Question 1

Limited legal liability generally is necessary for small businesses that wish to raise outside capital.

Accepted Answer

A) True 
 B)False

Question 2

Rico, the owner of Simply Sushi, is a sole proprietor. What are the chief characteristics, advantages, and disadvantages of this form of business organization? Rico wants to obtain additional capital to expand Simply Sushi, but she does not want to lose control of the firm. As a sole proprietor, what is her best option to attain these goals?

Accepted Answer

The answer of Rico, the owner of Simply Sushi, is...

Question 3

The day-to-day operation of the franchise business normally is under the control of the franchisor.

Accepted Answer

A) True 
 B)False

Question 4

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.

Question 5

When lending capital to a small business, a bank may require a personal guaranty of its repayment from the owner.

Accepted Answer

A) True 
 B)False

Question 6

Teresa buys a franchise from Urgent Medical Clinics, LLC. If their agreement is like most franchise agreements, it will specify that Urgent Medical can terminate the franchise

Accepted Answer

A)  ​at will. 
B)  ​for any reason. 
C)  ​for cause only. 
D)  ​for no reason.

Question 7

The duration of a franchise is determined by federal or state statutes.

Accepted Answer

A) True 
 B)False

Question 8

A franchisee is not generally legally independent of the franchisor.

Accepted Answer

A) True 
 B)False

Question 9

Mai-Lin's Martial Arts, Inc., grants a franchise to Naomi to operate a Mai-Lin's school. Mai-Lin's may require Naomi to pay the franchisor a percentage of her

Accepted Answer

A)  ​annual sales or volume of business. 
B)  ​weekly payroll expense. 
C)  ​monthly overhead savings. 
D)  ​income from unrelated business activities.

Question 10

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

The answer of Mucho Tacos, Inc., sells franchises. Mucho Tacos...

Question 11

Frank enters into an agreement with Grab n' Eat Burgers, Inc., to operate a franchise in Homeville. Later, the franchisor grants franchises to others within the same territory, causing Frank to suffer a significant loss in profits. In Frank's suit against the franchisor, his best argument is that Grab n' Eat

Accepted Answer

A)  ​violated the antitrust laws. 
B)  ​violated the implied covenant of good faith and fair dealing. 
C)  ​violated the Federal Trade Commission's Franchise Rule. 
D)  ​granted Frank the first Grab n' Eat franchise in Homeville.

Question 12

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.

Exam 2: Small Businesses and Franchises

Limited legal liability generally is necessary for small businesses that wish to raise outside capital.

The day-to-day operation of the franchise business normally is under the control of the franchisor.

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

When lending capital to a small business, a bank may require a personal guaranty of its repayment from the owner.

Teresa buys a franchise from Urgent Medical Clinics, LLC. If their agreement is like most franchise agreements, it will specify that Urgent Medical can terminate the franchise

The duration of a franchise is determined by federal or state statutes.

A franchisee is not generally legally independent of the franchisor.

Mai-Lin's Martial Arts, Inc., grants a franchise to Naomi to operate a Mai-Lin's school. Mai-Lin's may require Naomi to pay the franchisor a percentage of her

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?

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