Deck 17: Sole Proprietorships, franchises, Partnerships

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

In a general partnership,the partners are personally liable for the debts of the partnership.

Answer 2

True

Question 3

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

Answer 3

True

Question 4

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

Question 5

The simplest form of business is a sole proprietorship.

Question 6

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

Question 7

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

Question 8

A franchise contract may use only one type of business organiza?tion-the sole proprietorship.

Question 9

In a general partnership,all partners have equal rights in managing the partnership.

Question 10

On a partner's dissociation,his or her duty of loyalty to the partnership ends.

Question 11

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

Question 12

Any event that makes its unlawful for a partnership to continue its business will result in dissolution.

Question 13

A franchise is a contractual arrangement.

Question 14

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

Question 15

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

Question 16

Withdrawal from a partnership for a term prematurely does not consti?tute a breach of the partnership agreement.

Question 17

A partner who pursues his or her own interests automatically violates the partner's fiduciary duties to the partnership.

Question 18

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

Question 19

A partner owes to the partnership and the other partners a duty of loyalty.

Question 20

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

Question 21

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 22

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 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

Fact Pattern
Luann and Mace are partners in Networx,a computer peripherals firm.
Refer to Fact Pattern 17-2A.Mace dissociates from Networx.Luann signs a con?tract with Physik Drives,a wholesale component supplier,apparently on Networx's behalf.Physik does not know of Mace's dissociation.The contract is binding on

A)Luann,Mace,and Networx.
B)Luann only.
C)Networx only.
D)Physik only.

Question 25

Fact Pattern
Luann and Mace are partners in Networx,a computer peripherals firm.
Refer to Fact Pattern 17-2A.Luann signs a contract with Oleo Chips,a retail component supplier,apparently on Networx's behalf.The contract is binding on

A)Luann,Mace,and Networx.
B)Luann only.
C)Networx only.
D)Oleo only.

Question 26

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 27

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 28

Corbin,a partner in Doctors Medical Clinic,applies for a loan with Evermore Bank allegedly on Doctors' behalf but without the authoriza?tion of the other partners.Evermore knows that Corbin is not authorized to take out the loan.Corbin defaults on the loan.Liability for its unpaid amount is imposed on

A)Corbin and Doctors,jointly.
B)Corbin only.
C)Doctors only.
D)Evermore only.

Question 29

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 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

Jim and Kyle are partners in J&K Sales,which exports technical equip?ment under a three-year partnership agreement.The U.S.gov?ernment declares that the equipment can no longer be ex?ported.J&K

A)dissolves as soon as the stated term expires.
B)dissolves as soon as the partners agree to dissolve it.
C)dissolves immediately unless the partners change its business.
D)does not dissolve.

Question 32

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 33

Fact Pattern
Desi starts up eSites,an Internet service,and leases office space in a building owned by Fred.The lease requires Desi to pay Fred a base rental of $1,250,plus 10 percent of eSites' profits,each month.The term is two years.Desi hires Gwen to work at eSites' tech support desk at an hourly wage of $12.50,plus a commis?sion of 10 percent of the prof?its.The term is also two years.
Refer to Fact Pattern 17-1A.Desi and Fred are

A)not partners,because Fred does not have an ownership interest or manage?ment rights in eSites.
B)not partners,because the lease includes a "base rental."
C)not partners,because the rent includes only 10 percent of the profits.
D)partners in a partnership for two years.

Question 34

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 35

Savannah and Rex agree while talking on the phone to form a partner?ship to deal in sales of natural gas.Their partnership agreement is le?gally binding

A)only if a copy of the agreement is filed in the appropriate state office.
B)only if the agreement is reduced to writing.
C)only if the parties exchange valid consideration.
D)without more.

Question 36

Hud and Iggy form Jerry-Bilt Construction to enter into a contract to build one bridge.Under their partnership agreement,Jerry-Bilt is to dissolve when the bridge is built.Iggy signs a contract for the firm to build a second bridge.Jerry-Bilt

A)dissolves as soon as the first bridge is built.
B)dissolves as soon as the second bridge is built.
C)dissolves immediately on Iggy's signing of the second contract.
D)does not dissolve.

Question 37

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 38

Noah and Orin do business as Personnel Partners.In most states,for purposes of suing and being sued,Personnel Partners would be treated as

A)an aggregate of the individual partners.
B)a natural person.
C)an entity.
D)a non-existent party.

Question 39

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 40

Fact Pattern
Desi starts up eSites,an Internet service,and leases office space in a building owned by Fred.The lease requires Desi to pay Fred a base rental of $1,250,plus 10 percent of eSites' profits,each month.The term is two years.Desi hires Gwen to work at eSites' tech support desk at an hourly wage of $12.50,plus a commis?sion of 10 percent of the prof?its.The term is also two years.
Refer to Fact Pattern 17-1A.Desi and Gwen are

A)not partners,because Gwen does not have an ownership interest or manage?ment rights in eSites.
B)not partners,because the pay includes an hourly wage.
C)not partners,because the pay includes only 10 percent of the profits.
D)partners in a partnership for two years.

Question 41

Sally and Tom decide to go into business,selling discounted merchandise through their Web site "e-Buy." They sign a partnership agreement that requires Sally to contribute $12,000 and Tom to contribute $8,000 in capital to start the firm.The agreement also states that only Sally will have the authority to bind the partnership in deals with third parties,but the agreement says nothing about the management of the firm or a division of profits.Without Sally's knowledge,Tom tells United Computer Products,Inc. ,that he represents the firm and signs a con?tract with United to buy hard drives for resale on e-Buy.In the first year,e-Buy makes a profit of $50,000.What are the partners' rights with respect to the management of the firm? Is the partnership bound to the contract with United? Do the partners split the first year's profits? If so,how much is each entitled to?

Question 42

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