Question 1

Gustoso Gelato Company is a franchisor.Singh operates a Gustoso fran?chise.Reba is one of Singh's employees.As a franchisor,if Gustoso con?trols the day-to-day operations of the business to a significant degree,it may be liable for tortious acts by

Accepted Answer

As a franchisor, Gustoso may be liable for tortious acts by any of its employees, including Reba, if it can be shown that Gustoso exercised significant control over the day-to-day operations of the franchise. Singh, as the franchisee, may also be liable for Reba's actions. Therefore, all three parties (Gustoso, Singh, and Reba) may potentially be liable for tortious acts.

Question 2

Mello Coffee Shops,Inc. ,sells a franchise to Noah's Arch,a café.Mello is

Accepted Answer

Mello Coffee Shops, Inc. is selling a franchise to Noah's Arch, hence Mello is a franchisor.

Question 3

A franchise agreement between Software² Company and Games³,Inc. ,is silent on a time for termination of the franchise.Software² may

Accepted Answer

In the absence of a specified termination time in a franchise agreement, the law generally requires that termination be made on reasonable notice to the other party.

Question 4

Sylvester buys a franchise from Resistance Athletic Shoes Inc.This rela?tionship,like all other franchise relationships,is governed by

Accepted Answer

Franchise relationships are primarily governed by contract law, as the franchise agreement is a contract between the franchisor and franchisee.

Question 5

Rafe is interested in buying a franchise from Sportz Warez Company.In this transaction,the Federal Trade Commission's Franchise Rule

Accepted Answer

The Federal Trade Commission's Franchise Rule applies to Rafe's potential purchase of a franchise from Sportz Warez Company. The Franchise Rule requires franchisors to provide prospective franchisees with a disclosure document that includes important information about the franchise agreement and the franchisor. This enables Rafe to weigh the deal's risks and benefits before making a decision.

Question 6

Frooty Drinx,Inc. ,and Erwin have a manufacturing franchise arrange?ment.This involves the transfer of

Accepted Answer

A manufacturing franchise arrangement typically involves the transfer of the formula or process to make a certain product, which is then manufactured and sold under the franchisor's brand name and guidelines. The other options, such as a license or trade name, may also be part of a franchise agreement, but alone they do not fully capture the nature of a manufacturing franchise arrangement. Ownership of the business may or may not be transferred, depending on the terms of the agreement.

Question 7

Tawny buys a Super Grill franchise.Super Grill requires that its fran?chi?sees buy its products for every phase of their op?erations.Be?cause Tawny wishes to buy less expensive products,she challenges the re?quirement.Her best argument is probably that the re?quirement violates

Accepted Answer

The requirement that franchisees buy products exclusively from the franchisor can be challenged under federal antitrust laws if it restricts competition and leads to monopolistic practices.

Question 8

Euro Autos & Trucks,Inc. ,licenses Downtown Motors,an auto?mobile dealership,to sell its products.This is

Accepted Answer

The dealership, Downtown Motors, is being licensed by Euro Autos & Trucks, Inc. to sell its products, making it a distributorship franchise.

Question 9

Fern contracts to buy a franchise from Greene Grocery Inc.The contract is silent on the issue of territorial rights.Greene allows a competing franchise to be established near Fern's store,which suffers a significant loss in profits.This is most likely a violation of

Accepted Answer

The situation described involves a breach of the implied covenant of good faith and fair dealing, which is an implied obligation in contracts that requires the parties to act with honesty and fairness towards one another. Even if the contract is silent on territorial rights, there is an expectation that Greene would not act in a way that would harm Fern's business. Allowing a competing franchise to be established near Fern's store can be seen as a breach of this obligation.

Question 10

Vim+Vigor Fitness Corporation uses a Web site to provide downloadable information to prospective franchises.This online information is the equiva?lent of an offer that must comply with

Accepted Answer

The Federal Trade Commission's Franchise Rule regulates the offer and sale of franchises in the United States. This includes the requirement for franchisors to provide prospective franchisees with a Franchise Disclosure Document (FDD). The online information provided by Vim+Vigor Fitness Corporation would be considered an offer that must comply with the Franchise Rule and include the required disclosures in the FDD.

Question 11

Pronto Tacos LLC grants a franchise to Omar to open and operate a Pronto Tacos restaurant.Pronto will likely charge Omar

Accepted Answer

Typically, when a franchise is granted, the franchisor charges an initial fee or lump sum for the franchise license.

Question 12

Nicole is interested in buying a franchise from Oz Inc.For Nicole to make an informed decision concerning this purchase,Oz must disclose in writ?ing or online

Accepted Answer

Oz Inc. must disclose material facts such as the basis of projected earnings figures in order for Nicole to make an informed decision about buying a franchise. This is required by law under the Federal Trade Commission's Franchise Rule. Simply providing general estimates of costs and sales without disclosing the basis for them would not be sufficient. In addition, start-up requirements and renewal conditions are also important pieces of information that Oz Inc. should disclose.

Question 13

Hometown Realtors,Inc. ,sells a franchise to Group Sales Company.Group Sales is

Accepted Answer

Group Sales Company is purchasing the right to use Hometown Realtors, Inc.'s brand name, systems, and support, making them a franchisee.

Question 14

Gage buys from Fishing Guide Corporation the exclusive right to sell Fishing Guide rods and reels in a certain area.Their franchise agree?ment requires Gage to pay certain administrative expenses.Their agreement may also require Gage to pay a percentage of the franchisor's

Accepted Answer

Franchise agreements often require franchisees to contribute to the franchisor's advertising or marketing expenses, as this can benefit both parties by driving sales and increasing brand awareness. The other options (B and C) are not commonly included in franchise agreements as they are not directly related to the operation or promotion of the franchise business. Option D is not helpful as it does not provide any information.

Question 15

Dingo Bangles Company wants to present information in "disclosure docu?ments" via the Internet to prospective franchisees.Among other legal re?quirements with which Dingo must comply,prospective franchisees must

Accepted Answer

Under the FTC franchise rule, prospective franchisees must be able to download or save all electronic documents, including the disclosure document, provided by the franchisor. The other options provided are not legal requirements for a franchisor to comply with under the FTC franchise rule.

Question 16

Princely Auto Detailing Corporation gives notice to Quint that Princely is terminating their franchise arrangement.Winding up the business requires

Accepted Answer

Winding up the business requires the return of Princely's property as mentioned in the question. Therefore, choice D is the best option. Choices A, B, and C are not relevant to the situation described in the question.

Question 17

Kelly,the owner of Llama Farms,a sole proprietorship,wants to obtain additional busi?ness capital but to maintain control.This can best be ac?complished by

Accepted Answer

Borrowing funds allows Kelly to obtain additional capital while still maintaining control of her business. Bringing in partners or issuing stock would mean sharing control, and selling the business would mean losing control entirely.

Question 18

Instead of setting up a business to market her own products,Teresa con?sid?ers entering into a distributorship franchise with Sparkly Beer Breweries Corporation.This involves the transfer of

Accepted Answer

In a distributorship franchise, the franchisor (Sparkly Beer Breweries Corporation) provides the franchisee (Teresa) with a license to distribute their products. This allows Teresa to sell Sparkly Beer Breweries Corporation's products under their name and branding, without actually owning the business or the products themselves. Therefore, the transfer of a license is the most relevant choice.

Question 19

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

Accepted Answer

As a sole proprietor, Bernie would have complete control over his business and can make decisions quickly and easily without needing to consult anyone else. This flexibility is ideal for a construction contractor who might need to adjust plans and schedules based on unforeseen circumstances at a work site. Additionally, setting up as a sole proprietorship is much simpler and less expensive than setting up a corporation or LLC, making it a more attractive option for someone just starting their business. However, this business structure does not offer limited liability protection, meaning that Bernie's personal assets would be at risk if his business is sued or cannot pay its debts.

Question 20

Cluckee Chick'n Corporation provides its prospective franchisees with projected earnings figures based on actual data.Cluckee Chick'n must also disclose

Accepted Answer

Providing the number and percentage of franchisees that achieved the figures would give a more accurate representation of the earning potential for a franchisee. Hypothetical examples may not reflect the reality, and giving a straightforward answer to the question "How much will I make?" may be misleading without proper context. Therefore, A is the best choice.

Quiz 36: A: Sole Proprietorships and Franchises