Deck 35: Sole Proprietorships and Franchises

Question 1

A sole proprietorship automatically dissolves on the death of the owner.

Answer 1

True

Question 2

A franchise is a form of business organization.

Answer 2

False

Question 3

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

Answer 3

False

Question 4

A franchisee is a party who sells a franchise.

Question 5

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

Question 6

A sole proprietorship's income is taxed as the firm's profits, not as the owner's personal income.

Question 7

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

Question 8

Most fast-food chains are distributorships.

Question 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

A franchise is an association, which may or may not be incorporated, that is organized to provide an economic service to its members.

Question 14

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

Question 15

Most states have adopted a model uniform franchise law.

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

Contract law governs franchise relationships.

Question 21

Contracts between a franchi?see and its customers define the franchise relationship.

Question 22

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

Question 23

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

Question 24

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

Question 25

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

Question 26

A franchisor may not specify personnel training methods.

Question 27

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

Question 28

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

Question 29

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

Question 30

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

Question 31

An agreement that requires a franchisee to buy materials exclusively from the franchisor may violate contract law for a lack of consideration.

Question 32

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

Question 33

In some circumstances, a franchisor may be liable for the act of a fran?chisee's employee.

Question 34

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

Question 35

State law determines the duration of a franchise.

Question 36

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

Question 37

A franchisor may suggest retail prices for the goods that a franchisee sells.

Question 38

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

Question 39

Much franchise litigation involves claims of wrongful termination.

Question 40

A franchisor is never liable for the act of a fran?chisee's employee.

Question 41

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 42

Burger 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 43

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 44

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 45

Chicago Coca-Cola Bottling Company is

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

Question 46

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 47

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 48

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 49

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 50

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 51

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 52

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 53

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 54

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 55

Events Promotion Corporation licenses trademarks to Filthy 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 56

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 57

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

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

Question 58

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 59

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 60

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 61

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 62

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 63

Dean buys a franchise from Excel Realty, Inc. In their agree?ment, Excel may specify

A) neither Dean's business form nor its standards of operation.
B) the business form and the standards of operation.
C) the business form only.
D) the standards of operation only.

Question 64

Under Connecticut law, as explained in Case 35.3, Chic Miller's Chevrolet, Inc. v. General Motors Corp., a franchise agreement can be terminated

A) at will, by the franchisor.
B) only as set forth in the franchise agreement.
C) only for poor economic performance on the part of the franchisee.
D) only with good cause.

Question 65

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 66

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 35.3, 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 67

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 68

Pat enters into an agreement with Quik Food, Inc., to operate a franchise in Region City. Later, Quik 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 Quik did not give Pat exclusive rights to Region City.
C) succeed if Pat paid a franchise fee.
D) succeed if Pat was the first Quik franchisee in Region City.

Question 69

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 70

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 71

Art is a franchisee of Bee Treats, Inc. Their contract gives Bee a right to control certain aspects of Art's operation, but assigns responsibility for employees to Art. Art hires Clay, who commits a crime against some of Art's customers, including Dina. Dina files a suit against Bee. With re?spect to Clay's crime, under the decision of the court in Case 35.2, Kerl v. Dennis Rasmussen, Inc., Bee is most likely

A) liable because Bee exercises control over some of Art's operations.
B) liable because Dina was Bee's customer.
C) not liable because Art is responsible for his employees.
D) not liable because Dina was Art's customer.

Question 72

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 73

Tasty Ice Cream Company is a franchisor. Uri operates a Tasty fran?chise. Vela is one of Uri's employees. As a franchisor, if Tasty controls the day-to-day operations of the business to a significant degree, it may be liable for intentional acts of discrimination by

A) no one.
B) Tasty and Uri, but not Vela.
C) Tasty and Vela, but not Uri.
D) Tasty, Uri, or Vela.

Question 74

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 75

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 76

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 77

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 78

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 79

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 80

Eve is a franchisee of Fresh Food, Inc. Their contract gives Fresh a right to control Eve's operations, including supervising the employees. Eve's employee Glen commits a crime against Eve's customer Harry. Harry files a suit against Fresh. With respect to Glen's crime, under the reason?ing of the court in Case 35.2, Kerl v. Dennis Rasmussen, Inc., Fresh is most likely

A) liable because Fresh supervises Eve's employees.
B) liable because Harry was Fresh's customer.
C) not liable because Eve is responsible for her employees.
D) not liable because Harry was Eve's customer.