)Deep violated the implied covenant of good faith and fair dealing.
C)Echo paid a franchise fee.
D)Echo was the first Deep franchisee in Centre City.

Question 37

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 38

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

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

Question 39

Dominique buys a franchise from Cheyenne Artisans,Inc.This provides Cheyenne with an outlet for the firm's goods,some of which Dominique is required to buy at an established price.In their agree?ment,Cheyenne may also specify

A)the franchisor's non-culpability for any breach of the agreement.
B)the franchise's business organizational form.
C)the retail prices at which Dominique must resell the goods she buys.
D)none of the choices.

Question 40

Real Events Promotion Corporation licenses trademarks to Stadium 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 41

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

Question 42

Owen plans to open Owen's Pets Store,a pet supplies outlet,and to hire Quinn 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?