Ch. 16
12. If no fixed duration of the partnership is specified, the partnership is a partnership at will, which means that it cannot be dissolved.
False
14. A partner's devoting time, energy, and skill to partnership business is a compensable service.
False
15. In a general partnership, the senior partner manages the partnership.
False
20. A partnership is forced to terminate every time a partner dissociates from the firm.
False
27. A franchisee is generally economically independent of the franchisor's integrated business system.
False
3. Any business—except a sole proprietorship—must comply with business registration and licensing requirements.
False
31. The laws governing franchising are primarily designed to protect franchisors from dishonest franchisees.
False
32. A franchisor can mandate retail prices for the goods that a franchisee sells.
False
33. Some states require the termination of a franchise when there is no "good cause" for it to continue.
False
6. The law considers all new businesses to be sole proprietorships regardless of the number of owners.
False
7. A sole proprietorship offers less flexibility than does a partnership or a corporation.
False
8. The intent to associate is irrelevant in terms of the elements of a partnership.
False
9. Most states treat a partnership as an aggregate for most purposes.
False
1. In choosing a form of business organization for a new enterprise, important factors include tax considerations.
True
10. A majority of the states treat a partnership as an entity for most purposes.
True
11. With respect to taxes, a partnership is a pass-through entity.
True
13. A partner has a duty to devote time, skill and energy on behalf of the partnership business.
True
16. In a general partnership, the acts of one partner in the ordinary course of business can subject the other partners to personal liability.
True
17. A partner always has the power to dissociate from the partnership.
True
18. A partner may not have the right to dissociate from the partnership.
True
19. Withdrawal from a partnership before the end of its express term constitutes a breach of the partnership agreement.
True
2. Limited legal liability generally is necessary for small businesses that wish to raise outside capital.
True
21. For two years after a partner dissociates from a continuing partnership, the partnership may be bound by the acts of the dissociated partner.
True
22. On dissolution, the creditors of the individual partners can make claims on the partnership's assets.
True
23. In winding up a general partnership, creditors are paid before partners receive their capital contributions.
True
24. The federal government regulates franchising in part through the Franchise Rule.
True
25. State regulation of franchising is often aimed at protecting franchisees from unfair practices.
True
26. State deceptive trade practices acts apply to actions by franchisors.
True
28. The franchise agreement may specify whether the premises for the business must be leased or purchased outright.
True
30. Franchise agreements typically limit the franchisee's ability to sell the franchise to another party.
True
34. Most franchise contracts provide that notice of termination must be given.
True
35. A franchise agreement may allow the franchisee to cure a breach of the franchise agreement within a certain time so as to avoid termination.
True
4. When lending capital to a small business, a bank may require a personal guaranty of its repayment from the owner.
True
5. Any suit against the business or its employees can lead to unlimited personal liability for the owner of a sole proprietorship.
True
60. Champions Corporation licenses the trademarks to its products to Direct Marketing, Inc., to reproduce on caps, sweatshirts, and similar goods for sale. This is a. a franchise. b. none of the choices. c. a business loan. d. a sole proprietorship.
a. a franchise.
59. Haute Dogs, Inc., sells a franchise to Irene's Cuisine, a lunch truck. Irene's Cuisine is a. a franchisee. b. a franchisor. c. a partner. d. a principal.
a. a franchisee.
62. Instead of setting up a business to market her own products, Rita considers entering into a distributorship franchise with Sports Equipment Corporation. This involves the transfer of a. a license. b. a trade name. c. the formula to make a certain product. d. the ownership of the business.
a. a license.
46. Riverside, a general partnership, operates a bait-and-tackle shop. Riverside has five partners. Steve has a one-third interest in the partnership. Each of the other partners has a one-sixth interest. With respect to management decisions a. a majority of the partners must agree. b. Steve rules. c. the senior partner decides. d. four of the partners must agree.
a. a majority of the partners must agree.
57. Craig, Donna, and Eve do business as Fast-Track Career Consultants. Eve's relationship to Fast-Track ends, but the firm continues to do business. This is a. dissociation. b. dissolution. c. most likely illegal. d. unethical.
a. dissociation.
43. Gwen and Hugo do business as Gwen & Hugo Civil Engineers, a partnership. This firm is governed by the Uniform Partnership Act a. in the absence of an express agreement. b. in the absence of an implied agreement. c. only under an express agreement. d. under all circumstances.
a. in the absence of an express agreement.
48. Chet is a partner in Diligent Accounting Service. Chet can inspect Diligent's books and records a. in their entirety. b. only as the firm's management permits. c. only for a reasonable purpose. d. only in relation to Chet's capital contribution.
a. in their entirety.
38. Lee wants to go into the business of architectural design. Among the reasons that might convince Lee to set up his business as a sole proprietorship would be a. its greater organizational flexibility. b. its limited liability. c. its perpetual existence. d. the ease of transferring the business to other family members.
a. its greater organizational flexibility.
68. Big Sandwiches LLC wants to present information in "disclosure documents" via the Internet to prospective franchisees. Among other legal requirements with which the franchisor must comply, prospective franchisees must a. agree to settle any lawsuits that may arise over the documents. b. be able to download or save all electronic documents. c. provide e-mail addresses for the franchisor to verify users' authenticity. d. register with the Federal Trade Commission via the franchisor's Web site.
b. be able to download or save all electronic documents.
67. Digital Wizards, Inc., a franchisor of computer technicians, wishes to standardize the pricing practices of its franchisees because they have engaged in price-cutting to increase their respective shares of the market. The most prudent action might be for Digital Wizards to a. mandate the prices at which its franchisees sell their services. b. suggest the prices at which its franchisees sell their services. c. require its franchisees to pay a premium based on their market share. d. threaten its franchisees with a suit for material breach of contract.
b. suggest the prices at which its franchisees sell their services.
66. Frank enters into an agreement with Grab n' Eat Burgers, Inc., to operate a franchise in Homeville. Later, the franchisor grants franchises to others within the same territory, causing Frank to suffer a significant loss in profits. In Frank's suit against the franchisor, his best argument is that Grab n' Eat a. violated the antitrust laws. b. violated the implied covenant of good faith and fair dealing. c. violated the Federal Trade Commission's Franchise Rule. d. granted Frank the first Grab n' Eat franchise in Homeville.
b. violated the implied covenant of good faith and fair dealing.
61. Cathy buys an exclusive territory in which she is authorized to set up a plant to make Delite Dairy products. After receiving the recipes, Cathy begins making Evie's-brand yogurt and other Delite products. This is a. a chain-style franchise. b. a distributorship franchise. c. a manufacturing franchise. d. not a franchise.
c. a manufacturing franchise.
40. Laura owns and operates Meditation 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. This is most likely a. a partnership. b. a franchise. c. a sole proprietorship. d. none of the choices.
c. a sole proprietorship.
53. Nora and Owen do business as Profit & Property, a real estate investment partnership. In acting on the firm's behalf in a deal with Village Mall, Nora takes advantage of an opportunity to make a secret profit on her own behalf. To her firm, Nora is liable for a. breach of the duty of care. b. breach of contract. c. breach of the duty of loyalty. d. nothing.
c. breach of the duty of loyalty.
58. Kim and Lyle are partners in K&L Sales, which exports technical equipment. If Congress declares that the equipment can no longer be exported, K&L a. can continue its business for one twelve-month period. b. can continue its business indefinitely. c. dissolves immediately unless the partners change its business. d. is immediately subject to criminal prosecution and penalties.
c. dissolves immediately unless the partners change its business.
45. Kay and Linda decide to do business as Marketing & Promotion. To be a partnership, this association can result from an agreement that is a. express, but not implied. b. implied, but not express. c. oral, written, or implied by conduct. d. written, but not oral or implied.
c. oral, written, or implied by conduct.
64. Faye is interested in buying a franchise from Gas n' Snax Stores Inc. This transaction, like other franchise deals, is regulated to protect a. certain types of anticompetitive agreements. b. franchisors from dishonest prospective franchisees. c. prospective franchisees from dishonest franchisors. d. the government's power to restrict freedom of contract.
c. prospective franchisees from dishonest franchisors.
65. Soup Factory, Inc., uses a Web site to provide downloadable information to prospective franchisees. This electronic information is the equivalent of an offer that must comply with a. no law. b. federal antitrust laws. c. the Federal Trade Commission's Franchise Rule. d. the Petroleum Marketing Practices Act.
c. the Federal Trade Commission's Franchise Rule.
69. Pay-Mor Convenience Stores, Inc., is a franchisor. Randy operates a Pay-Mor franchise. Sam is one of Randy's employees. As a franchisor, if Pay-Mor controls the day-to-day operations of the business to a significant degree, it may be liable for tortious acts by a. no one. b. any person on the franchise premises. c. only persons with legitimate reasons to be on the franchise premises. d. Pay-Mor, Randy, or Sam.
d. Pay-Mor, Randy, or Sam
39. Without creating a separate business organization, Roy starts up Sole Savers, a new, pre-owned auto sales enterprise. Roy is a. none of the choices. b. a partner. c. a franchisee. d. a sole proprietor.
d. a sole proprietor.
41. Diane organized, and owns and operates, Reliable Roofing, a construction outfit, in the simplest form of business organization. This is a. a partnership. b. a limited liability company. c. a corporation. d. a sole proprietorship.
d. a sole proprietorship.
42. Bill sells Corner Deli, a sole proprietorship, to Debra. This is a. a franchise. b. not a transfer of ownership without the other owners' approval. c. not a transfer of ownership—a sole proprietorship cannot be transferred. d. a transfer of the ownership of the business.
d. a transfer of the ownership of the business.
36. Carl starts up, and assumes the financial risk of, DataWorks, a new Web marketing enterprise. Carl and DataWorks must meet legal requirements relating to a. business name and state tax registration. b. occupational licensing. c. intellectual property laws. d. all of the choices.
d. all of the choices.
37. Nina, the owner of Organic Farm, a sole proprietorship, wants to obtain additional capital to operate. This can be accomplished by a. a bank loan. b. a Small Business Administration Loan. c. a state grant. d. any of the choices.
d. any of the choices.
47. Quisa and Reilly are partners in Sport Bikes, which rents and sells bikes, bike accessories, and related gear. Quisa manages the business. Unless the partnership agreement states otherwise, Quisa is a. entitled to compensation in proportion to her effect on the business. b. entitled to compensation in proportion to her effort. c. entitled to compensation in proportion to her capital contribution. d. not entitled to compensation.
d. not entitled to compensation.
50. Beth and Connie do business as Diamond Investments. In acting on the firm's behalf, Beth makes an honest error in overestimating the value of a particular stock purchase. To her firm, Beth is a. liable for breach of the duty of care. b. liable for breach of the duty of accounting. c. liable for breach of the duty of loyalty. d. not liable.
d. not liable.
49. Rosa is a partner in Silver Dragon, a partnership consisting of the owners of a restaurant. Silver Dragon incurs debt for new dining tables and chairs. With respect to this debt, Rosa is a. not liable. b. only liable to the amount of her capital contribution. c. only liable in proportion to the number of partners in the firm. d. personally liable to the full extent.
d. personally liable to the full extent.
70. Made in the USA Clothing Inc. gives notice to Neely that it is terminating their franchise arrangement. Winding up the business requires a. a new franchise agreement. b. nothing more than closing immediately. c. Neely's death, disability, or insolvency. d. the return of the franchisor's property.
d. the return of the franchisor's property.
44. Stefani and Tyler agree in an exchange of e-mail to form a partnership to buy and sell real property. Their partnership agreement is legally binding a. only if a copy of the agreement is filed in the appropriate state office. b. only if the agreement is printed in hard copy and signed by the parties. c. only if the parties exchange valid consideration. d. without more.
d. without more.
29. Typically, the franchisee determines the territory to be served by the franchise.
False
63. Spicy Sauces, Inc., and Tom's Bottling Plant have a manufacturing franchise arrangement. This involves the transfer of a. a license. b. a trade name. c. the formula to make a certain product. d. the ownership of the business.
c. the formula to make a certain product.