Chapter 40

The party who grants a license is known as the ________. licensee licensor grantor grantee

licensor

The ________ is a uniform disclosure document that requires a franchisor to make specific presale disclosures to prospective franchisees. UFOC SEA UCITA UCC

UFOC

Where should the Federal Trade Commission (FTC) franchise notice appear? in the licensing agreement between the franchisor and franchisee on the cover of a franchisor's required disclosure statement as a separate clause in the franchise agreement on the cover of a franchisee's required disclosure statement

on the cover of a franchisor's required disclosure statement

Which of the following does the Federal Trade Commission (FTC) franchise rule require from franchisors? statement to fully finance the infrastructure necessary to bring the franchisee to the franchisor's standard registration of the disclosure document with the FTC before it is used disclosure of license agreement made with franchisee that lets the franchisee use the franchisor's service mark full presale disclosures to prospective franchisees nationwide

full presale disclosures to prospective franchisees nationwide

A joint venture is an arrangement in which two or more business entities combine their resources to pursue an ongoing business operation. T/F

False

A royalty fee is an amount paid by the franchisor to the franchisee for the continuous use of its trademarks and maintenance of quality. T/F

False

A single failure by a franchisee to meet a quality-control standard is sufficient cause for termination. T/F

False

Apparent agency arises when a franchisee creates the appearance of being a franchisor's agent when in fact an actual agency does not exist. T/F

False

Joint venturers do not owe each other fiduciary duties of loyalty and care as they are not bound by a contract. T/F

False

Which of the following is an instance of an area franchise? Burger King wants to start operating in Mexico and hires a Mexican subfranchisor to sell the franchise on behalf of Burger King. PepsiCo Inc. ships Pepsi in the form of a drink concentrate which is prepared and bottled locally in Canada. McDonald's franchises an independently owned restaurant to make and sell its products in Pennsylvania. Nokia licenses a retail dealer to retail its products in Jacksonville.

Burger King wants to start operating in Mexico and hires a Mexican subfranchisor to sell the franchise on behalf of Burger King.

A distributorship franchisee is called a subfranchisor. T/F

False

A franchisee subject to wrongful termination can only recover damages, and not the franchise. T/F

False

A franchisor that makes sales or earnings projections based on hypothetical examples need not disclose the assumptions underlying the estimates. T/F

False

Joint venturers are permitted to create a corporation that operates the joint venture. T/F

True

The Uniform Franchise Offering Circular (UFOC) refers to a uniform disclosure document that requires a franchisor to make specific presale disclosures to prospective franchisees. T/F

True

In a(n) ________ franchise, the franchisor authorizes the franchisee to negotiate and sell franchises on behalf of the franchisor. distributorship chain-style processing plant area

area

Rio-Werner Corporation owns Rio's Sandwiches, a fast-food restaurant in New Jersey. It wants to operate in five cities on the west coast by means of franchisees which make and sell all menu items from Rio's Sandwiches. Which of the following would best suit Rio-Werner Corporation's franchise plan? processing plant distributorship area chain-style

chain-style

A franchisor discloses a cautionary statement that reads, "Caution: These figures are only estimates of what we think you may earn. There is no assurance you'll do as well. If you rely upon our figures, you must accept the risk of not doing so well." This is an instance of ________. nondisclosure of sales or earnings projections disclosure of earning projections based on actual data disclosure of earning projections based on hypothetical data fraudulent disclosure by the franchisor

disclosure of earning projections based on hypothetical data

In a(n) ________ franchise, the franchisor manufactures a product and licenses a retail dealer to sell the product to the public. processing plant area chain-style distributorship

distributorship

Which of the following federal agencies is empowered to enforce federal franchising rules? the Federal Communications Commission (FCC). the Commodity Futures Trading Commission (CFTC). the Securities and Exchange Commission (SEC). the Federal Trade Commission (FTC).

the Federal Trade Commission (FTC).