Question 1

A franchisor can mandate retail prices for the goods that a franchisee sells.

Accepted Answer

A) True 
 B)False

Question 2

To protect a franchisor's reputation, a franchise contract may provide a degree of control over the franchisee's operation to the franchisor.

Accepted Answer

A) True 
 B)False

Question 3

Made in the USA Clothing Inc. gives notice to Neely that it is terminating their franchise arrangement. Winding up the business requires

Accepted Answer

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.E) A) and D)
F) None of the above

Question 4

Mucho Tacos, Inc., sells franchises. Mucho Tacos imposes on its franchisees standards of operation and personnel training methods. What is the potential pitfall to Mucho Tacos if it exercises too much control over its franchisees?

Accepted Answer

A provision in a franchise agreement permitting the franchisor to establish and enforce certain quality standards is valid and unquestionable. A franchisor has a legitimate interest in maintaining the quality of its products or services to protect its name and reputation.
But too much control over the operations of its franchisees risks potential liability. For example, under the doctrine of respondeat superior, the exercise of too much control may result in the franchisor's liability for the torts of a franchisee's employees. That is, if the franchisor has a right to control the franchisee's operations and exercises this right to a significant degree, and an employee under this control acts in a tortious or criminal manner that results in an injury to another, the franchisor may be held vicariously liable.

Question 5

To maintain the quality of a product or service, a franchisor can exercise any degree of control over a franchisee's operation without risking potential liability.

Accepted Answer

A) True 
 B)False

Question 6

Limited legal liability can be an advantage for a small business wishing to raise capital.

Accepted Answer

A) True 
 B)False

Question 7

Juice Inc. offers entrepreneurs the opportunity to operate a franchise under the Juice trade name as a member of a group of dealers that engage in retail beverage sales. To prospective franchisees, Juice must disclose

Accepted Answer

A)   the range of goods and services included.
B)   the value of the franchise.
C)   the estimated profitability of the franchise.
D)   all of the choices.E) B) and C)
F) C) and D)

Question 8

The law considers all new businesses to be sole proprietorships.

Accepted Answer

A) True 
 B)False

Question 9

Carl starts up, and assumes the financial risk of, DataWorks, a new marketing enterprise. As a sole proprietorship, the enterprise must meet legal requirements relating to

Accepted Answer

A)   none of the choices.
B)   licensing and registration.
C)   intellectual property laws.
D)   all of the choices.E) B) and D)
F) A) and D)

Question 10

When the owner of a sole proprietorship dies, the business does not dissolve-it is automatically transferred to family members or other heirs.

Accepted Answer

A) True 
 B)False

Question 11

Gary buys from Hook, Line & Sinker Corporation the exclusive right to sell its trademarked fishing gear in a certain area. Their franchise agreement requires Gary to pay certain administrative expenses. Their agreement may also require the franchisee to pay a percentage of the franchisor's

Accepted Answer

A)   advertising costs.
B)   personal expenses.
C)   retirement income.
D)   all of the choices.E) A) and C)
F) B) and C)

Question 12

Bev owns and operates City Delivery Service as a sole proprietorship. When she dies, the business will automatically

Accepted Answer

A)   dissolve.
B)   transfer to Bev's heirs.
C)   reform with its employees as the owners.
D)   transfer to its creditors.E) B) and D)
F) B) and C)

Question 13

Because a franchisor's termination of a franchise can adversely affect a franchisee, much franchise litigation involves claims of wrongful termination.

Accepted Answer

A) True 
 B)False

Question 14

Spicy Sauces, Inc., and Tom's Bottling Plant have a manufacturing franchise arrangement. This involves the transfer of

Accepted Answer

A)   a license.
B)   a trade name.
C)   the formula to make a certain product.
D)   the ownership of the business.E) A) and C)
F) C) and D)

Question 15

Donuts Whole Inc. offers an entrepreneur the opportunity to operate a franchise bakery under the Donuts Whole trade name. Before a franchise contract is signed, Donuts Whole must explain

Accepted Answer

A)   the contract's termination provisions.
B)   the nature and operation of a franchise.
C)   the laws governing franchising.
D)   all of the choices.E) None of the above
F) A) and B) A

Question 16

Ruby is interested in buying a franchise from Snax Stores Inc. This transaction, like other franchise deals, is regulated to protect

Accepted Answer

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.E) A) and B)
F) A) and C)

Question 17

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

Accepted Answer

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.E) B) and C)
F) C) and D)

Question 18

The Franchise Rule requires a franchisor to establish and enforce rules with respect to its franchisees.

Accepted Answer

A) True 
 B)False  False

Question 19

Case law governing franchising emphasizes the importance of good faith and fair dealing.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A)   a license.
B)   a trade name.
C)   the formula to make a certain product.
D)   the ownership of the business.E) None of the above
F) A) and B)

Exam 30: Sole Proprietorships and Franchises

A franchisor can mandate retail prices for the goods that a franchisee sells.

Correct Answer
verified

To protect a franchisor's reputation, a franchise contract may provide a degree of control over the franchisee's operation to the franchisor.

Correct Answer
verified

Made in the USA Clothing Inc. gives notice to Neely that it is terminating their franchise arrangement. Winding up the business requires

Correct Answer
verified

Mucho Tacos, Inc., sells franchises. Mucho Tacos imposes on its franchisees standards of operation and personnel training methods. What is the potential pitfall to Mucho Tacos if it exercises too much control over its franchisees?

To maintain the quality of a product or service, a franchisor can exercise any degree of control over a franchisee's operation without risking potential liability.

Correct Answer
verified

Limited legal liability can be an advantage for a small business wishing to raise capital.

Correct Answer
verified

Juice Inc. offers entrepreneurs the opportunity to operate a franchise under the Juice trade name as a member of a group of dealers that engage in retail beverage sales. To prospective franchisees, Juice must disclose

Correct Answer
verified

The law considers all new businesses to be sole proprietorships.

Correct Answer
verified

Carl starts up, and assumes the financial risk of, DataWorks, a new marketing enterprise. As a sole proprietorship, the enterprise must meet legal requirements relating to

Correct Answer
verified

When the owner of a sole proprietorship dies, the business does not dissolve-it is automatically transferred to family members or other heirs.

Correct Answer
verified

Gary buys from Hook, Line & Sinker Corporation the exclusive right to sell its trademarked fishing gear in a certain area. Their franchise agreement requires Gary to pay certain administrative expenses. Their agreement may also require the franchisee to pay a percentage of the franchisor's

Correct Answer
verified

Bev owns and operates City Delivery Service as a sole proprietorship. When she dies, the business will automatically

Correct Answer
verified

Because a franchisor's termination of a franchise can adversely affect a franchisee, much franchise litigation involves claims of wrongful termination.

Correct Answer
verified

Spicy Sauces, Inc., and Tom's Bottling Plant have a manufacturing franchise arrangement. This involves the transfer of

Correct Answer
verified

Donuts Whole Inc. offers an entrepreneur the opportunity to operate a franchise bakery under the Donuts Whole trade name. Before a franchise contract is signed, Donuts Whole must explain

Correct Answer
verified
A

Ruby is interested in buying a franchise from Snax Stores Inc. This transaction, like other franchise deals, is regulated to protect

Correct Answer
verified

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

Correct Answer
verified

The Franchise Rule requires a franchisor to establish and enforce rules with respect to its franchisees.

Correct Answer
verified
False

Case law governing franchising emphasizes the importance of good faith and fair dealing.

Correct Answer
verified

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

Correct Answer
verified

Exam 30: Sole Proprietorships and Franchises

A franchisor can mandate retail prices for the goods that a franchisee sells.

Correct AnswerverifiedShow Answer

To protect a franchisor's reputation, a franchise contract may provide a degree of control over the franchisee's operation to the franchisor.

Correct AnswerverifiedShow Answer

Made in the USA Clothing Inc. gives notice to Neely that it is terminating their franchise arrangement. Winding up the business requires

Correct AnswerverifiedShow Answer

Mucho Tacos, Inc., sells franchises. Mucho Tacos imposes on its franchisees standards of operation and personnel training methods. What is the potential pitfall to Mucho Tacos if it exercises too much control over its franchisees?

To maintain the quality of a product or service, a franchisor can exercise any degree of control over a franchisee's operation without risking potential liability.

Correct AnswerverifiedShow Answer

Limited legal liability can be an advantage for a small business wishing to raise capital.

Correct AnswerverifiedShow Answer

Juice Inc. offers entrepreneurs the opportunity to operate a franchise under the Juice trade name as a member of a group of dealers that engage in retail beverage sales. To prospective franchisees, Juice must disclose

Correct AnswerverifiedShow Answer

The law considers all new businesses to be sole proprietorships.

Correct AnswerverifiedShow Answer

Carl starts up, and assumes the financial risk of, DataWorks, a new marketing enterprise. As a sole proprietorship, the enterprise must meet legal requirements relating to

Correct AnswerverifiedShow Answer

When the owner of a sole proprietorship dies, the business does not dissolve-it is automatically transferred to family members or other heirs.

Correct AnswerverifiedShow Answer

Gary buys from Hook, Line & Sinker Corporation the exclusive right to sell its trademarked fishing gear in a certain area. Their franchise agreement requires Gary to pay certain administrative expenses. Their agreement may also require the franchisee to pay a percentage of the franchisor's

Correct AnswerverifiedShow Answer

Bev owns and operates City Delivery Service as a sole proprietorship. When she dies, the business will automatically

Correct AnswerverifiedShow Answer

Because a franchisor's termination of a franchise can adversely affect a franchisee, much franchise litigation involves claims of wrongful termination.

Correct AnswerverifiedShow Answer

Spicy Sauces, Inc., and Tom's Bottling Plant have a manufacturing franchise arrangement. This involves the transfer of

Correct AnswerverifiedShow Answer

Donuts Whole Inc. offers an entrepreneur the opportunity to operate a franchise bakery under the Donuts Whole trade name. Before a franchise contract is signed, Donuts Whole must explain

Correct AnswerverifiedA

Ruby is interested in buying a franchise from Snax Stores Inc. This transaction, like other franchise deals, is regulated to protect

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The Franchise Rule requires a franchisor to establish and enforce rules with respect to its franchisees.

Correct AnswerverifiedFalse

Case law governing franchising emphasizes the importance of good faith and fair dealing.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
False

Correct Answer
verified

Correct Answer
verified