Law: Chapter 40

​The Petroleum Marketing Practices Act gives gas station __________ the opportunity to continue in business by purchasing the entire premises used in selling motor fuel when the franchisor decides to sell the property and not renew a lease. (A) franchisees (B) licensors (C) joint venturers (D) partners

(A) franchisees

Who serve as agents of the corporation and run the "day-to-day" operations of the business? (A) ​officers (B) directors (C) shareholders (D) employees

(A) ​officers

An owner's death would have no effect on any of the business entities below, except: ______. (A) ​a partnership (B) a corporation (C) a sole proprietorship (D) joint venture

(B) a corporation

​Theoretically, the relationship between a franchisor and a franchisee is one of: ______. (A) parent and subsidiary. (B) an "arm's-length" relationship between two (2) independent contractors. (C) an "arm's-length" relationship between two (2) partners. (D) an "arm's-length" relationship between two (2) joint tenants.

(B) an "arm's-length" relationship between two (2) independent contractors.

The government's permission is required to create: ______. (A) ​sole proprietorships. (B) corporations. (C) partnerships. (D) unincorporated associations.

(B) corporations.

​Holders of automobile dealership franchises are protected from bad faith termination of their dealerships by the: ______. (A) Sherman Antitrust Act. (B) Robinson-Patman Franchise Act. (C) Automobile Dealers' Day in Court Act. (D) Franchise Holder Protection Act.

(C) Automobile Dealers' Day in Court Act.

​A parents' group in a small town formed an association to run a little league baseball team. Tom and Mary were members of the association, which was never incorporated. Tom was elected president of the association and ordered some uniforms for the team. When the uniforms were not paid for, the baseball supply company sued Tom and Mary for the contract price. Regarding the liability of Mary: ______. (A) ​Mary is liable because she is a member of an unincorporated association. (B) Mary is not liable because members of an unincorporated association have no personal liability. (C) Mary is liable if she authorized or ratified the purchase. (D) Mary is liable but only for 50% of the outstanding debt.

(C) Mary is liable if she authorized or ratified the purchase.

​The people in a corporation responsible for the management of the business are the: ______. (A) ​partners. (B) shareholders. (C) board of directors. (D) licensees.

(C) board of directors.

​Normally in a franchise operation: ______. (A) both the franchiser and the franchisee will be liable to third persons for contracts that are breached by the franchisee. (B) only the franchisor will be liable to third persons for contracts that are breached by the franchisee. (C) only the franchisee will be liable to third persons for contracts that are breached by the franchisee. (D) neither the franchisor nor the franchisee will be liable to third persons for contracts that are breached by the franchisee.

(C) only the franchisee will be liable to third persons for contracts that are breached by the franchisee.

​To protect themselves against liability, franchisors often require individual franchisees to: ______. (A) take out fraud insurance. (B) register with the attorney general. (C) publicly disclose their own separate business identities. (D) disavow any connection with the franchisor.

(C) publicly disclose their own separate business identities.

A major disadvantage of the sole proprietorship is: ______. (A) ​no organizational fees. (B) the sole proprietor obtains all of the profits. (C) the sole proprietor is personally liable for the debts of the sole proprietorship. (D) the sole proprietor is free to make all business decisions concerning operation of the sole proprietorship.

(C) the sole proprietor is personally liable for the debts of the sole proprietorship.

​A rule requiring that a franchisor provide a disclosure statement to all prospective franchisees was adopted by the: ______. (A) ​UCC. (B) ​Franchise Tax Board. (C) Securities and Exchange Commission. (D) Federal Trade Commission.

(D) Federal Trade Commission.

An unincorporated association (UA) possess all of the following characteristics, except: _______. (A) a UA cannot sue in its own name. (B) a UA cannot be sued in its own name. (C) a UA does not have any legal existence apart from the members who compose it. (D) a UA requires legal filings with a public authority.

(D) a UA requires legal filings with a public authority.

​Most courts hold that joint ventures operate under the same legal principles as partnerships except: ______. (A) ​a joint venture shares profits and losses. (B) a joint venture involves capital contributions from all the owners. (C) a joint venture does not require a written agreement. (D) a joint venture typically involves a single limited purpose.

(D) a joint venture typically involves a single limited purpose.

An arrangement in which the owner of a trademark licenses others, under specified conditions or limitations, to use the trademark in purveying goods or services is a(n): ______. (A) ​corporation. (B) limited partnership. (C) unincorporated association. (D) franchise.

(D) franchise.

The principal forms of business organization are: ______. (A) ​sole proprietorships, joint ventures, and corporations. (B) unincorporated associations, partnerships, and corporations. (C) unincorporated associations, limited partnerships, and corporations. (D) sole proprietorships, partnerships, and corporations.

(D) sole proprietorships, partnerships, and corporations.

​A business that complies with FTC franchise requirements meets all of the following criteria except: ______. (A) the franchisor must promise to provide a trademark or other commercial symbol. (B) the franchisor must promise to exercise significant control or provide significant assistance in the operation of the business; any current and past litigation against the franchisor. (C) the franchise must require a minimum payment of at least $540 during the first six months of operations. (D) the franchise must require a minimum payment of at least $5,400 during the first six months of operations.

(D) the franchise must require a minimum payment of at least $5,400 during the first six months of operations.

A sole proprietorship is taxed: _______. (A) ​on a personal level. (B) only on the corporate level. (C) on both a personal and a corporate level. (D) like a partnership.

A) ​on a personal level.

A corporation has perpetual life, until one of its shareholder dies.

False

A corporation must have at least two shareholders.

False

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

False

A joint venture manufacturing agreement gives the manufacturer authority to manufacture products under a proprietary trademark.

False

A partnership is not dissolved by the death of a partner.

False

A sole proprietor must file a certificate with the state and pay a single organizational fee.

False

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.

False

The relationship between the franchisor and the franchisee is ordinarily an arm's-length employment relationship.

False

A corporation is a separate legal entity capable of owning property, contracting, and being sued in its own name.

True

A franchisee cannot be a corporation.

True

A joint venture typically relates to the carrying out of a single enterprise or transaction.

True

A limited liability company is treated like a partnership under federal tax law and has the limited liability feature of corporations.

True

A sole proprietor is subject to unlimited personal liability for the debts of the business.

True

Business corporations exist to make a profit.

True

Corporations are subject to a form of double taxation.

True

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.

True

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.

True

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

True

Generally, the members of an unincorporated association are not liable for the debts of the association by the mere fact that they are members.

True

If Farmer Bill and Farmer Sue decide to pool their farm products and sell them, they have probably created a cooperative.

True

If the negligence of the franchisee causes harm to a third person, the franchisor is not liable because the franchisee is an independent contractor.

True

In the event a joint venture is sued, the negligence of one joint venturer will be imputed to the other venturers.

True

Partnership agreements allow individuals to conduct their business without the requirement of a formal organizational structure.

True

The process of incorporation involves the expenditure of funds for organizational expenses.

True

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.

True

In a joint venture, the parties: ______. (A) combine their labor or property for a single undertaking and share profits and losses equally. (B) combine their labor or property for a continuing business and share profits and losses equally. (C) assume no personal liability beyond the risk of losing their initial investment. (D) have unlimited personal liability for debts of the venture.

(A) combine their labor or property for a single undertaking and share profits and losses equally.

A(n) _______ allows the owners to be taxed like a partnership but with limited liability. (A) ​corporation. (B) franchise. (C) limited liability company. (D) joint venture.

C) limited liability company.

Joe and Carol decide to create Sweet Gardens, an unincorporated association for grow a community garden. If someone is injured from food grown at Sweet Gardens, they can sue Sweet Gardens directly.

False

Most courts hold that joint ventures are subject to the same principles of law as corporations.

False

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.

False

The death of a majority shareholder terminates a corporate enterprise.

False

The major disadvantage to investors in a corporation is nearly unlimited personal liability.

False