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Law
Q:
A general partner is personally liable for partnership debts if its assets are insufficient to pay its creditors.
Q:
A partner owes a partnership and its partners a duty of loyalty.
Q:
Partnership books and records must be kept accessible only to those partners who are involved in the actual management of a firm.
Q:
Each partner has the right to sell partnership property as if he or she was the exclusive owner.
Q:
A partner does not have a right to an accounting to enforce rights independent of the partnership relationship.
Q:
Unless the partnership agreement states otherwise, general partners share losses in the same ratio as profits.
Q:
The fiduciary ties that bind an agent and a principal also bind partners.
Q:
Agreements to form a partnership must be written.
Q:
A general partnership is not usually considered a legal entity apart from its owners.
Q:
Diner Coffee Shops, Inc., sells franchises. Diner imposes on its franchisees standards of operation and personnel training methods. What is the potential pitfall to Diner if it exercises too much control over its franchisees?
Q:
Eve, the owner of Finest Enterprises, is a sole proprietor. What are the chief characteristics, advantages, and disadvantages of this form of business organization? Eve wants to obtain additional capital to expand Finest, but she does not want to lose control of the firm. As a sole proprietor, what is her best option to attain these goals?
Q:
Bob operated a pet grooming shop under a franchise agreement with Clean Pets Corp (CPC). The agreement allowed CPC to terminate the franchise if Bob was fined for cruelty to animals. After an investigation initiated by a customer complaint, Bob was fined for cruelty. CPC terminated the franchise. Bob filed a suit against CPC for wrongful termination. Based on the decision in Case 35.3, Chic Miller's Chevrolet, Inc. v. General Motors Corp., the court will most likely rule in favor of
a. Bob, because CPC had no good cause to terminate the franchise.
b. Bob, because the fine for cruelty was based on a customer complaint.
c. CPC, because a franchisor can terminate a franchise at any time.
d. CPC, because the franchise was terminated for good cause.
Q:
A franchise agreement between C++ Software Company and Digital Games, Inc., is silent on a time for termination of the franchise. C++ may
a. never terminate.
b. terminate at any time.
c. terminate on reasonable notice.
d. terminate on three days notice.
Q:
Rita buys a Sports Grill franchise. Sports Grill requires that its franchisees buy its products for every phase of their operations. Because Rita wishes to buy less expensive products, she challenges the requirement. Her best argument is probably that the requirement violates
a. the commerce clause.
b. the Equal Protection Clause.
c. the federal antitrust laws.
d. the First Amendment.
Q:
Eve is a franchisee of Fresh Food, Inc. Their contract gives Fresh a right to control Eve's operations, including supervising the employees. Eve's employee Glen commits a crime against Eve's customer Harry. Harry files a suit against Fresh. With respect to Glen's crime, under the reasoning of the court in Case 35.2, Kerl v. Dennis Rasmussen, Inc., Fresh is most likely
a. liable because Fresh supervises Eve's employees.
b. liable because Harry was Fresh's customer.
c. not liable because Eve is responsible for her employees.
d. not liable because Harry was Eve's customer.
Q:
United Sales Company is a franchisor. Victor operates a United franchise. Wendy is one of Victor's employees. As a franchisor, United may be liable for intentional acts of discrimination by
a. United only.
b. Victor, but not Wendy.
c. Wendy, but not Victor.
d. Wendy or Victor.
Q:
Kwik Kitchen, Inc., grants a franchise to Lena to operate a Kwik Kitchen café. Kwik will likely charge Lena
a. a license fee and a price for supplies.
b. a license fee only.
c. a price for supplies only.
d. neither a license fee nor a price for supplies.
Q:
Adam enters into a franchise agreement with Beta Computers, Inc., in which Beta gives Adam territory that includes Clark County. Beta's grant of additional franchises in the same territory to others may violate
a. an implied covenant of good faith and fair dealing.
b. federal or state antitrust laws.
c. the Federal Trade Commission's Franchise Rule.
d. the U.S. Franchise Agency's Purchase and Sale Regulations.
Q:
Nina wants the exclusive right to sell Oven-Rite Corporation appliances in a certain area. If Oven-Rite agrees, it will likely require Nina to pay
a. a license fee and a percentage of the sales.
b. a license fee only.
c. a percentage of the sales only.
d. neither a license fee nor a percentage of the sales.
Q:
Owen does business as Perfect Autos & Trucks under a franchise granted by Quality Vehicles Corporation. To provide protection for such franchisees, Congress enacted
a. the Automobile Dealers Franchise Act.
b. the Entrepreneurs' Protection Act.
c. the Franchise Disclosure Rule Act.
d. the Petroleum Marketing Practices Act.
Q:
Mike operates Mike's PennCo Service Station under a franchise granted by PennCo Corporation. To provide protection for gas station franchisees, Congress enacted
a. the Automobile Dealers Franchise Act.
b. the Entrepreneurs' Protection Act.
c. the Franchise Disclosure Rule Act.
d. the Petroleum Marketing Practices Act.
Q:
To enable Paco, a potential franchisee, to make an informed decision about the purchase of a Quik Store, Inc., franchise, regulations requiring Quik to disclose material facts were issued by
a. the Federal Trade Commission.
b. the International Chamber of Commerce.
c. the National Conference of Commissioners on Uniform State Laws.
d. the United Proprietorship and Franchise Business Organization.
Q:
Mello Coffee Shops, Inc., grants a franchise to Nick's Cafe. Mello is
a. a franchisee.
b. a franchisor.
c. an agent.
d. a principal.
Q:
Macro Realtors, Inc., grants a franchise to Micro Sales Company. Micro is
a. a franchisee.
b. a franchisor.
c. an agent.
d. a principal.
Q:
Euro Autos & Trucks, Inc., licenses Fine Vehicles Corporation, an automobile dealership, to sell its products. This is
a. a chain-style franchise.
b. a distributorship franchise.
c. a manufacturing franchise.
d. no franchise.
Q:
Eagle, Inc., and Fred have a processing-plant franchise arrangement. This involves the transfer of
a. a license.
b. a trade name.
c. the formula to make a certain product.
d. the ownership of the business.
Q:
Instead of setting up a business to market her own products, Ann considers entering into a distributorship franchise with Better Goods Corporation. This involves the transfer of
a. a license.
b. a trade name.
c. the formula to make a certain product.
d. the ownership of the business.
Q:
Fact Pattern 35-1
Cliff markets "DownSize" a weight-reduction program, in competition with Eagle Corporation's product "Fit "˜n Trim." Through Cliff's Web site, DownSize sells throughout the United States. Eagle files a suit against Cliff, alleging in part that Cliff is a sole proprietor, but his enterprise should be deemed a corporation for purposes of the suit.
Refer to Fact Pattern 35-1. According to the reasoning of the court in Case 35.1, Hsin Ten Enterprise USA, Inc. v. Clark Enterprises, an important factor in deciding whether an enterprise doing business as one form of business entity should be deemed to be a different form is
a. the existence of a convenient forum for resolving a dispute.
b. the expanse of markets over the Internet.
c. the expense of litigating in distant courts.
d. the extent of the enterprise's violation of the law.
Q:
Fact Pattern 35-1
Cliff markets "DownSize" a weight-reduction program, in competition with Eagle Corporation's product "Fit "˜n Trim." Through Cliff's Web site, DownSize sells throughout the United States. Eagle files a suit against Cliff, alleging in part that Cliff is a sole proprietor, but his enterprise should be deemed a corporation for purposes of the suit.
Refer to Fact Pattern 35-1. According to the reasoning of the court in Case 35.1, Hsin Ten Enterprise USA, Inc. v. Clark Enterprises, Cliff's enterprise should most likely be considered
a. a corporation because DownSize sells throughout the United States.
b. a franchisee because DownSize is sold in competition to Fit "˜n Trim.
c. a sole proprietor because Cliff is a sole proprietor.
d. no form of business entity because Cliff has no formal organization.
Q:
Quinn, the owner of Payroll Check Cashier, a sole proprietorship, wants to obtain additional business capital but to maintain control. This can best be accomplished by
a. borrowing funds.
b. bringing in partners.
c. issuing stock.
d. selling the business.
Q:
Amy wants to go into the business of construction contracting. Among the reasons that would probably convince Amy to set up her business as a sole proprietorship would be
a. its greater organizational flexibility.
b. its limited liability.
c. its perpetual existence.
d. the ease of transferring the business to other family members.
Q:
In determining whether a franchisor acted in good faith in terminating a franchise relationship, a court would balance the rights of both parties.
Q:
Most franchise agreements provide that termination must be "for cause."
Q:
Requiring a franchisee to purchase supplies exclusively from the franchisor does not violate federal antitrust laws.
Q:
A franchisor may suggest retail prices for the goods that a franchisee sells.
Q:
A franchisor is never liable for the act of a franchisee's employee.
Q:
A franchisor may not specify personnel training methods.
Q:
Normally, a franchisee determines the territory that it will serve.
Q:
A franchisee normally pays nothing for a franchise license.
Q:
A franchisee normally pays a fee for products bought from the franchisor.
Q:
Contracts between a franchisee and its customers define the franchise relationship.
Q:
Most states have adopted a model uniform franchise law.
Q:
There are no federal laws governing franchises.
Q:
Contract law governs franchise relationships.
Q:
Article 2 of the UCC may offer some protection to a franchisee.
Q:
An automobile dealership is an example of a distributorship type of franchise.
Q:
A franchise exists when the owner of a copyright licenses its use to another party to sell goods or services.
Q:
A franchise exists when the owner of a trademark licenses its use to another party to sell goods or services.
Q:
A sole proprietorship automatically dissolves on the death of the owner.
Q:
A sole proprietorship's income is taxed as the firm's profits, not as the owner's personal income.
Q:
A sole proprietorship's income is taxed as the firm's profits and as the owner's personal income.
Q:
In a sole proprietorship, the owner takes all of the profits.
Q:
Don's Training Center and Elite Fitness Corporation enter into a franchise agreement that provides it may be terminated at any time for "cause." Don's fails to meet Elite's express membership sales quota. Is this "cause" for termination? Explain.
Q:
Owen plans to open Owen's Pets Store, a pet supplies outlet, and to hire Quinn and Ruth. Owen will invest only his own money. He does not expect to make any profit for at least two years and to make almost no profit for the first three years, but he hopes to expand eventually. Which form of business organization would be most appropriate?
Q:
Under Connecticut law, as explained in Case 35.3, Chic Miller's Chevrolet, Inc. v. General Motors Corp., a franchise agreement can be terminated
a. at will, by the franchisor.
b. only as set forth in the franchise agreement.
c. only for poor economic performance on the part of the franchisee.
d. only with good cause.
Q:
Jack buys a Kitchens, Inc., franchise, which the franchisor later terminates. In determining whether the termination was proper, a court will generally
a. balance the rights of both parties.
b. emphasize the right of Kitchens, Inc., to its normal business operation.
c. focus on the right of Jack to be dealt with fairly.
d. underscore the interest of consumers in affordable goods and services.
Q:
Rick buys a franchise from Sports Club Corporation. If their agreement is like most franchise agreements, it will specify that Sports Club can terminate the franchise
a. for any reason only with notice.
b. for any reason without notice.
c. for cause only.
d. under no circumstances.
Q:
Carl buys a Discount House franchise. Discount House requires that its franchisees buy its products for every phase of their operations. Carl's best argument to challenge this requirement is probably that it violates
a. an implied covenant of good faith and fair dealing.
b. federal or state antitrust laws.
c. the Federal Trade Commission's Franchise Rule.
d. the U.S. Franchise Agency's Purchase and Sale Regulations.
Q:
Comfort Wear, Inc., a franchisor of shoe stores, wishes to standardize the pricing practices of its franchisees that have engaged in price-cutting to increase their respective shares of the market. The most prudent remedy might be for Comfort to
a. reduce the quantity of the products that it sells to its franchisees.
b. suggest the prices at which its franchisees sell their products.
c. terminate the franchisees who cut prices.
d. undercut the business of those franchisees who cut prices by opening competing stores in the franchisees' territory.
Q:
Art is a franchisee of Bee Treats, Inc. Their contract gives Bee a right to control certain aspects of Art's operation, but assigns responsibility for employees to Art. Art hires Clay, who commits a crime against some of Art's customers, including Dina. Dina files a suit against Bee. With respect to Clay's crime, under the decision of the court in Case 35.2, Kerl v. Dennis Rasmussen, Inc., Bee is most likely
a. liable because Bee exercises control over some of Art's operations.
b. liable because Dina was Bee's customer.
c. not liable because Art is responsible for his employees.
d. not liable because Dina was Art's customer.
Q:
Dean buys a franchise from Excel Realty, Inc. In their agreement, Excel may specify
a. neither Dean's business form nor its standards of operation.
b. the business form and the standards of operation.
c. the business form only.
d. the standards of operation only.
Q:
Roy invests in a franchise with Super Soups, Inc. Their agreement may require Roy to pay a percentage of Super's
a. administrative and advertising expenses.
b. administrative expenses only.
c. advertising expenses only.
d. neither administrative nor advertising expenses.
Q:
Roller Rinks, Inc. (RRI) grants a franchise to Sven to operate an RRI rink. RRI may require Sven to pay a percentage of his
a. annual sales only.
b. annual sales or annual volume of business.
c. annual volume of business only.
d. neither annual sales nor annual volume of business.
Q:
Pat enters into an agreement with Quik Food, Inc., to operate a franchise in Region City. Later, Quik grants franchises to others within the city, Pat files a suit to close them. This suit will likely
a. fail because excluding competitors violates the antitrust laws.
b. fail if Quik did not give Pat exclusive rights to Region City.
c. succeed if Pat paid a franchise fee.
d. succeed if Pat was the first Quik franchisee in Region City.
Q:
Jill invests in a franchise with Kandy Shops Corporation. With respect to a franchise, a franchisee may have legal protection under
a. federal and state law.
b. federal law only.
c. neither federal nor state law.
d. state law only.
Q:
Mary, a resident of New Jersey, enters into a franchise arrangement in New York with Over-All Corporation. A model law that standardizes state franchise regulations has been issued by
a. the Federal Trade Commission.
b. the International Chamber of Commerce.
c. the National Conference of Commissioners on Uniform State Laws.
d. the United Proprietorship and Franchise Business Organization.
Q:
Leo buys an exclusive territory in which he is authorized to set up a plant to make Midwest Dairy, Inc., products. After receiving the formula, Leo begins making Nice-brand ice cream and other Midwest products. This is
a. a chain-style franchise.
b. a distributorship franchise.
c. a manufacturing franchise.
d. no franchise.
Q:
Chicago Coca-Cola Bottling Company is
a. a chain-style franchise.
b. a distributorship franchise.
c. a manufacturing franchise.
d. no franchise.
Q:
Fast Food, Inc., licenses Greg to operate a restaurant under the Fast Food name. This is
a. a chain-style franchise.
b. a distributorship franchise.
c. a manufacturing franchise.
d. no franchise.
Q:
Consumer Stuff Company conducts a chain-style franchise. This involves the transfer to Dina, one of its franchisees, of
a. a license.
b. a trade name.
c. the formula to make a product.
d. the ownership of the business.
Q:
Events Promotion Corporation licenses trademarks to Fine Souvenirs, Inc., to use in selling caps, sweatshirts, and similar goods. This is
a. a franchise.
b. an entrepreneur.
c. a principal-agent relationship.
d. a sole proprietorship.
Q:
Jody owns Kappa Sales, a sole proprietorship. Jody's liability is
a. limited by state statute and varies from state to state.
b. limited to the extent of capital expenditures.
c. limited to the extent of his or her original investment.
d. unlimited.
Q:
Carl sells Direct Marketing Enterprises, a sole proprietorship, to Eve. This is a transfer of
a. a license.
b. a trade name.
c. the formula to make a product.
d. the ownership of the business.
Q:
Fred starts up, and assumes the financial risk of, Graphic Ads, a new enterprise. Fred is
a. a franchisee.
b. a franchisor.
c. an agent.
d. a sole proprietor.
Q:
The parties to a franchise agreement may determine what constitutes the grounds for the termination of their relationship.
Q:
In a franchise, a franchisee owns the business.
Q:
State law determines the duration of a franchise.
Q:
Franchisors that set the prices at which franchisees resell their products may violate antitrust laws.
Q:
In some circumstances, a franchisor may be liable for the act of a franchisee's employee.
Q:
A franchisor cannot impose quality standards on a franchisee.