Question 1

A franchisee cannot be a corporation.

Accepted Answer

A franchisee can be a corporation, as long as it meets the franchisor's requirements.

Question 2

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

Accepted Answer

The death of an owner in a corporation would lead to changes in ownership, as the owner's shares would be passed down to their beneficiaries. However, this would not have an impact on the business operations or the existence of the corporation itself. In contrast, the death of an owner in a partnership or sole proprietorship would potentially dissolve the business, as there would no longer be an owner to carry on the business. The death of an owner in a joint venture would depend on the specifics of the agreement between the parties involved.

Question 3

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

Many franchise agreements do contain arbitration provisions for dispute resolution.

Question 4

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

Accepted Answer

The distinguishing factor of a joint venture is that it involves a single limited purpose or objective, while partnerships are generally ongoing business relationships. Joint ventures may or may not involve sharing of profits and losses and capital contributions, and may require a written agreement depending on the jurisdiction. However, they still operate under the same legal principles as partnerships in most respects.

Question 5

In a joint venture, the parties: ______.

Accepted Answer

In a joint venture, the parties typically combine their labor or property for a single undertaking and share profits and losses equally. This is a temporary partnership for a specific project.

Question 6

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

Accepted Answer

Limited liability companies (LLCs) provide the tax benefits of a partnership or sole proprietorship, but with limited liability for the owners. This means that their personal assets are not at risk in the event of the company's debts or legal issues. LLCs are a popular choice for small businesses and startups. Corporations have limited liability but are subject to double taxation, whereas joint ventures are temporary partnerships between companies and franchises are a type of business model, not a legal entity.

Question 7

A major disadvantage of the sole proprietorship is: ______.

Accepted Answer

The major disadvantage of a sole proprietorship is that the sole proprietor is personally liable for any debts or obligations incurred by the business. This means that the owner's personal assets can be at risk if the business is sued or cannot pay its debts, which is not the case with other business entities like corporations or limited liability companies. Choices A, B, and D are advantages, not disadvantages, of a sole proprietorship.

Question 8

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

Accepted Answer

Franchisors often grant franchises to enjoy the benefit of freedom from liability to third persons dealing with the franchise holder. This means that the franchisor is not responsible for any legal disputes or liabilities that may arise from the actions of the franchisee, except in cases where the franchisor has taken an active role in creating the liability.

Question 9

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

Under the apparent authority theory, a third party may reasonably believe that a franchisee is authorized to act on behalf of the franchisor based on the franchisor's conduct, such as advertising or uniformity in operation. As a result, the franchisor may be held liable for the franchisee's actions even if the franchisor did not explicitly authorize or direct the conduct in question.

Question 10

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

Accepted Answer

The board of directors is responsible for overseeing the management of a corporation. They are elected by shareholders to make important decisions for the company, including appointing executives and setting company policies. Partners and licensees are not necessarily involved in the management of a corporation, while shareholders only have the power to elect the board of directors but not to manage the company directly.

Question 11

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

Accepted Answer

Officers are the individuals who are appointed by the board of directors to manage the day-to-day operations of the corporation. They serve as agents of the corporation and are responsible for making decisions that are in the best interest of the company. Directors, on the other hand, are responsible for overseeing the officers and making strategic decisions for the corporation. Shareholders are the owners of the corporation, but they do not typically play a role in the day-to-day operations. Employees are individuals who work for the corporation but do not have decision-making authority at the highest level.

Question 12

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

The Federal Trade Commission (FTC) requires a minimum payment of $540 within the first six months to qualify as a franchise under its regulations.

Question 13

A sole proprietorship is taxed: _______.

Accepted Answer

A sole proprietorship is not a separate legal entity, and therefore the business income is considered personal income for the owner and is taxed accordingly on their personal tax return.

Question 14

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

Accepted Answer

Corporations require government permission or approval to be created. Sole proprietorships, partnerships, and unincorporated associations do not require government permission to be created.

Question 15

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

Franchisors are generally not held responsible for the actions of their franchisees as they are seen as independent contractors. Therefore, if the franchisee's negligence causes harm to a third party, the franchisor is not automatically liable for the resulting damages. However, there are exceptions to this general rule, and liability cases can vary depending on the specific circumstances and contractual agreements between the parties involved.

Question 16

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

Accepted Answer

A franchisor is the person or company that grants the franchise to the franchisee.

Question 17

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 a franchise disclosure rule that requires franchisors to provide a disclosure document to prospective franchisees at least 14 days before signing a contract or paying any money.

Question 18

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...

Question 19

The principal forms of business organization are: ______.

Accepted Answer

Sole proprietorships, partnerships, and corporations are the three principal forms of business organization. Unincorporated associations and joint ventures are not as commonly used as these three forms. Limited partnerships are a type of partnership and not a separate form of organization.

Question 20

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 not an employment relationship, but rather a contractual relationship in which the franchisor licenses the use of their business model and trademark to the franchisee in exchange for fees and ongoing royalties. It is a relationship that is governed by the terms of the franchise agreement, which outlines the respective rights and obligations of the franchisor and the franchisee.

Quiz 40: Types of Business Organizations