Chapter 36 - Key Terms and Concepts

Sole proprietorship

- the simplest form of business - the owner is the business - anyone who does business without creating a separate business organization

List the 3 types of Franchises

1. Distributorship 2. Chain-style Business Operation 3. Manufacturing Arrangement

List a major disadvantage of a sole proprietorship

1. the proprietor alone bears the burden of any losses or liabilities incurred by the business enterprise 2. sole proprietor has unlimited liability, or legal responsibility, for all business obligations

An example of a distributorship franchise would be:

A Honda Dealership

A local Taco Bell restaurant is an example of which kind of franchise?

A chain-style business operation.

If a franchisor requires a franchisee to purchase all of its supplies and materials exclusively from the franchisor, what legal problem could arise?

An antitrust problem.

Which type of law PRIMARILY governs franchises?

Contract law.

A significant issue raised by Internet commerce with respect to franchising has to do with which aspect of traditional franchising arrangements?

Exclusive territorial rights.

In the case of Miller v. D.F. Zee's Inc., involving a Denny's restaurant, which legal theory was at issue?

The agency theory of vicarious liability.

Who typically controls the day-to-day operations of a franchise?

The franchisee.

Generally speaking, how do parties to a franchise contract determine which territory is to be served by the franchisee?

The franchisor decides.

The case of Bixby's Food Systems, Inc. v. McKay involved:

a franchisee's claims against a franchisor under a state franchise disclosure law.

Franchisee

a purchaser of a franchise; legally independent of the franchisor

If a franchisor exercises too much control over the operations of its franchisee, it may incur liability under:

agency law.

Franchise

an arrangement in which the owner of a trademark, a trade name, or a copyright licenses others to use the trademark, trade name, or copyright in the selling of goods/services

If no set time is given in a franchise agreement for winding up a franchisee's business, a franchisee:

must be given a reasonable time to wind up the business.

It is common for a first-time franchise agreement to state that the franchise will last for:

one year.

With respect to payment for a franchise, the franchisee normally:

pays an initial fee or a lump-sum price for the franchise license.

If a court determines that a franchisor has arbitrarily or unfairly terminated a franchise:

the franchisee will be provided with a remedy for wrongful termination.

In the case of General Motors v. Monte Zinn Chevrolet Co., the issue had to do with whether:

the franchisors had good cause to terminate the Zinn companies' franchises.

Franchisor

the seller of the franchise

One of the reasons why state governments and the federal government have passed statutes to regulate franchises is:

to protect prospective franchisees from dishonest franchisors and franchise termination without good cause.