Question 1

Del owns Everlast Painting, a sole proprietorship. Del's liability is

Accepted Answer

In a sole proprietorship, the owner's liability is unlimited, meaning they are personally responsible for all of the business's debts and obligations.

Question 2

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

Accepted Answer

The franchisor must have a reasonable basis for any earnings claims made to potential franchisees. This ensures that the claims are grounded in actual performance data or reliable projections, providing a realistic expectation of potential earnings.

Question 3

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

Accepted Answer

Juice Inc. must disclose all the listed information to prospective franchisees: the range of goods and services included, the value of the franchise, and the estimated profitability of the franchise. This comprehensive disclosure is essential for informed decision-making by the franchisees and is typically required by franchise laws and regulations to ensure transparency and fairness in the franchising industry.

Question 4

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

Accepted Answer

Prospective franchisees must be able to download or save all electronic documents to ensure they have permanent access to the disclosure documents for future reference. This requirement is part of ensuring transparency and accessibility of important information.

Question 5

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

Accepted Answer

Selling a sole proprietorship like New Energy involves transferring the ownership of the business from Maeve to Olaf, not establishing a franchise, creating a partnership, or being an impossible action.

Question 6

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

Accepted Answer

The answer of Donuts Whole Inc. offers an entrepreneur the...

Question 7

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

Accepted Answer

This is a licensing agreement where Raceway LLC allows Stadium Markets Inc. to use its trademarks on products. This is not a partnership, sole proprietorship, or a franchise in the traditional sense where a business model is provided.

Question 8

Cathy buys an exclusive territory in which she is authorized to set up a plant to make Delite dairy products. After receiving the recipes, Cathy begins making Evie's-brand yogurt and other Delite products. This is

Accepted Answer

This is a manufacturing franchise because Cathy is authorized to manufacture a company's product within a specific territory, which is a key characteristic of manufacturing franchises.

Question 9

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

Accepted Answer

Franchise relationships are governed by a combination of contract law, the federal Franchise Rule, and applicable state laws. Contract law dictates the terms of the franchise agreement. The federal Franchise Rule, enforced by the Federal Trade Commission, requires franchisors to provide a detailed disclosure document to potential franchisees. Additionally, many states have their own specific laws regulating franchises. Therefore, all of these choices collectively govern franchise relationships.

Question 10

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

Accepted Answer

The Federal Trade Commission's Franchise Rule requires franchisors to provide all potential franchisees with a Franchise Disclosure Document (FDD) that contains material facts needed to make an informed decision about the purchase. This includes information about the franchisor, the franchise system, and the agreements to be signed.

Question 11

Ruby is interested in buying a franchise from Snax Stores Inc. This transaction, like other franchise deals, is regulated to protect

Accepted Answer

Franchise transactions are regulated primarily to protect prospective franchisees from dishonest franchisors by ensuring they have access to essential information before making a significant investment. This regulation helps maintain transparency and fairness in the franchising industry.

Question 12

Beeline Inc. offers entrepreneurs the opportunity to operate a franchise under the Beeline trade name as a dealer that sells and leases Beeline equipment. To potential franchisees, Beeline must provide

Accepted Answer

Beeline must provide projected earnings figures to potential franchisees as part of the disclosure requirements under the Federal Trade Commission's Franchise Rule.

Question 13

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

Accepted Answer

As a sole proprietorship, Chase's options for raising capital are limited compared to corporations. He cannot issue stock because that's a mechanism available to corporations. Bringing in partners would change the business structure and is not about obtaining capital directly. Selling the business would end his ownership, not help in raising capital for growth or operations. Therefore, borrowing funds remains the most viable option for obtaining additional business capital.

Question 14

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

Accepted Answer

The electronic information provided by Espresso Brew Inc. to prospective franchisees is considered an offer that must comply with the Federal Trade Commission's Franchise Rule. This rule requires franchisors to provide extensive disclosure to prospective franchisees before any agreement is signed or any payment is made, ensuring that franchisees have all the necessary information to make an informed decision.

Question 15

Instead of setting up a business to market her own products, Rita considers entering into a distributorship franchise with Sports Equipment Corporation. This involves the transfer of

Accepted Answer

A distributorship franchise typically involves the transfer of a license to distribute the franchisor's products, allowing the franchisee to sell the products under the franchisor's brand.

Question 16

Haute Dogs Inc. sells a franchise to Ilene's Cuisine, a lunch truck. Ilene's Cuisine is

Accepted Answer

Ilene's Cuisine, by purchasing a franchise from Haute Dogs Inc., becomes a franchisee. This is because a franchisee is the party that buys the right to use a business's trademark or business model.

Question 17

Sodas Inc. and Tom's Bottling Plant have a manufacturing franchise arrangement. This involves the transfer of

Accepted Answer

The formula to make a certain product is transferred in a manufacturing franchise arrangement.

Question 18

Ford is the sole proprietor of Go, a game subscription service. As a sole proprietor, on the business's profits, Ford pays

Accepted Answer

As a sole proprietor, Ford's business income is reported on his personal income tax return, meaning he pays personal income taxes on the profits. Sole proprietorships do not pay separate business income taxes.

Question 19

Nina, the owner of Organic Farm, a sole proprietorship, wants to obtain additional capital to operate. This can be accomplished by

Accepted Answer

As a sole proprietor, Nina can obtain additional capital through a variety of means, including a bank loan, a Small Business Administration Loan, or by infusing her own personal funds into the business.

Question 20

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

Accepted Answer

When Ling, as the sole proprietor, dies, the business will automatically dissolve because a sole proprietorship is legally inseparable from its owner.

Quiz 34: Small Businesses and Franchapterises