Question 1

Which of the following duties is not owed by a trustee to its beneficiaries?

Accepted Answer

Trustees have a duty to avoid conflicts of interest and to disclose any that exist to the beneficiaries. Therefore, option D is not a duty that is not owed by a trustee to its beneficiaries. Options A, B, and C are all duties that are owed by a trustee to its beneficiaries.

Question 2

The feature that distinguishes a 'discretionary' trust from other forms of trust is:

Accepted Answer

A discretionary trust is one where the trustee has discretion over how trust property is distributed to the beneficiaries. The other options listed are not unique to discretionary trusts.

Question 3

A trustee is the legal owner of the trust property, and is obliged to look after it for the benefit of the:

Accepted Answer

The primary duty of a trustee is to act in the best interests of the beneficiaries of the trust. The settlor typically creates the trust and gifts the property into it, but the trustee is the one responsible for managing and safeguarding that property. Shareholders and directors are typically associated with corporations and do not have a direct relationship with trusts.

Question 4

Which of the following would be known as a business format franchise?

Accepted Answer

A business format franchise is when the franchisee is provided with a comprehensive system for operating the business which includes the product, business name, and other essential elements for running the business. Choices A and D describe a product franchise and a management franchise, respectively. Choice B is incomplete and could apply to either a product or business format franchise.

Question 5

Which of the following is not one of the franchisor's disclosure obligations under the Franchising Code of Conduct?

Accepted Answer

The Franchising Code of Conduct requires franchisors to provide a copy of the Code, a disclosure document, and the franchise agreement in the form that it is to be signed. However, the specific obligation to inform the franchisee about any materially relevant fact within 30 days is not explicitly listed as one of the franchisor's disclosure obligations under the Code.

Question 6

X and Y buy a house together, each contributing half of the cost.The house is registered in the name of X, that is, X is the legal owner of the house.X will be a trustee and Y will be a beneficiary under:

Accepted Answer

This scenario describes a situation where X holds legal title to the property, but it is understood that Y also has an equal beneficial interest in the property. This is an example of a constructive trust, where the legal owner holds the property on trust for the beneficiary. The other options do not fit this scenario - an express trust would require a clear intention to create a trust and a set of specific terms, a discretionary trust would involve a trustee with the power to decide how to distribute the trust property, and a unit trust would involve the property being held as part of a larger investment scheme.

Question 7

If a franchisor breaches the Franchising Code of Conduct, the court is least likely to:

Accepted Answer

The court is unlikely to impose a jail term upon the franchisor for breaching the Franchising Code of Conduct. The other options, such as granting an injunction, ordering corrective advertising, or ordering the franchisor to pay damages, are more likely outcomes.

Question 8

Which of the following is not true of the Franchising Code of Conduct?

Accepted Answer

The Franchising Code of Conduct is not a voluntary industry code, but a mandatory industry code. All franchisors and franchisees in Australia must comply with the Code.

Question 9

What does a franchisee usually pay to the franchisor in exchange for being allowed to use the franchisor's name, their products and business systems?

Accepted Answer

Franchisees usually pay a regular fixed fee and/or a percentage of the income or profits of the franchise to the franchisor in exchange for being allowed to use their name, products, and business systems. This is often referred to as a royalty or franchise fee.

Question 10

As the trustee owns the trust property on behalf of the beneficiaries, the trust property is not available to the trustee's creditors in the event of:

Accepted Answer

The trust property is not available to the trustee's creditors in both bankruptcy and liquidation. In the event of the trustee's death, the trust property will be passed on to the beneficiaries according to the terms of the trust, and will not form part of the trustee's personal estate.

Question 11

Each partner is obliged to act in good faith for the common good of the partnership, which includes an obligation to:

Accepted Answer

Partners have a duty of loyalty to the partnership and must act in good faith for the common benefit of all partners. This includes a duty to fully disclose any matters likely to affect the partnership to the other partners. A, B, and C are all examples of actions that would be considered a breach of the duty of loyalty.

Question 12

Jill sets up a trust for the benefit of her grandson, Joe.The trust property - a small hotel - is to be legally owned by the trustee, Jack, for the benefit of Joe.Unfortunately, Joe falls terminally ill and passes away shortly after the trust is established.What happens to the trust property?

Accepted Answer

When a trust is set up for a named beneficiary and the beneficiary predeceases the settlor, the trust property will revert back to the settlor unless the settlor intended for a resulting trust to arise. In this case, the trust was set up for the benefit of Joe, but he passed away shortly after the trust was established. Therefore, the trust property will revert back to Jill, the settlor, under a resulting trust. Jack, as the trustee, will still have legal title to the property, but he will hold it for the benefit of Jill as the new equitable owner of the trust property.

Question 13

X and Y are partners.Z is a third party who deals with Y.X will not be liable for an act by Y done in the usual way of business of the kind carried on by the partnership if:

Accepted Answer

According to the principle of "holding out", X will not be held liable if Y exceeds his express authority to act for the partnership, but only if the third party, Z, is aware of Y's lack of authority. This means that if Y acted without authority and Z knew about it, then X cannot be held liable for Y's actions. Therefore, the correct answer is A.

Question 14

Which of the following best describes the relationship between a franchisee and franchisor?

Accepted Answer

The relationship between a franchisee and franchisor is that of parties to a contract. The franchisee enters into a contractual agreement with the franchisor to operate a business using the franchisor's trademark, products, and operating system. The franchisor provides support, training, and ongoing assistance in exchange for royalties and fees from the franchisee's business operations. This relationship is governed by the terms of the franchise agreement.

Question 15

A trust, as a business structure, need not have:

Accepted Answer

A trust deed is not always required for a trust to exist, though it is commonly used to outline the terms of the trust. A trust must have a trustee, beneficiary, and trust property to be valid.

Question 16

What restrictions in relation to franchising agreements are not found in the Code?

Accepted Answer

The Code does not restrict a franchisee's right to seek an injunction for a breach of the Code.

Question 17

An implied trust arises:

Accepted Answer

An implied trust arises when the settlor has not expressly established a trust but their conduct indicates that their intention was to do so.

Question 18

A franchise is a contractual arrangement between a franchisor and a franchisee according to which the franchisor permits the franchisee to do a number of things.Which of the following is not one of these things?

Accepted Answer

While the franchisee will be working closely with the franchisor, they are not considered business partners in the legal sense. Instead, the franchisee is granted the rights and responsibilities to operate a business according to the franchisor's established model, using the franchisor's branding, products, and services.

Question 19

Which of the following is not one of the rights of child beneficiaries under a trust:

Accepted Answer

Child beneficiaries do not have the right to direct the trustee to terminate the trust and distribute the trust proceeds. Trust termination is typically governed by the terms of the trust deed and the discretion of the trustee. The other options are valid rights that child beneficiaries can have under a trust.

Question 20

Which of the following need not be provided by the franchisor to the franchisee before they sign the franchise agreement?

Accepted Answer

A franchisor is not required to provide a written guarantee of profitability to the franchisee before signing the franchise agreement. In fact, it is illegal under the Franchising Code of Conduct for a franchisor to make such a guarantee. The other options (A, B, and C) are all requirements under the Franchising Code of Conduct that must be provided to the franchisee before signing the agreement.

Quiz 15: Managing a Business: Business Ownership