Bus Law Ch. 36

ZiZi's Pizza, as a franchisor, must disclose certain material facts to prospective franchisees under the: a. FTC's Franchise Rule. b. SEC's Franchise Rule. c. FCC's Franchise Rule. d. DOJ's Franchise Rule.

a. FTC's Franchise Rule.

Rubina convinced Mariah to start a business with her in a partnership rather than a sole proprietorship. The disadvantage of a sole proprietorship that Rubina wants to avoid is: a. bearing the burden of all losses and liabilities. b. being taxed as a limited liability corporation. c. receiving all the profits. d. undertaking limited liabilities.

a. bearing the burden of all losses and liabilities.

Marsha is a sole proprietor of a small quilting shop. She has considered changing her business structure, but she cannot find an alternative structure that would give her the main advantage she enjoys as a sole owner. The major advantage is that she: a. receives all the profits. b. assumes very limited risk. c. is taxed as a corporation. d. receives dividends.

a. receives all the profits.

Jacob and Kristen are parties to a franchise agreement. Jacob is the franchisor and Kristen is the franchisee. Although Kristen's franchise is highly profitable and conforms to the franchise contract, Jacob terminates Kristen's franchise and gives it to his nephew Louis. In most cases, Jacob's action is: a. an act in the ordinary course of business. b. permissible because franchise contracts usually contain "at-will" terms. c. is a violation of federal law. d. likely a wrongful termination.

d. likely a wrongful termination.

Floors R Us, a franchisor, cancels its franchise agreement with Bernardo, the franchisee, without any notice. Floor's action: a. is a violation of federal law. b. is an act in the ordinary course of business. c. is likely a wrongful termination. d. will allow Bernardo a right to reimbursement of his franchise fee.

c. is likely a wrongful termination.

Quentin operates an ice cream franchise which has shops throughout the United States. CoolCream Co., the franchisor, supplies the ingredients and formula so that Quentin can create the ice cream in his store and sell it fresh to customers. This relationship is known as a: a. distributorship. b. chain-style business operation. c. manufacturing or processing-plant arrangement. d. joint development enterprise.

c. manufacturing or processing-plant arrangement

Orville and Perry are negotiating a franchise agreement. Perry, the potential franchisee, asks Orville for information about the franchise. In this case, Orville: a. must disclose all information about the franchise to Perry. b. is required to disclose certain material facts that a prospective franchisee needs in order to make an informed decision concerning the purchase of a franchise. c. is required to disclose specific facts related to the conduct of competitive franchises and the management of historical operations by the franchisor. d. is under no obligation to disclose information to Perry about the franchise.

b. is required to disclose certain material facts that a prospective franchisee needs in order to make an informed

Tina designed a new type of handbag that has proven to be very popular. She begins manufacturing these handbags on a large scale and considers her options for setting up a business to market the bags nationwide. She opts for a distributorship franchise, under which she will: a. grant dealers the right to her trade name. b. license distributors to sell her handbags. c. pay for one half of the franchisee's start-up costs. d. avoid certain taxes and fees.

b. license distributors to sell her handbags.

Carl is negotiating a franchise contract with Frank's Deli, a franchisor and a competitor of McDonald's. Frank's Deli is willing to give Carl 'territorial rights' to Orange County, where Carl will open his franchise. Frank's Deli, however, will not specifically state that the franchise given to Carl is exclusive. The territorial rights clause will most likely: a. not help Carl because Frank's Deli has the power to open any franchise it wishes by law regardless of any contract terms. b. not help Carl keep out other franchises because the territorial rights are not exclusive. c. help Carl keep additional Frank's Deli franchises from entering Orange County. d. help Carl keep additional McDonald's franchises from entering Orange County.

b. not help Carl keep out other franchises because the territorial rights are not exclusive.

Francine is interested in starting a new financial services company where she will manage the investments of others. She wants to generate her own funding as well as lead the business once it gets started. Francine will assume all risks and rewards of the new enterprise. Francine would be considered an entrepreneur because she is: a. someone who can expertly manage other people's investments. b. someone who initiates and assumes the financial risk of a new business enterprise. c. a person who can grow a business quickly. d. a person who knows how to evaluate which stocks to purchase.

b. someone who initiates and assumes the financial risk of a new business enterprise.

Preston wants to be his own boss and is considering starting a business. He has to decide which form of business organization to adopt and will most likely consider all of the following except: a. his need for start-up capital. b. tax issues. c. publicity and public relations. d. the various types of liability to which owners are subject.

c. publicity and public relations.

Mack is negotiating a franchise agreement with BigCo. The parties are discussing payment terms. Generally, payment is structured in a franchise agreement as follows: a. the franchisee receives a stated percentage of the annual, or monthly, sales or volume of business done by the franchisor. b. the franchisor pays the franchisee for the use of the franchisee's physical facilities, with periodic payments based on sales. c. the franchisor receives a stated percentage of the annual, or monthly, sales or volume of business done by the franchisee. d. the franchisee makes a single large payment to purchase the franchise and no subsequent payments.

c. the franchisor receives a stated percentage of the annual, or monthly, sales or volume of business done by the franchisee.

Norman is a franchisee of MegaFurnishings, a furniture store. Norman breaches the franchise agreement. The contract states that the franchisee, Norman, must be given notice of termination, but does not specify a time for termination in the agreement. In this case, MegaFurnishings must give: a. no time for termination at all, as the contract is silent. b. fourteen days to terminate, pursuant to federal franchise law. c. the opportunity to Norman to specify a termination period as Norman chooses. d. a reasonable time, with notice, to wind up the business.

d. a reasonable time, with notice, to wind up the business.

Madeline very much wants to be a franchisee of BurgerBarn, a popular chain-style business operation. BurgerBarn shows Madeline the franchise contract, which includes the requirement that all franchisees obtain materials and supplies exclusively from BurgerBarn. Madeline objects to this provision. This contract term is: a. unenforceable because it violates antitrust laws. b. enforceable because franchisees cannot negotiate contract terms with franchisors. c. unenforceable because it violates the Federal Trade Commission's (FTC's) Franchise Rule. d. enforceable because franchisors are permitted to require franchisees to obtain materials and supplies only from them

d. enforceable because franchisors are permitted to require franchisees to obtain materials and supplies only from them

Yen grants his cousin, Art, a franchise in Yen's sandwich shop. Yen writes the agreement so that he controls every detail of Art's shop, such that it is exactly the same as Yen's original shop. Yen even consults with Art about hiring employees and safety practices. One of Art's employees fails to clean up a spill and a customer is injured. The customer sues Yen. In this case, Yen: a. will not be liable because it is Art's sandwich shop. b. will not be liable because Yen is the franchisor, not the franchisee. c. will be liable because of res ipsa loquitur. d. risks liability under the doctrine of respondeat superior.

d. risks liability under the doctrine of respondeat superior.