Question 1

In a sole proprietorship, the proprietor shares the burden of any losses or liabilities incurred by the business enterprise with the government.

Accepted Answer

A) True 
 B)False

Question 2

Any business-except a sole proprietorship-must comply with business registration and licensing requirements.

Accepted Answer

A) True 
 B)False

Question 3

A franchisee is generally economically independent of the franchisor's integrated business system.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A)   ​no law.
B)   ​federal antitrust laws.
C)   ​the Federal Trade Commission's Franchise Rule.
D)   ​the Petroleum Marketing Practices Act.E) A) and B)
F) B) and D)

Question 5

Some states require the termination of a franchise when there is no "good cause" for it to continue.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A)   ​business name and state tax registration.
B)   ​occupational licensing.
C)   ​intellectual property laws.
D)   ​all of the choices.E) None of the above
F) A) and C)

Question 7

A sole proprietor owns the entire business.

Accepted Answer

A) True 
 B)False

Question 8

In determining whether a franchisor acted in good faith when terminating a franchise agreement, a court will attempt to balance the rights of both parties.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

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

Question 10

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) None of the above
F) A) and B)

Question 11

Typically, the franchisee determines the territory to be served by the franchise.

Accepted Answer

A) True 
 B)False

Question 12

In a manufacturing arrangement, a franchisor transmits to a franchisee the essential ingredients or formula to make a particular product.

Accepted Answer

A) True 
 B)False

Question 13

Fact Pattern 36-1​
Jumbo Juice Inc. offers entrepreneurs the opportunity to operate a franchise under the Jumbo Juice trade name as a member of a select group of dealers that engage in retail juice sales.
-Refer to Fact Pattern 36-1. To potential investors, Jumbo 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) A) and B)
F) B) and C)

Question 14

To protect franchisees against arbitrary or bad faith termination, a state law may require certain procedures be followed in terminating a franchise.

Accepted Answer

A) True 
 B)False

Question 15

The franchise agreement is likely to set out standards for the franchise.

Accepted Answer

A) True 
 B)False

Question 16

Savory 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

Accepted Answer

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 Level Fencing to verify users' authenticity.
D)   ​register with the Federal Trade Commission via Level Fencing's Web site.E) A) and B)
F) C) and D)

Question 17

Champions Corporation licenses the trademarks to its products to Direct Marketing, Inc., to reproduce on caps, sweatshirts, and similar goods for sale. This is

Accepted Answer

A)   ​a franchise.
B)   ​none of the choices.
C)   ​a business loan.
D)   ​a sole proprietorship.E) B) and C)
F) A) and B)

Question 18

Franchise agreements typically limit the franchisee's ability to sell the franchise to another party.

Accepted Answer

A) True 
 B)False

Question 19

The validity of a provision permitting the franchisor to establish and enforce certain quality standards is questionable.

Accepted Answer

A) True 
 B)False

Question 20

Paradise Footwear buys a franchise from Quad Shoes Inc. This relationship, like all other franchise relationships, is governed by

Accepted Answer

A)   ​contract law.
B)   ​no law.
C)   ​the Franchise Disclosure Document, or FDD.
D)   ​the Automobile Dealers' Day in Court Act.E) B) and C)
F) All of the above

Exam 36: Small Businesses and Franchises

Savory 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

Correct AnswerverifiedShow Answer

Champions Corporation licenses the trademarks to its products to Direct Marketing, Inc., to reproduce on caps, sweatshirts, and similar goods for sale. This is

Correct AnswerverifiedShow Answer

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

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

Typically, the franchisee determines the territory to be served by the franchise.

Correct AnswerverifiedShow Answer

A sole proprietor owns the entire business.

Correct AnswerverifiedShow Answer

Some states require the termination of a franchise when there is no "good cause" for it to continue.

Correct AnswerverifiedShow Answer

In determining whether a franchisor acted in good faith when terminating a franchise agreement, a court will attempt to balance the rights of both parties.

Correct AnswerverifiedShow Answer

The validity of a provision permitting the franchisor to establish and enforce certain quality standards is questionable.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Fact Pattern 36-1​ Jumbo Juice Inc. offers entrepreneurs the opportunity to operate a franchise under the Jumbo Juice trade name as a member of a select group of dealers that engage in retail juice sales. -Refer to Fact Pattern 36-1. To potential investors, Jumbo Juice must disclose

Correct AnswerverifiedShow Answer

Any business-except a sole proprietorship-must comply with business registration and licensing requirements.

Correct AnswerverifiedShow Answer

In a sole proprietorship, the proprietor shares the burden of any losses or liabilities incurred by the business enterprise with the government.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Paradise Footwear buys a franchise from Quad Shoes Inc. This relationship, like all other franchise relationships, is governed by

Correct AnswerverifiedShow Answer

To protect franchisees against arbitrary or bad faith termination, a state law may require certain procedures be followed in terminating a franchise.

Correct AnswerverifiedShow Answer

A franchisee is generally economically independent of the franchisor's integrated business system.

Correct AnswerverifiedShow Answer

Franchise agreements typically limit the franchisee's ability to sell the franchise to another party.

Correct AnswerverifiedShow Answer

The franchise agreement is likely to set out standards for the franchise.

Correct AnswerverifiedShow Answer

In a manufacturing arrangement, a franchisor transmits to a franchisee the essential ingredients or formula to make a particular product.

Correct AnswerverifiedShow Answer

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Fact Pattern 36-1 Jumbo Juice Inc. offers entrepreneurs the opportunity to operate a franchise under the Jumbo Juice trade name as a member of a select group of dealers that engage in retail juice sales. -Refer to Fact Pattern 36-1. To potential investors, Jumbo Juice must disclose

Correct Answer
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Carl starts up, and assumes the financial risk of, DataWorks, a new Web marketing enterprise. Carl and DataWorks must meet legal requirements relating to

Correct Answer
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