Question 1

Wren owns and operates Yoga Center without creating a separate business organization. She receives all the profits from the fees for the classes and the sales of the center's merchandise. Yoga Center is most likely

Accepted Answer

A sole proprietorship is a business owned by one person, who is entitled to all the profits and responsible for all the debts and liabilities of the business. In this case, Wren operates Yoga Center without creating a separate business organization and receives all the profits, which indicates that it is a sole proprietorship. A partnership involves two or more people sharing profits and liabilities, while a franchise is a business model where one business (the franchisor) grants another business (the franchisee) the right to use their brand name, products, and services in exchange for a fee. None of these options fit the scenario described.

Question 2

Corbin organized,and owns and operates,Corbin's Deep Sea Fishing Tours in the simplest form of business organization. This is

Accepted Answer

Corbin's Deep Sea Fishing Tours is owned and operated solely by Corbin, making it a sole proprietorship.

Question 3

A franchisee ordinarily does not pay a fee for a franchise license (the privilege of being granted a franchise).

Accepted Answer

A franchisee typically pays a fee for the franchise license. This fee covers the costs of training, support, and access to the franchisor's systems and brand.

Question 4

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

Accepted Answer

The answer of Typically,the franchisee determines the territory to be...

Question 5

A franchisor can suggest retail prices for the goods that a franchisee sells but cannot mandate them.

Accepted Answer

A franchisor can suggest retail prices to maintain brand consistency but cannot mandate them as it is considered a violation of antitrust laws. Franchisees have the right to set their own prices based on local market conditions and competition.

Question 6

If a franchisor's decision to terminate a franchise is made in the normal course of business and reasonable notice is given,it is less likely that the termination will be considered wrongful.

Accepted Answer

If a franchisor follows proper procedures and provides reasonable notice, the termination is less likely to be considered wrongful. However, each case is different and there are factors that may still lead to a finding of wrongful termination.

Question 7

Nadia,the owner of Organic Farms,a sole proprietorship,wants to obtain additional business capital but to maintain control. This can best be accomplished by

Accepted Answer

By borrowing funds, Nadia can obtain additional capital without having to give up control of her business. She remains the sole owner and decision maker, while also being able to use the borrowed funds to expand and grow her business. Bringing in partners or issuing stock would involve giving up some control of the business, while selling the business would mean losing all control. Therefore, borrowing funds is the best choice for Nadia to maintain control while obtaining additional capital.

Question 8

Some states require the termination of a franchise when there is no "good cause" for it to continue.

Accepted Answer

The answer of Some states require the termination of a...

Question 9

The franchise agreement is not likely to set out standards for the franchise to meet.

Accepted Answer

The franchise agreement typically sets out standards and requirements for the franchise to follow, such as quality control, branding, and operational procedures.

Question 10

As a general rule,the validity of a provision permitting the franchisor to establish and enforce certain quality standards is questionable.

Accepted Answer

Franchisors are generally allowed to establish and enforce quality standards to maintain brand consistency and protect their reputation.

Question 11

A franchisor's decision to terminate a franchise may be made in the normal course of business operations.

Accepted Answer

A franchisor may decide to terminate a franchise for various reasons such as the franchisee breaching the franchise agreement or failing to meet the franchisor's standards. This decision is part of the franchisor's normal course of business operations.

Question 12

The day-to-day operation of the franchise business normally is under the control of the franchisor.

Accepted Answer

The answer of The day-to-day operation of the franchise business...

Question 13

The duration of a franchise is a matter determined by federal or state statutes.

Accepted Answer

The duration of a franchise is determined by the terms of the franchise agreement between the franchisor and franchisee, not by federal or state statutes. However, there may be state and federal laws that regulate certain aspects of franchising, such as disclosure requirements and franchise termination.

Question 14

The laws governing franchising are primarily designed to protect franchisors from dishonest franchisees.

Accepted Answer

The laws governing franchising are primarily designed to protect franchisees from dishonest franchisors. These laws typically require franchisors to provide detailed disclosures to potential franchisees about the company's financial performance, as well as the costs and obligations that come with opening a franchise. The laws also limit the ways in which franchisors can terminate or renew franchise agreements, in order to prevent franchisors from unfairly cutting ties with franchisees who have invested significant time and resources in their businesses.

Question 15

Leigh wants to go into the business of construction contracting. Among the reasons that would probably convince Leigh to set up his business as a sole proprietorship would be

Accepted Answer

Sole proprietorship offers greater organizational flexibility as the owner has complete control over the functions and operations of the business. Additionally, it is easy to set up and requires minimal legal paperwork and formalities. However, a sole proprietorship does not provide limited liability protection, perpetual existence or ease of transferring the business to other family members.

Question 16

No state requires franchisors to provide presale disclosures to prospective franchisees.

Accepted Answer

The Federal Trade Commission's Franchise Rule requires franchisors to provide presale disclosures to prospective franchisees, and most states have their own franchise disclosure laws that also require presale disclosures.

Question 17

Without creating a separate business organization,Reynold starts up,and assumes the financial risk of,Sole Savers,a new,pre-owned auto sales enterprise. Reynold is

Accepted Answer

Reynold is a sole proprietor because he is assuming all financial risk and there is no separate business organization.

Question 18

As a means of controlling quality,franchise agreements typically limit the franchisee's ability to sell the franchise to another party.

Accepted Answer

This is usually done to ensure that the franchisor maintains control over who operates the franchise and to maintain consistent quality standards across all franchise locations.

Question 19

Most franchise contracts provide that notice of termination must be given.

Accepted Answer

Most franchise contracts do require that notice of termination be given, typically within a specified period of time before the termination goes into effect.

Question 20

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

Accepted Answer

Good faith and fair dealing are important principles in terminating a franchise relationship, as both parties are expected to act in good faith towards each other and uphold their contractual obligations. Failure to do so can result in legal disputes and damage to the parties' reputations.

Quiz 30: Sole Proprietorships and Franchises