Deck 36: A: Sole Proprietorships and Franchises

Question 1

A franchisee can operate as an independent businessperson but obtain the advantages of a national organization.

Answer 1

True

Question 2

In raising capital,a sole proprietor is limited to his or her personal funds-a personal loan is not possible.

Answer 2

False

Question 3

A franchise agreement may specify that the premises for the business must be leased.

Answer 3

True

Question 4

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

Question 5

The validity of a provision permitting the franchisor to establish and en?force certain quality standards is questionable.

Question 6

A court will not provide a remedy for the "wrongful" termination of a franchise relationship.

Question 7

A sole proprietor has unlimited liability for all obligations that arise in doing business.

Question 8

A franchisor is entitled to use fraud to induce a prospective franchisee to enter into a franchise.

Question 9

Franchisors are not required to disclose certain material facts to pro?spective franchisees.

Question 10

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

Question 11

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

Question 12

The laws governing franchising are primarily designed to protect fran?chisors from dishonest franchisees.

Question 13

In choosing a form of business organization for a new enterprise,impor?tant factors include the liability of the owner.

Question 14

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

Question 15

A franchisor may retain stringent control over the training of personnel involved the operation of a franchise.

Question 16

The parties to a franchise arrangement may be two corporations.

Question 17

Most franchise agreements provide that notice of termination of a fran?chise is not necessary.

Question 18

Good faith and fair dealing are important in terminating a franchise relationship.

Question 19

A sole proprietor owns the entire business but doe not receive all of the profit.

Question 20

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

Question 21

Gustoso Gelato Company is a franchisor.Singh operates a Gustoso fran?chise.Reba is one of Singh's employees.As a franchisor,if Gustoso con?trols the day-to-day operations of the business to a significant degree,it may be liable for tortious acts by

A)no one.
B)Gustoso only.
C)Gustoso and Singh,but not Reba.
D)Gustoso,Singh,or Reba.

Question 22

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 23

A franchise agreement between Software² Company and Games³,Inc. ,is silent on a time for termination of the franchise.Software² may

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

Question 24

Sylvester buys a franchise from Resistance Athletic Shoes Inc.This rela?tionship,like all other franchise relationships,is governed by

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

Question 25

Rafe is interested in buying a franchise from Sportz Warez 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 Warez to weigh the deal's risks and benefits.
D)prohibits certain types of anticompetitive agreements.

Question 26

Frooty Drinx,Inc. ,and Erwin have a manufacturing 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 27

Tawny 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 Tawny wishes to buy less expensive products,she challenges the re?quirement.Her best argument is probably that the re?quirement violates

A)the implied covenant of good faith and fair dealing.
B)the Federal Trade Commission's Franchise Rule.
C)the federal antitrust laws.
D)the Uniform Commercial Code.

Question 28

Euro Autos & Trucks,Inc. ,licenses Downtown Motors,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 29

Fern contracts to buy a franchise from Greene Grocery Inc.The contract is silent on the issue of territorial rights.Greene 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 30

Vim+Vigor Fitness Corporation uses a Web site to provide downloadable information to prospective franchises.This online information is the equiva?lent of an offer that must comply with

A)no law.
B)the Uniform Commercial Code.
C)the Federal Trade Commission's Franchise Rule.
D)the state Franchise Disclosure Document,or FDD.

Question 31

Pronto Tacos LLC grants a franchise to Omar to open and operate a Pronto Tacos restaurant.Pronto will likely charge Omar

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

Question 32

Nicole is interested in buying a franchise from Oz Inc.For Nicole to make an informed decision concerning this purchase,Oz must disclose in writ?ing 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 33

Hometown Realtors,Inc. ,sells a franchise to Group Sales Company.Group Sales is

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

Question 34

Gage buys from Fishing Guide Corporation the exclusive right to sell Fishing Guide rods and reels in a certain area.Their franchise agree?ment requires Gage to pay certain administrative expenses.Their agreement may also require Gage to pay a percentage of the franchisor's

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

Question 35

Dingo Bangles Company wants to present information in "disclosure docu?ments" via the Internet to prospective franchisees.Among other legal re?quirements with which Dingo 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 Dingo to verify users' authenticity.
D)register with the Federal Trade Commission via Dingo's Web site.

Question 36

Princely Auto Detailing Corporation gives notice to Quint that Princely 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)the return of Princely's property.

Question 37

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

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

Question 38

Instead of setting up a business to market her own products,Teresa con?sid?ers entering into a distributorship franchise with Sparkly Beer 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 39

Bernie wants to go into the business of construction contracting.Among the reasons that would probably convince Bernie to set up his business as a sole proprietorship would be

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

Question 40

Cluckee Chick'n Corporation provides its prospective franchisees with projected earnings figures based on actual data.Cluckee Chick'n 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 41

Ewa,the owner of Finest Enterprises,is a sole proprietor.What are the chief characteristics,advantages,and disadvantages of this form of busi?ness organization? Ewa wants to obtain additional capital to expand Finest,but she does not want to lose control of the firm.As a sole proprie?tor,what is her best option to attain these goals?

Question 42

Caffeine Coffee Shops,Inc. ,sells franchises.Caffeine imposes on its fran?chi?sees standards of operation and personnel training methods.What is the potential pitfall to Caffeine if it exercises too much control over its fran?chisees?