BLaw 2 - Ch. 40 Quiz

A​ _____ is an arrangement in which two or more business entities combine their resources to pursue a single project or transaction.

joint venture

​Today, more than​ _____ franchise outlets in the United States account from more than​ _____ percent of retail sales and about​ _____ percent of the gross domestic product.

700,000; 25; 15

Which of the following is a correct statement regarding the liability of joint venturers for the debts and obligations of the joint venture​ corporation?

Joint venturers are liable for the debts and obligations of the joint venture corporation only up to their capital contributions to the joint venture corporation.

The​ _____ is a uniform disclosure document that requires a franchisor to make specific​ pre-sale disclosures to prospective franchisees.

UFOC

In​ a(n) _____​ franchise, the franchisor provides a secret​ formula, or the​ like, to the franchisee. The franchisee then manufactures the product at its own location and distributes it to retail dealers.

processing plant

The​ _____ is the party who is granted the franchise and license in a franchise agreement.

franchisee

The​ _____ is the party who grants the franchise and license in a franchise agreement.

franchisor

The​ _____ is the federal government agency that is empowered to enforce federal franchising rules.

Federal Trade Commission (FTC)

Which of the following is an INCORRECT statement regarding breach of the franchise​ agreement?

A lawful franchise agreement is an enforceable employment contract between the franchisor and the franchisee. Correct: - In a successful wrongful termination​ lawsuit, the franchisee can recover damages cause by the wrongful termination and recover the franchise. - If the franchise agreement is​ breached, the aggrieved party can sue the breaching party for rescission of the​ agreement, restitution, and damages. - Each party to a franchise agreement owes a duty to adhere to and perform under the terms of the agreement. - If a franchisor terminates a franchise agreement without just​ cause, the franchisee can sue the franchisor for wrongful termination.

Which of the following is NOT an advantage to​ franchising?

For the​ franchisee, there are no​ start-up expenses. Advantages: - Consumers are assured of uniform product quality. - The franchisee has access to the​ franchisor's resources while running an independent business. - The franchisor can reach lucrative new markets. - The franchisee has access to the​ franchisor's knowledge while running an independent business.

Which of the following is NOT true about franchise​ agreements?

Franchisors may not license or disclose their trade secrets to franchisees. True: - Most franchisors license the use of their trade​ names, trademarks, and service marks to their franchisees. - Franchisors license and disclose many of their trade secrets to franchisees. - Franchisors are often owners of trade​ secrets, including product​ formulas, business plans and​ models, and other ideas. - A​ franchisor's ability to maintain the​ public's perception of the quality of the goods and services associated with its trade​ name, trademarks, and service marks is the essence of its success.

Which of the following is an INCORRECT statement regarding the termination of a​ franchise?

Most franchise agreements permit a franchisor to terminate the franchise at will. Correct: - The continued failure of a franchisee to meet legitimate​ quality-control standards is just cause for termination of the franchise. - Most franchise agreements permit a franchisor to terminate the franchise for cause. - Unreasonably strict application of a just cause termination clause constitutes wrongful termination of a franchise. - The continued failure of a franchisee to pay franchise fees is just cause for termination of the franchise.

Which of the following is an INCORRECT statement regarding franchise​ agreements?

Most states enforce both oral and written franchise agreements. Correct: - A prospective franchisee must apply to the franchisor for a franchise. - Franchisors license and disclose many of their trade secrets to franchisees. - Most franchisors license the use of their trade​ names, trademarks, and service marks to their franchisees. - Generally, the franchise agreement is a​ standard-form contract prepared by the franchisor.

A new natural gas field is discovered in northern Canada. Two natural gas​ companies, Small Gas Corporation and Tiny Gas​ Corporation, would each like to drill for natural gas​ there, but neither one has sufficient resources to do so alone. Small Gas Corporation and Tiny Gas Corporation form a third​ corporation, called Big Gas​ Corporation, to operate a joint venture. Small Gas and Tiny Gas each contribute​ $100 million capital to Big Gas​ Corporation, and each becomes a shareholder of Big Gas Corporation. If the joint venture fails and Big Gas Corporation owes​ $1 billion to its​ creditors, which it cannot​ pay, _______.

Small Gas and Tiny Gas are each responsible for the joint​ venture's unpaid debts and obligations

A new natural gas field is discovered in northern Canada. Two natural gas​ companies, Small Gas Corporation and Tiny Gas​ Corporation, would each like to drill for natural gas​ there, but neither one has sufficient resources to do so alone. They join together to form a joint venture​ partnership, and each contributes​ $100 million capital to the joint venture. If the joint venture fails and the joint venture owes​ $1 billion to its​ creditors, which it cannot​ pay, _______.

Small Gas and Tiny Gas are each responsible for the joint​ venture's unpaid debts and obligations

Which of the following is an INCORRECT statement regarding a strategic​ alliance?

Strategic alliances have the same protection as mergers. Correct: - Sometimes strategic alliances are dismantled. - Strategic alliances do not have the same protection as franchising. - A strategic alliance allows companies to reduce​ risks, share​ costs, combine​ technologies, and extend their markets. - Companies often enter into strategic alliances when they decide to expand internationally into foreign countries.

​_________________ do not have the same protection as​ mergers, ____________, or​ franchising, and sometimes they are dismantled. Consideration must always be given to the fact that a​ __________________ is also a​ ____________________.

Strategic​ alliances; joint​ ventures; strategic alliance​ partner; future potential competitor

Which of the following is an INCORRECT statement regarding the Uniform Franchise Offering Circular​ (UFOC)?

The UFOC satisfies the​ FTC, but not state regulations. Correct: - State laws require a franchisor to make specific presale disclosures to prospective franchisees. - The UFOC require a franchisor to make specific presale disclosures to prospective franchisees. - Information that must be disclosed includes balance sheets and income statements of the franchisor for the preceding three years. - Information that must be disclosed includes any restrictions on the​ franchisee's territory.

Which of the following is an INCORRECT statement regarding the liability of the franchisor and​ franchisee?

The franchisor deals with the franchisee as an employee. Correct: ​- Generally, neither the franchisor nor the franchisee is liable for the contracts or torts of the other. - Franchisees are liable for their own contracts and torts. - Franchisors are liable for their own contracts and torts. - If a franchise is properly organized and​ operated, the franchisor and franchisee are separate legal entities.

Which of the following is an INCORRECT statement regarding a joint venture​ corporation?

The joint venturers are employees of the joint venture corporation. Correct: - The joint venturers are liable for the debts and obligations of the joint venture corporation only up to their capital contributions to the joint venture corporation - In pursuing a joint​ venture, joint venturers often form a corporation to operate the joint venture. - The joint venture corporation is liable for its debts and obligations. - A joint venture corporation is owned by two or more joint venturers that is created to operate a joint venture.

Which of the following is an INCORRECT statement regarding a joint​ venture?

The parties to a joint venture are called the employer and the employee. Correct: - Unless otherwise​ agreed, joint venturers have equal rights to manage a joint venture. - A joint venture is an arrangement in which two or more business entities combine their resources to pursue a single project or transaction. - Joint venturers owe each other the fiduciary duties of loyalty and care. - Joint ventures resemble​ partnerships, except that partnerships are usually formed to pursue ongoing business operations rather than to focus on a single project or transaction.

The FTC franchise rule states that if a franchisor makes sales or earnings projections based on hypothetical​ examples, the franchisor must disclose all EXCEPT which of the​ following?

a cautionary statement in at least​ 12-point boldface print that​ reads, ​"​Warning: As a​ franchisee, your contributory or comparative negligence may prevent you from achieving such results. If​ so, you are hereby prohibited from suing the franchisor for breach of the franchise agreement.​" States: - a cautionary statement in at least​ 12-point boldface print 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 well.​" - the percentage of actual franchises that have obtained such results - the assumptions underlying the estimates - the number of actual franchises that have obtained such results

​A(n)_____ agency is created when a franchisor leads a third person into believing that the franchisee is its agent.

apparant

In​ a(n) _____​ franchise, the franchisor authorizes the franchisee to negotiate and sell franchises on behalf of the franchisor.

area

Suppose that​ McDougal's Corporation, a​ fast-food restaurant​ franchisor, grants a restaurant franchise to​ O'Leary Corporation.​ O'Leary Corporation opens the franchise restaurant. One​ day, a customer at the franchise spills a chocolate shake on the floor. The employees at the franchise fail to clean up the spilled​ shake, and one hour​ later, another customer slips on the spilled shake and suffers severe physical injuries. The injured customer​ ________.

can recover damages from the​ franchisee, O'Leary​ Corporation, because it was​ negligent, but not the​ franchisor, McDougal's Corporation

In​ a(n) _____​ franchise, the franchisor licenses the franchisee to make and sell its products or services to the public from a retail outlet serving an exclusive geographical territory.

chain-style

In​ a(n) _____​ franchise, the franchisor manufactures a product and licenses a retail dealer to distribute a product to the public.

distributorship

A​ _____ is an arrangement between two or more companies whereby they agree to ally themselves and work together to accomplish a designated objective.

strategic alliance

Which of the following is NOT a basic form of​ franchises?

temporal Basic Forms: - chain-style - area - processing plant - distributorship

Licensing occurs when one business or party that owns​ trademarks, service​ marks, trade​ names, and other intellectual property​ (the _____) contracts to permit another business or party​ (the _____) to use its​ trademarks, services​ marks, trade​ names, and other intellectual property in the distribution of​ goods, services,​ software, and digital information.

​licensor; licensee