Deck 16: Small Businesses and Franchapter Ises

Question 1

A partnership agreement must apportion profits and losses in the same ratio as the partners' investment of time and capital in the business.

Answer 1

False

Question 2

Among the factors an entrepreneur will consider in selecting an organizational form for a business are tax considerations.

Answer 2

True

Question 3

Every act of a partner concerning partnership business binds the firm.

Answer 3

True

Question 4

In many instances, agency law governs the relationships among partners.

Question 5

In a sole proprietorship, the proprietor bears the burden of any liabilities incurred by the business enterprise.

Question 6

Anyone who wishes to do business must first create a separate business organization.

Question 7

When a person who is not a partner holds himself or herself out as a partner, a court may impose liability-and partnership rights-on the alleged partner.

Question 8

One of the essential elements of a partnership is an equal right to be involved in the management of the business.

Question 9

Any business-except a sole proprietorship-need not file an income tax return.

Question 10

The proprietor pays only personal income taxes on a sole proprietorship's profits.

Question 11

As a practical matter, trade secrets must not be divulged to a business's key employees.

Question 12

Without copyright or patent protection, a business firm's competitor cannot simply copy the firm's product.

Question 13

Among three partners, unless they agree otherwise, unanimous consent is required to manage the business of the partnership.

Question 14

The law considers all new businesses to be sole proprietorships.

Question 15

Choosing a business organizational form that limits its owners' liability can affect the firm's ability to raise outside capital.

Question 16

When there is no formal, written partnership agreement, an agreement to form a partnership is unenforceable.

Question 17

To make a loan, the U.S. Small Business Administration requires the owners of a business to put some of their own funds at risk in the business.

Question 18

In a sole proprietorship, the owner is not the business.

Question 19

When the owner of a sole proprietorship dies, the business does not dissolve-it is automatically transferred to family members or other heirs.

Question 20

A single person carrying on a business for profit, with control over its operation, can constitute a partnership.

Question 21

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

Question 22

A court can order the dissolution of a partnership if the business can only be operated at a loss.

Question 23

A franchise contract cannot give exclusive territorial rights to a certain geographic area to a franchisee, due to antitrust laws.

Question 24

Bayard organized, and owns and operates, Cypress Tours in the simplest form of business organization. This is

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

Question 25

The Franchise Rule does not require a franchisor to make any disclosures to prospective franchisees but what is disclosed must be material and informative.

Question 26

Carl starts up, and assumes the financial risk of, Data Works, a new marketing enterprise. As a sole proprietorship, the enterprise must meet legal requirements relating to

A) none of the choices.
B) licensing and registration.
C) intellectual property laws.
D) all of the choices.

Question 27

Chase, the owner of Data Master, a sole proprietorship, wants to obtain additional business capital. This opportunity is most likely limited to

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

Question 28

A franchisor does not have good cause to terminate a franchise for a franchisee's failure to meet specified sales quotas.

Question 29

To maintain the quality of a product or service, a franchisor can exercise any degree of control over a franchisee's operation without risking potential liability.

Question 30

To prevent deception, all representations by a franchisor to a prospective franchisee must have a reasonable basis at the time they are made.

Question 31

A partner can be held liable for a partnership obligation only if he or she participated in, or knew about, whatever it was that gave rise to the obligation.

Question 32

To avoid conflicts with the First Amendment, no state requires a franchisor to submit ads aimed at prospective franchisees to the state for approval.

Question 33

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

Question 34

Lazlo owns and operates Market Place, a venue for growers, crafters, and others to sell their goods, without creating a separate business organization. He receives all the profits from the vendors' fees and concession sales. This is most likely

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

Question 35

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

Question 36

Because a franchisor's termination of a franchise can adversely affect a franchisee, much franchise litigation involves claims of wrongful termination.

Question 37

Regardless of the partners' consent or agreement, the voluntary dissociation of a partner begins the dissolution of the partnership.

Question 38

To eliminate costly negotiations or litigation, partners may agree on how the firm's assets will be valued or divided if the partnership dissolves.

Question 39

Without creating a separate business organization, Rey starts up Street Cruisers, a pre-owned auto sales enterprise. This enterprise is

A) none of the choices.
B) a corporation.
C) a franchisee.
D) a sole proprietorship.

Question 40

A franchisee's breach of the duty of honesty and fidelity can be enough to allow a franchisor to terminate a franchise even if their contract contains a notice-and-cure provision.

Question 41

Quint and Reba are partners in Sofas Plus, a furniture store. Quint dissociates from the business. This ends Quint's

A) right to participate in the partnership business.
B) right to have his interest in the partnership purchased by the firm.
C) duty of care with respect to events that occurred before dissociation.
D) all of the choices.

Question 42

Resort Gift Shop is operated as a partnership, with five partners. Shan has a one-third interest in the firm. Each of the other partners has a one-sixth interest. Thieu is the senior partner. With respect to management decisions

A) a majority of the partners must agree.
B) Shan rules.
C) Thieu decides.
D) unanimous consent is required.

Question 43

Oscar is a partner in Party Caterers. Oscar's death will

A) dissolve the partnership.
B) breach the partnership agreement.
C) dissociate the partner from the firm.
D) wind up the business.

Question 44

Bhat and Cho do business as Data Security, a partnership. In most states, for the purposes of collecting judgments and having accounting performed, this firm would be treated as

A) a combination of individuals.
B) a proprietorship.
C) an independent entity.
D) an aggregate.

Question 45

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) an infusion of Nina's personal funds.
D) any of the choices.

Question 46

The essential elements of a partnership do not include

A) a sharing of profits and losses.
B) a joint ownership of the business.
C) an equal right in the management of the business.
D) an intent to act in good faith.

Question 47

Raceway LLC licenses the trademarks to its products to Stadium Markets Inc. to reproduce on clothing and other goods for sale. This is

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

Question 48

Glen is a partner in Home Builders, a construction firm. Glen's assignment of his interest in the partnership to Investment Consultants results in

A) nothing with respect to Home Builders.
B) the automatic termination of Home Builders' legal existence.
C) Glen's liability for all of Home Builders' debts.
D) Glen's wrongful dissociation and liability for any damages.

Question 49

Sol and Thom agree to form a partnership to sell real property. To be enforceable, their agreement must be

A) filed in the appropriate state office.
B) in writing.
C) signed by a witness.
D) all of the choices.

Question 50

Nora and Owen do business as Property & Profit, a real estate investment partnership. In acting on the firm's behalf, Nora takes advantage of an opportunity to make a secret profit. To her firm, Nora is liable for a breach of

A) the duty of care.
B) contract.
C) the duty of loyalty.
D) none of the choices.

Question 51

Olin is a partner in Precision Plumbing. When the partners decide to dissolve the firm, Olin collects and distributes the 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 52

Obie operates Pizza Palace. Obie hires Qua to take and fill customers' orders at an hourly wage of $15.00, plus tips. Obie and Qua are

A) not partners, because Qua does not have an ownership interest or management rights in Pizza Palace.
B) not partners, because the pay includes an hourly wage.
C) not partners, because the pay includes tips.
D) partners in a partnership.

Question 53

Sean buys a franchise from Taco Mission Inc. This relationship, like all other franchise relationships, is governed by

A) contract law.
B) all of the choices.
C) the federal Franchise Rule.
D) applicable state law.

Question 54

Ling owns and operates Metro Delivery Service as a sole proprietorship. When she dies, the business will automatically

A) dissolve.
B) transfer to Ling's heirs.
C) reform with its employees as the owners.
D) transfer to its creditors.

Question 55

Maeve sells New Energy, a sole proprietorship that makes and sells solar panels, to Olaf. This is

A) the establishment of a franchise.
B) the creation of a partnership.
C) none of the choices-a sole proprietorship cannot be sold.
D) a transfer of the ownership of the business.

Question 56

Beth and Connie do business as Dig Excavators. In acting on the firm's behalf, Beth makes an honest error in underestimating the cost of a certain project. In this situation, to her firm, Beth is liable for a breach of the duty of

A) care.
B) accounting.
C) loyalty.
D) none of the choices.

Question 57

Vera is one of three partners in Waffles Food Truck. Concerning all aspects of the partnership business, Vera is entitled to information

A) on a complete basis.
B) only on an "as needed" basis.
C) only for a reasonable purpose.
D) only related to the partner's capital contribution.

Question 58

Deb and Eve are partners in Foundations, a construction outfit. Deb manages the business. For this service, unless the partnership agreement states otherwise, she is entitled to pay in proportion to her

A) effect on the business.
B) effort.
C) capital contribution.
D) none of the choices.

Question 59

Van starts Wind Systems to make and sell turbines. Later, Van contracts with Xi to invest additional capital in the firm in exchange for 25 percent of the profits. Vaughn and Xi are not partners in Wind Systems because

A) they do not share the profits equally.
B) their agreement does not provide for the sharing of losses.
C) Van started the firm before Xi agreed to invest additional capital.
D) they do not have joint control over the business.

Question 60

Cathy, Don, and Ethel are partners in Fruit Orchard Farms. Cathy gives notice to quit the firm, which otherwise continues to do business. This is

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

Question 61

Shih was the manager of Thai Bistro, a restaurant specializing in Southeast Asian foods. Shih opened a bank account in Thai Bistro's name, signing the account signature card as "owner." Umeko, who was often at Thai Bistro and had free access to its office, told others that she was "an owner" and "a partner." She also opened a bank account in Thai Bistro's name, and signed the account signature card as "owner." Shih told Vijay, the owner of Wong Noodles Inc., that Umeko was a member of a partnership that owned Thai Bistro. On this basis, Wong Noodles delivered its goods to Thai Bistro on credit. In fact, Thai Bistro was owned by a corporation. When the unpaid account totaled more than $10,000, Wong Noodles filed a suit against Umeko to collect. On what basis might Umeko be liable for the debt?

Question 62

eSports Inc. offers entrepreneurs the opportunity to operate a franchise under the eSports trade name as the owner of a game-playing venue. To possible franchisees, eSports makes earnings claims. 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 63

Ruby is interested in buying a franchise from 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 64

Donuts Whole Inc. offers an entrepreneur the opportunity to operate a franchise bakery under the Donuts Whole trade name. Before a franchise contract is signed, Donuts Whole must explain

A) the contract's termination provisions.
B) the nature and operation of a franchise.
C) the laws governing franchising.
D) all of the choices.

Question 65

Riki contracts to buy a franchise from Sushi Inc. In this contract, as in most franchise contracts, the determination of the territory to be served is made by

A) other Sushi franchisees within the same state.
B) Riki.
C) Sushi.
D) Sushi customers.

Question 66

Espresso Brew 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 Dealers Day in Court Act.

Question 67

Owen plans to open Owen's Pets, a pet sales and supplies outlet, and to hire Quimby and Ruth. Owen will invest only his own money. He does not expect 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 business 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 68

Juice Inc. offers entrepreneurs the opportunity to operate a franchise under the Juice trade name as a member of a group of dealers that engage in retail beverage sales. To prospective franchisees, Juice must disclose

A) the range of goods and services included.
B) the value of the franchise.
C) the estimated profitability of the franchise.
D) all of the choices.

Question 69

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

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 Anton the first Burgers franchise in Centre City.

Question 70

Tasty Wings 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 Savory Wraps to verify users' authenticity.
D) register with the Federal Trade Commission via Savory Wraps' website.

Question 71

Flynn is interested in buying a franchise from Gas Up Inc. The franchisor must disclose material facts that Flynn needs to make an informed decision concerning this purchase, according to

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

Question 72

Pay-Most Convenience Stores, Inc., is a franchisor. Randy operates a Pay-Most franchise. Seth is one of Randy's employees. As a franchisor, if Pay-Most 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-Most, Randy, or Seth.