Question 1

A(n)_______ allows the owners to be taxed like a partnership but with limited liability.

Accepted Answer

A limited liability company (LLC) is a business structure that combines the tax benefits of a partnership with the limited liability of a corporation. Owners of an LLC are known as members and their personal assets are protected from business debts and liabilities. The LLC itself is not taxed but instead, the profits and losses are passed through to the members who report them on their individual tax returns.

Question 2

In a joint venture,the parties: ______.

Accepted Answer

In a joint venture, the parties come together to combine their labor or property for a single undertaking, not a continuing business, and they share profits and losses equally. This is what differentiates a joint venture from other business arrangements like partnerships, which may be for a continuing business.

Question 3

The government's permission is required to create: ______.

Accepted Answer

Corporations require the government's permission to be created, as they are legal entities that are granted certain rights and protections. Sole proprietorships and partnerships can be created without government permission, although business licenses and permits may be required. Unincorporated associations are generally not recognized as distinct legal entities and do not require government permission to be formed.

Question 4

The people in a corporation responsible for the management of the business are the: ______.

Accepted Answer

The board of directors is responsible for making important decisions and governing a corporation. Partners would only be applicable in a partnership business structure, shareholders have ownership in the company but not necessarily management responsibilities, and licensees are individuals or organizations authorized to use a corporation's intellectual property or products.

Question 5

Franchisors may be found liable for the wrongful conduct of their franchisees on an apparent authority theory when the conduct of the franchisor creates an appearance of authority.

Accepted Answer

Franchisors can be held liable for wrongful conduct of their franchisees if they create an appearance of authority through their conduct or representations, even if they did not explicitly authorize the conduct in question. This is known as the apparent authority theory.

Question 6

If the negligence of the franchisee causes harm to a third person,the franchisor is not liable because the franchisee is an independent contractor.

Accepted Answer

The franchisor is not liable for the actions of the franchisee because they are considered an independent contractor, responsible for their own actions and liabilities.

Question 7

An owner's death would have no effect on any of the business entities below,except: ______.

Accepted Answer

A corporation is a separate legal entity from its owners, so the death of an owner would not affect the corporation's existence or continued operation. However, in a sole proprietorship or partnership, the death of an owner could cause the business to dissolve or require the transfer of ownership. In a joint venture, the terms of the agreement would determine the effect of an owner's death.

Question 8

Most courts hold that joint ventures operate under the same legal principles as partnerships except: ______.

Accepted Answer

The distinguishing feature of a joint venture is typically that it involves a single limited purpose, whereas partnerships can have ongoing and multiple purposes. While joint ventures may also involve shared profits and losses and capital contributions from all owners, these are not the defining features that differentiate them from partnerships. Additionally, while a written agreement is generally recommended for both partnerships and joint ventures, it is not a requirement for either.

Question 9

Freedom from liability to third persons dealing with the franchise holder is one of the main reasons that franchisors grant franchises.

Accepted Answer

Franchisors typically structure their agreements to limit liability for third party dealings by making it clear that franchisees are independent business owners, not agents or employees of the franchisor.

Question 10

A franchisee cannot be a corporation.

Accepted Answer

The answer of A franchisee cannot be a corporation....

Question 11

A major disadvantage of the sole proprietorship is: ______.

Accepted Answer

The major disadvantage of the sole proprietorship is that the sole proprietor is personally liable for the debts of the business. This means that if the business can't pay its debts, the sole proprietor's personal assets may be seized to satisfy the debts.

Question 12

Franchise agreements frequently contain an arbitration provision under which a neutral party is to make a final and binding determination whether there has been a breach of the contract sufficient to justify cancellation of the franchise.

Accepted Answer

Franchise agreements often do include an arbitration provision for dispute resolution, including determining whether a breach has occurred and the appropriate remedy.

Question 13

The FRC has adopted a franchise disclosure rule that requires franchisors to give prospective franchisees a full disclosure statement thirty (30)days before a franchisee signs a contract or pays any money for a franchise.

Accepted Answer

The Federal Trade Commission (FTC), not the FRC, has adopted the franchise disclosure rule requiring franchisors to provide a full disclosure document to prospective franchisees at least 14 days before a contract is signed or any payment is made.

Question 14

The principal forms of business organization are: ______.

Accepted Answer

The principal forms of business organization are sole proprietorships, partnerships, and corporations. Unincorporated associations and limited partnerships are not as commonly used as sole proprietorships, partnerships, and corporations. Joint ventures are a type of partnership and not a separate form of business organization.

Question 15

The relationship between the franchisor and the franchisee is ordinarily an arm's-length employment relationship.

Accepted Answer

The relationship between the franchisor and the franchisee is typically a contractual relationship governing the use of the franchise's trademark, business model, and support services. While the relationship may involve elements of an employment relationship, such as training and supervision, it is not typically considered an arm's-length employment relationship.

Question 16

A franchisor is the person to whom the franchise is granted.

Accepted Answer

A franchisor is the company or individual that grants the franchise to the franchisee, who is the person or entity to whom the franchise is granted.

Question 17

A sole proprietorship is taxed: _______.

Accepted Answer

A sole proprietorship is not a separate legal entity from its owner. Therefore, the business income and expenses are reported on the owner's personal tax return, and the owner is responsible for paying all taxes on the business income. The business itself does not pay any separate corporate taxes.

Question 18

To meet the requirements of the FTC,the franchisee must make a minimum payment of at least $540 during the first six months of operations.

Accepted Answer

This statement is true according to the Franchise Rule of the Federal Trade Commission (FTC). The franchisee must make a minimum payment of at least $540 during the first six months of operations as part of the initial fees and obligations.

Question 19

Who serve as agents of the corporation and run the "day-to-day" operations of the business?

Accepted Answer

Officers are typically appointed by the board of directors to run the "day-to-day" operations of the business. Directors are responsible for overall management of the corporation, while shareholders have ownership and voting rights but are not involved in the daily operations. Employees work for the corporation but do not have the authority to make major decisions or run the business.

Question 20

A joint venture manufacturing agreement gives the manufacturer authority to manufacture products under a proprietary trademark.

Accepted Answer

The answer of A joint venture manufacturing agreement gives the...

Quiz 40: Types of Business Organizations

A(n) _______ allows the owners to be taxed like a partnership but with limited liability.