CH. 40 & 3

Federal and state legislation may protect franchisees in certain industries such as: Holders of automobile dealership franchises are protected from bad-faith termination of their dealerships by the federal Automobile Dealers' Day in Court Act (ADDCA) & by state law. State laws may also prevent franchisors from unreasonably withholding consent for sale of the franchise. Some states have laws that specifically protect motor vehicle franchises from unreasonable termination or limitations on resale.

******* 40.3c

The Importance of a Good Reputation

A company's name & image, whether good or bad, can have a dramatic impact upon its ability to do business A breach of ethics is costly to a firm financial, drops in earnings & possible fines. Carries lasting memory that affects the business & its sales years.

CH.3

CH.3

double taxation(pay both corporate income & personal income taxes) Much more costly to setup & maintain than other business forms. (Incorporation involves expenditure of funds for org. expenses & documents for forming of corp.) Annual reports must be filed. these ALL Disadvantages of what?

Corporations

invester/shareholder's risk of loss is limited to the amt of capital invested in the business or paid for shares, free transferability of corporate shares, by purchase of shares, ability to raise large amts of capital, perpetual life(NOT affected by death of shareholders(owner) or the transfer of shares. these ALL Advantages of what?

Corporations

11. In applying the stakeholder model of business ethics, only the interest of important constituencies affected by an action need to be satisfied. T/F

FALSE

12. The field of business ethics recognizes that social values typically must yield to the profitability motive. T/F

FALSE

3. Joe claims an LLC may be formed without filing formal article of organization with the secretary of state. This claim is: T/F

FALSE

T/F: Unfortunately, there is no evidence that commitment to ethical values is linked with financial performance of business organizations.

FALSE

5. You're trying to decide whether to incorporate v.s staying a sole proprietorship. The owner of a sole proprietorship pays federal income taxes at the corporate income tax rate, based on the net earnings of the sole proprietorship. T/F

FALSE **ONLY pays personal income taxes

Poor value choices do not have an effect on financial performance. T/F

FALSE do**

2. Eli Lilly is considering a joint venture with a start-up pharmaceutical company. Under this joint venture manufacturing agreement, Eli Lilly as the manufacturer has authority to manufacture products under the start-up's proprietary trademark. T/F

False.

The _________________ is the party granting the franchise, & the ______________ is the person to whom the franchise is granted.

Franchisor ; franchisee benefits both

if a suit is brought by 3rd party, the fault or negligence of one venturer will be imputed to the other ventures. (Liability to 3rd Persons)

Joint Venture

6. Don, Andrea, & Elliott are trying to decide what business form to use if they go into business together. They are told corporations are subject to a form of double taxation. This is: T/F

TRUE

8. Trust is a fundamental basis of the capitalist system that is central to the expectations of investors, customer, & other firm stakeholders. T/F

TRUE

Absent illegality, all behavior is ethical under this simple standard. T/F

TRUE

Businesses with the strongest value systems are more successful. (financially). T/F

TRUE

If franchisor makes unreasonable demands and terminates the agreement, liable for damages to franchisee. T/F

TRUE

Philosopher Immanuel Kant does not allow any resolution of an ethical dilemma where humans are used by others to benefits. T/F

TRUE

State laws may provide additional protection to franchisees, allowing them to sue for damages resulting from improper disclosure. T/F

TRUE

The reliance on promises, NOT litigation, produces good business relationships. T/F

TRUE

When business behavior results in complaints from employees, investors, or customers, laws or regulations are often used to change the behavior. T/F

TRUE

defined by the Federal Trade Commission(FTC) a commercial business arrangement is a franchise if the franchisor must : (1)promise to provide a trademark or other commercial symbol; (2)promise to exercise significant control or provide significant assistance in the operation of the business; and (3)require a min. payment of at least $540 during the 1st 6 months of operations.

TRUE

7. Allistare & Adele enter into a partnership, but Adele is very concerned about whether she will have limited liability for the acts of the partnership. Limited liability is NOT a feature of general partnerships law. T/F

TRUE *they have Unlimited liability

Antitrust Law Exemption

The Capper-Volstead Act of 1922 exempts normal selling activities of farmers' & dairy farmers' cooperatives if cooperatives do NOT conspire with outsiders to fix prices.

Corporations

exist to make profit; created by gov't grant, treated as a natural person. require a corporate structure of shareholders, directors, & officers. *The shareholders,(owners of the business), elect a board of Directors(manage the buz) & employ officers(which are agents of bus & run day-to-day operations).

sole or individual proprietorship

form of business ownership, one owner owner/proprietor is sole worker employ as many others as needed

sets forth the rights btw franchisor & franchisee & franchisee rights to use the trademarks, trade name, trade dress & trade secrets, of the franchisor. Deals with terms for payment of various fees & compliance requirements for quality control. duration of a franchise is a critical element of agreement & generally specific reasons for termination of franchisee are included. Frequently contain an arbitration provision under which a neutral party makes a final & binding determination of whether there has been a breach of contract sufficient to justify cancellation.

franchise agreement

How do both Franchisor & franchisee assume risk?

franchisor assumes some risk to reputation by giving day-to-day control to the franchisee. The franchisee incurs some risk bc it usually has less bargaining power than the franchisor.

Cooperative

group of two or more persons or enterprises that acts through a common agent with a common objective(buying or selling). EX: farmers may pool their farm products & sell them. Consumers may pool their orders & purchase goods in bulk.

Natural Law

imposes higher standards of behavior/conduct than positive law & must be followed even if against codified law. "A law can be legal but unethical"

what type of proprietorship are commonly used in retail stores, service businesses, & agriculture? %%

individual proprietorship. %%

Franchising

is a method of doing business, not a form of business organization.

Positive Law

is enacted & codified by governmental authority. "if an act is legal, then it is moral"

Moral Relativists

make decisions based on circumstances & NOT on any predefined standards. (resolve ethical dilemmas by weighing competing factors in moment & then taking the lesser of evils as the solution)

Stakeholder Analysis

measures the impact of a decision on various groups & then asks if public disclosure of that decision is defensible. (when a decision maker views a problem from different perspectives )

proprietor %

owner (same thing)%

Law firms, medical associations, & architectural & engineering firms may operate under %%

partnership %

Limited Liability Partnership (LLP)

partnership in which at least one partner has a liability limited to the loss of the capital contribution made to the partnership.

Partnership

pooling of capital resources & the business or professional talents of two or more individuals (partners) with goal of making a profit.

Joint Venture

relationship in which two or more persons or firms/entities combine their labor or property for a single undertaking & share profits & losses equally unless otherwise agreed. generally subject to partnership laws.

Federal Law: FTC Franchise Rule

requiring detailed disclosures & prohibiting certain practices. requires a franchisor to give prospective franchisee(PF) a franchise disclosure document (FDD) at least 14 days before PF signs agreement or makes any payment. This ensures sufficient time to review disclosures. does not review the FDD but may file suit against the franchisor for false or misleading statements in the FDD.

NO organizational fees, proprietor/owner controls all decisions & receives all profits, business earnings are ONLY as personal income. these ALL Advantages of what?

sole or individual proprietorship

proprietor/owner has UNLIMITED(100%) personal liability for ALL debts of business. investment capital of business is limited by the owner's resources. authority to make contracts terminates when owner dies, & the business is subject to disintegration. are ALL Disadvantages of what?

sole or individual proprietorship

Plato & Aristotle: Virtue Ethics

solving ethical dilemmas requires training (solve when develop & nurture set of virtues: honesty, justice, & fairness.)

Kant's Categorical Imperative Theory

standard of ethics that requires we avoid one-sided benefit. & everyone must operate under same usage rules.

Incorporated Cooperatives

statutes often provide that any excess of payments over the cost of operation shall be refunded to members in direct proportion to the volume of business that the member has done with the cooperative.

Theory of Justice or social contract

the Locke & Rawlsian standard for ethics that requires we all agree on certain universal principles/ethic standard in advance.

Civil disobedience

the term/remedy used when natural law proponents violate/change positive law.

Utilitarian Theory

theory of ethics: we should do the most good for the most people in making decisions.

When members of a sellers' cooperative agree to sell all products at a common price, the agreement to fix prices is basically an agreement in restraint of trade and a violation of

Antitrust laws

Ethical egoism

Ayn Rand's theory of ethics: we should act in our own self-interest; & only judge ourselves & not interfere with others' exercise of ethical egoism.

4. Freedom from liability to 3rd per dealing with the franchise holder is one of the main reasons that franchisors grant franchises. T/F

TRUE

continues for the time specified in the agreement or until end of transaction/project in the absence of a fixed-duration provision, its terminable at the will of any participant.

Duration of Joint Venture

Rights Theory (entitlement theory)

Nozick's theory of ethics: we all have a set of rights that must be honored & protected by gov't.

allows individuals to pool resources & initiate & conduct their business without the requirement of a formal org. structure. these ALL Advantages of what?

Partnerships, LLPs, & LLCs

unlimited personal liability of each partner & the uncertain duration bc its dissolved by the death of one partner. LLC remedies Unlimited personal liability LLP shields innocent partners from personal liability beyond their investment in firm. are ALL Disadvantages of what?

Partnerships, LLPs, & LLCs

is a federal law that limits a franchisor's ability to terminate or refuse to renew a service station franchise. the franchisee must actually sever its relationship with the franchisor to benefit from the statute's protection. regulates only "the circumstances in which franchisors may terminate a franchise or decline to renew a franchise relationship." allow a franchisee to obtain PMPA relief when a franchisor's conduct did not force the franchisee to end its franchise. Court also stated that the PMPA does not prevent franchisors from responding to market demands by proposing new and different terms at the expiration of a franchise agreement. The Court noted that state law might protect the dealers where the PMPA does not reach.*

Petroleum Marketing Practices Act (PMPA)

10. In an effect to act ethically, you're studied various theories. To Immanuel Kant, an action is ethical if it is fair & done for the right reason. T/F

TRUE

How do both Franchisor & franchisee benefit?

The franchisor is paid thru fees including for trademark, while avoiding the risk & cost of operating stores. The franchisee has an opportunity to run a store independently with "the expertise, goodwill & reputation of the franchisor."

Ethics

a branch of philosophy dealing with values that relate to the nature of human conduct & values associated with that conduct.

Limited Liability Company (LLC)

a partnership for federal tax treatment & the limited liability feature of the corporate form of business organization.

21. You're trying to determine whether a LLC is the right business structure for your new venture. The following statement concerning LLC's are ALL incorrect except: a. income flows through to the members based on their proportionate interests in the company. b. federal income tax is due on its income as an entity. c. All members enjoy unlimited liability. d. No filing is necessary to form a limited liability company.

a. income flows through to the members based on their proportionate interests in the company.

22. Eli Lilly is exploring entering into a joint venture with a pharmaceutical start-up. If they choose a joint venture, it will operate under the same legal principles as other partnerships except : a. joint venture typically involves a single limited purpose. b. joint venture involves capital contributions from all the owners. c. joint venture shares profits & losses. d. joint venture does not require a written agreement.

a. joint venture typically involves a single limited purpose. **rather than a ongoing enterprise

Which form of partnership shields innocent partners from personal liability beyond their investment in firm. a. ALL types of partnerships b. LLPs c. LLCs n. none

b. LLPs

18. The importance of trust as a fundamental principle in capitalism is illustrated by expectations that: a. insider trading proves that the economic system underlying business is flawed. b. investors will be able to earn a return on their investments. c. litigation is inevitable bc parties to agreements usually break promises.

b. investors will be able to earn a return on their investments.

23. You believe that LLC's are like a general partnership bc they can be dissolved by all of the following except: a. by the consent of the members. b. when a derivative suit is filed. c. upon the death of a member. d. upon the expulsion of a member.

b. when a derivative suit is filed.

Business Ethics

balancing the goal of profits with values of individuals & society.

Which form of partnership remedies Unlimited personal liability? a. ALL types of partnerships b. LLPs c. LLCs n. none

c. LLCs

Businesses that respond to social forces & the movements of the cycle of societal interaction often gain a: a. competitive disadvantage b. social advantage c. competitive advantage d. social disadvantage

c. competitive advantage

Unincorporated Association

combo of two or more persons for the furtherance of a common purpose. No particular form of org. is required. Any conduct/agreement indicating attempt to associate or work together for a common purpose is sufficient. authority over its members is Governed by Ordinary Contract Law with NO legal existence apart from the members.(so cannot sue or be sued in own name). Generally, members are NOT liable for the debts or liabilities of the association by the mere fact that they are members. but If either authorization or ratification by a particular member can be shown, that member has unlimited liability for the act.

A franchisor or franchisee could be a... a. sole proprietor, b. partnership or LLC c. corporation d. All of the above.

d. All of the above.

3 principal types of franchises: a. manufacturing or processing franchise: franchisor grants the franchisee authority to manufacture & sell products under the trademark(s). b. Service franchise: franchisee renders a service to customers under the terms of a franchise agreement. c. Distribution franchise: franchisor's products are sold to a franchisee, who then resells to customers in a geographical area. d. All of the following

d. All of the following

ALL of the following are reasons for termination of franchisee except: a. franchisee's death, b. bankruptcy c.failure to make payments, meet sales quotas, or to comply w/ agreement. d. excessive complaints

d. excessive complaints