267. Before franchises may be sold, the parent company must:
a. register with the SEC under the 1933 Securities Act
b. register with the SEC under the Investment Company Act
c. register with the CFTC Franchise Offering Rule of 1990
d. comply with FTC regulations and perhaps other state regulations
e. none of the other choices
268. Before franchises may be sold, the parent company must:
a. register with the SEC under the 1933 Securities Act
b. register with the SEC under the Investment Company Act
c. register with the CFTC Franchise Offering Rule of 1990
d. be approved by the Federal Trade Commission
e. none of the other choices
269. The Franchise Rule requires that the following information must be provided except:
a. the names and addresses of other franchisees
b. an audited financial statement of the franchisor’s operation
c. the background and experience of all existing franchisees
d. the responsibilities that the parties will have to each other under the agreement
e. all of the other choices are required
270. The disclosure document that franchisors must give to prospective franchise buyers is not required to include which
of the following information?
a. an audited financial statement of the franchisor
b. the background and experience of the key executives
c. the names, addresses, and phone numbers of other franchisees
d. list of responsibilities of the franchisor and the franchisee once the deal is made
e. all of the other choices must be provided
271. The Franchise Rule requires which of the following:
a. franchisees have the right to have their money returned within 30 days
b. franchisees must be given the offering circular at least 10 days before purchase
c. franchisors must be registered with the FTC before selling franchises
d. franchisees have the right to have their money returned within 30 days and must be given the offering
circular at least 10 days before purchase
e. franchisees have the right to have their money returned within 30 days and given the offering circular at least
10 days before purchase and franchisors must be registered with the FTC before selling franchises
272. The Franchise Rule requires that the offering circular is given to prospective franchisees:
a. at least 5 days before any money changes hands
b. at least 10 days before any money changes hands
c. on the day the contract is to be signed
d. within 5 days of payment
e. after 50% of the money changes hands
273. The , which is required by the Franchise Rule, enables prospective investors to learn about the background of
the business.
a. offering circular
b. offering document
c. offering disclosure
d. circular offering
e. circular document
274. States regulation of the sale of franchises:
a. is prohibited because of federal regulation
b. is so weak as to be irrelevant
c. duplicates federal regulation, allowing enforcement at the state level
d. goes beyond federal requirements in California and some other states
e. replaces federal requirements in the states that it exists
275. States regulation of the sale of franchises:
a. is prohibited because of federal regulation
b. is so weak as to be irrelevant
c. duplicates federal regulation, allowing enforcement at the state level
d. replaces federal requirements in the states that it exists
e. none of the other choices
276. California was the first state to:
a. allow franchises
b. regulate franchises
c. ban franchises
d. tax franchises
e. none of the other choices are correct
277. Which state was the first to regulate franchises:
a. Wyoming
b. Ohio
c. Illinois
d. California
e. Alabama
278. State regulation of franchises is typically conducted by:
a. a state attorney general
b. county prosecutors
c. state chartering offices
d. state examining boards
e. state FTCs
279. An auto dealer or gas station franchise would have:
a. fewer rights than a franchise like McDonald’s
b. more rights than a franchise like McDonald’s
c. exactly the same rights as a franchise like McDonald’s
d. different, but equal, rights as a franchise like McDonald’s
e. none of the other choices are correct
280. The document that sets forth the rights and obligations of the franchisor and franchisee is known as the:
a. franchise contract
b. franchise list
c. franchise agreement
d. franchise document
e. agreement of franchise
281. The key elements of a franchise agreement include:
282. A franchise agreement may not include:
a. restrictions on territorial rights
b. controls on the use of the trade name or trademarks involved
c. a fixed payment up front (all payments must be royalties based on sales)
d. a manual that controls the details of business operations
e. all of the other choices may be included
283. A franchise agreement may not include:
a. restrictions on territorial rights
b. the right of parent company to terminate agreement any time without compensation
c. a fixed payment up front (all payments must be royalties based on sales)
d. controls on the use of the trade name or trademarks involved
e. all of the other choices may be included
284. Which of the following may be specified by the franchisor:
a. requirements regarding record keeping
b. requirements regarding operating hours
c. requirements regarding advertising
d. all of the other specific choices are correct
e. none of the other specific choices are correct
285. In Dunkin‘ Donuts Franchised Restaurants LLC v. Sandip, Inc., where Dunkin‘ Donuts claimed that Sandip
breached their franchise agreements and Sandip protested that Dunkin’ Donuts was not allowing them a reasonable
chance to sell the franchise, the court held that:
a. Dunkin’ Donuts was entitled to terminate the lease agreement
b. Dunkin’ Donuts was not entitled to terminate the lease agreement because there was a suitable buyer
c. Dunkin’ Donuts was not entitled to terminate the lease agreement, even though there was no suitable buyer
d. Sandip had the right to terminate the lease agreement and sell the buildings to whoever they wanted
e. Sandip had the right to continue using Dunkin’ Donuts’ marks until they sold the buildings
286. In Dunkin‘ Donuts Franchised Restaurants LLC v. Sandip, Inc., where Dunkin‘ Donuts claimed that Sandip
breached their franchise agreements and Sandip protested that Dunkin’ Donuts was not allowing them a reasonable
chance to sell the franchise, the court held that:
a. Sandip had the right to continue using Dunkin’ Donuts’ marks until they sold the buildings
b. Dunkin’ Donuts was not entitled to terminate the lease agreement because there was a suitable buyer
c. Dunkin’ Donuts was not entitled to terminate the lease agreement, even though there was no suitable buyer
d. Sandip had the right to terminate the lease agreement and sell the buildings to whoever they wanted
e. none of the other choices are correct
287. In Dunkin‘ Donuts Franchised Restaurants LLC v. Sandip, Inc., where Dunkin‘ Donuts claimed that Sandip
breached their franchise agreements and Sandip protested that Dunkin’ Donuts was not allowing them a reasonable
chance to sell the franchise, the court held that:
a. Dunkin‘ Donuts was not entitled to investigate the buyer’s financial condition
b. Dunkin’ Donuts did not act unreasonably by failing to investigate the buyer‘s financial condition
c. Dunkin‘ Donuts acted unreasonably by failing to investigate the buyer‘s financial condition
d. Dunkin’ Donuts acted unreasonably by investigating the buyer’s financial condition
e. none of the other choices are correct
288. Franchises may be terminated by:
a. the bankruptcy of the franchisee
b. the failure of the franchisor to submit to financial inspection by franchisees
c. the franchisor at any time, at will
d. all of the other choices
e. none of the other choices
289. Compared to most other countries, to start a business in the U.S.:
a. is generally easier
b. is easier than in low-income countries, but harder than in high-income countries
c. is easier than in high-income countries, but harder than in low-income countries
d. is generally more difficult
e. is about the same as in other countries
290. Refer to Fact Pattern 13-1. If Jeanette decides to go into business with her friend Maia, Richard suggests that the
two establish a partnership to carry on their business. If they do, this means both:
a. are co–owners of the business
b. share control over the profits of the business
c. have limited liability for the debts of the business
d. are co-owners of the business and share control over the profits of the business
e. are co-owners of the business and share control over the profits of the business and have limited liability for
the debts of the business
291. Refer to Fact Pattern 13-1. Jeanette plans on having a receptionist and a secretary, but no other managerial
workers. For simplicity, Richard would probably suggest that Jeanette operate as a:
a. limited partnership
b. general partnership
c. sole proprietorship
d. corporation
e. cooperative
292. Refer to Fact Pattern 13-1. If Richard creates a formal partnership for Jeanette and Maia, it will probably be
governed by:
a. the Commercial Code on Partnership
b. the Uniform Partnership Act
c. the Federal Registry of Partnership
d. the common law
e. International Covenant on the Law of Partners
293. Refer to Fact Pattern 13-1. Jeanette and Maia form a partnership. Their business is successful, but after a few
years Maia decides she wants to quit and sell her partnership share to another financial manager, with Jeanette’s
approval. What will the legal consequences of this act be?
a. Maia cannot legally sell her share of the business because it has no a market value
b. Maia’s sale of her partnership share will be legally invalid because the partnership is the legal creature of
Jeanette
c. Maia may sell her partnership share, but must continue to be a silent partner in the business
d. Maia may sell her partnership share; this will result in termination of the partnership and formation of a new
one
e. Maia must become a limited partner in the business and allow Jeanette to become the dominant, general
partner
294. Refer to Fact Pattern 13-1. Jeanette wants to exercise sole managerial control over her business but she does not
have enough money to set the business up. Several members of Jeanette’s family are willing to invest in her
business because they think it will succeed. Richard may suggest that Jeanette establish which type of
organization?
a. a joint venture
b. a syndicate
c. a cooperative
d. a joint bond company
e. a limited partnership
295. Refer to Fact Pattern 13-1. Jeanette decides to form a corporation. She needs to:
a. apply for permission from the Federal Trade Commission
b. apply for permission from the Department of Commerce to pursue an incorporation
c. create and file articles of incorporation with the proper state official
d. apply for permission from the Federal Trade Commission and create and file articles of incorporation with
the proper state official
e. apply for permission from the Department of Commerce to pursue an incorporation and create and file
articles of incorporation with the proper state official
296. Refer to Fact Pattern 13-1. For Jeanette to create a corporation, she needs to do what after she receives her
certificate of incorporation?
a. elect a board of directors
b. enact bylaws
c. issue stock
d. all of the other specific choices
e. none of the other choices because these things will have all been done before the certificate was issued
297. Refer to Fact Pattern 13-1. An advantages for Jeanette of incorporating is that:
a. she has unlimited liability for corporation debts
b. the corporate veil may never be pierced
c. she has limited liability for corporation debts
d. she is taxed personally for all corporation profits
e. she must dissolve the corporation before she adds new members to the firm
298. Refer to Fact Pattern 13-1. If Jeanette does incorporate, the corporation legally can last:
a. for 20 years, after which she needs to apply for a renewal of her certificate of incorporation
b. forever
c. for 50 years, after which time the certificate of incorporation must be renewed
d. until one of her partners dies
e. until the state determines that the corporation no longer serves the function for which it was incorporated
299. In Eagles Landing Development, LLC v. Eagles Landing Apartments, LP, where the LLC built apartments
for the LP, but the LLC was not paid for all its work, the LLC sued some limited partners in the LP for payment.
The appeals court held that:
a. the limited partners had agreed to be personally liable on the debts of the LP, so were responsible
b. limited partners share equally in the debts of a limited partnership unless the agreement among the partners
states something to the contrary
c. the LLC had agreed not to sue any limited partners individual, so could not later go back on that agreement
d. limited partners are not liable for the debts of the LP
e. none of the other choices
300. In Eagles Landing Development, LLC vs. Eagles Landing Apartments, LP, where the LLC built apartments for
the LP, but the LLC was not paid for all its work, the OOC sued some limited partners in the LP for payment. The
appeals court held that:
a. the limited partners had agreed to be personally liable on the debts of the LP, so were responsible
b. the limited partners share equally in the debts of a limited partnership unless the agreement among the
partners states something to the contrary
c. the LLC had agreed not to sue any limited partners individual, so could not later go back on that agreement
d. the LLC must first proceed against the bank that granted a mortgage to the LP as it was the primary creditor
of the project
e. none of the other choices