Chapter 17b Omar’s Weekly Payroll Expense can Amount Omar’s Monthly

Document Type
Test Prep
Book Title
The Legal Environment of Business: Text and Cases: Ethical-- Regulatory-- Global-- and Corporate Issues 8th Edition
Frank B. Cross, Roger LeRoy Miller
1. A sole proprietor owns the entire business but doe not receive all of
the profit.
1. In choosing a form of business organization for a new enterprise,
important factors include the liability of the owner.
1. The parties to a franchise arrangement may be two corporations.
1. A sole proprietor has unlimited liability for all obligations that arise in
doing business.
1. In raising capital, a sole proprietor is limited to his or her personal
fundsa personal loan is not possible.
1. The laws governing franchising are primarily designed to protect
franchisors from dishonest franchisees.
1. Franchisors are not required to disclose certain material facts to
prospective franchisees.
1. A franchisor may retain stringent control over the training of personnel
involved the operation of a franchise.
1. A franchisor can set the retail prices for the goods that a franchisee
1. Most franchise agreements provide that notice of termination of a
franchise is not necessary.
1. Good faith and fair dealing are important in terminating a franchise
1. For most purposes, most states treat a partnership as an aggregate of
its members.
1. Joint ownership of property does not in and of itself create a
1. A partnership agreement can include almost any terms that the partners
1. The majority rule controls decisions on ordinary matters connected with
partnership business.
1. Property acquired by the partnership is the property of the partners
1. A partner is entitled to make secret profits or put self-interest before his
or her duty to the interest of the partnership.
1. In a general partnership, the acts of one partner in the ordinary course
of business subjects the other partners to personal liability.
1. A partnership ends if one partner dissociates from the firm.
1. If a partnership’s liabilities are greater than its assets, the partners bear
the losses.
1. Leigh wants to go into the business of construction contracting. Among
the reasons that would probably convince Leigh to set up his 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.
1. Kelly, the owner of Llama Farms, 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.
1. Hometown Realtors, Inc., sells a franchise to Group Sales Company.
Group Sales is
a. a franchisee.
b. a franchisor.
c. a partner.
d. a sole proprietor.
1. Mello Coffee Shops, Inc., sells a franchise to Noah’s Arch, a café.
Mello is
a. a franchisee.
b. a franchisor.
c. a partner.
d. a sole proprietor.
1. Sylvester buys a franchise from Resistance Athletic Shoes Inc. This
relationship, like all other franchise relationships, is governed by
a. contract law.
b. no law.
c. the Franchise Disclosure Document, or FDD.
d. the Uniform Commercial Code.
1. Nicole is interested in buying a franchise from Oz Oysters Inc. For
Nicole to make an informed decision concerning this purchase, Oz must
disclose in writing or online
a. general estimates of costs and sales, but not the basis for them.
b. material facts such as the basis of projected earnings figures.
c. no information.
d. start-up requirements, but not renewal conditions.
1. Vim+Vigor Fitness Corporation uses a Web site to provide
downloadable information to prospective franchises. This online
information is the equivalent of an offer that must comply with
a. no law.
b. the Uniform Commercial Code.
c. the Federal Trade Commission’s Franchise Rule.
d. the state Franchise Disclosure Document, or FDD.
1. Dingo Bangles Company wants to present information in “disclosure
documents” via the Internet to prospective franchisees. Among other
legal requirements with which Dingo must comply, prospective
franchisees must
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 Dingo to verify users’ authenticity.
d. register with the Federal Trade Commission via Dingo’s Web site.
1. Cluckee Chick’n Corporation provides its prospective franchisees with
projected earnings figures based on actual data. Cluckee Chick’n must
also disclose
a. the number and percentage of franchisees that achieved the
b. hypothetical examples of potential earnings.
c. an answer to the entrepreneur’s question, “How much will I
d. none of the choices.
1. A franchise agreement between Software2 Company and Games3, Inc.,
is silent on a time for termination of the franchise. Software2 may
a. never terminate.
b. terminate at any time.
c. terminate on reasonable notice.
d. terminate on three days notice.
1. Gage buys from Fishing Guide Corporation the exclusive right to sell
Fishing Guide rods and reels in a certain area. Their franchise
agreement requires Gage to pay certain administrative expenses. Their
agreement may also require Gage to pay a percentage of the
a. advertising costs.
b. personal expenses.
c. retirement income.
d. none of the choices.
1. Tawny buys a Super Grill franchise. Super Grill requires that its franchi-
sees buy its products for every phase of their operations. Because
Tawny wishes to buy less expensive products, she challenges the re-
quirement. Her best argument is probably that the requirement violates
a. the implied covenant of good faith and fair dealing.
b. the Federal Trade Commission’s Franchise Rule.
c. the federal antitrust laws.
d. the Uniform Commercial Code.
1. Pronto Tacos LLC grants a franchise to Omar to open and operate a
Pronto Tacos restaurant. Pronto will likely charge Omar
a. an initial fee or lump sum price for the franchise license.
b. a percentage of Omar’s weekly payroll expense.
c. an amount of Omar’s monthly overhead savings, if any.
d. none of the choices.
1. Ben, who runs a livestock breeding business, owes the Circle C Ranch
$40,000. Ben agrees to pay the Circle C a percentage of his profits
each month until the debt is paid. Because of this agreement, the
Circle C is
a. Ben’s creditor and partner.
b. Ben’s creditor only.
c. Ben’s partner only.
d. neither Ben’s creditor nor his partner.
1. Hollister and Gladys do business as partners in Frothy Confections. For
federal income tax purposes, Frothy Confections would be treated as
a. a pass-through entity.
b. a natural person.
c. a tax-paying entity.
d. a partnership by estoppel.
1. Parker and Oscar sign a partnership agreement to do business as
“Parker’s Plumbing” without specifying a duration. This partnership is
a. at any time by either partner.
b. only after a reasonable term.
c. only if Parker dissociates from the firm.
d. only if Oscar dissociates from the firm.
1. Ryder and Sergei are partners in Timberline Gear, which sells
mountain- and rock-climbing equipment. Ryder manages the business.
Unless the partnership agreement states otherwise, Ryder is
a. entitled to compensation in proportion to his effect on the
b. entitled to compensation in proportion to his effort.
c. entitled to compensation in proportion to his capital contribution.
d. not entitled to compensation.
1. Trina and Uri do business as Value Gems. In acting on the firm’s
behalf in a deal with World Diamond Exchange, Trina recklessly
exceeds what Value Gems can afford to pay, causing damage to the
firm. Trina is
a. liable for breach of the duty of care.
b. liable for breach of the duty of economic sense.
c. liable for breach of the duty of loyalty.
d. not liable.
1. Cody is a partner in Derivative Investment Service (DIS). Cody can
a. all of DIS’s books and records.
b. DIS’s books and records only as the firm’s management permits.
c. DIS’s books and records only for a reasonable purpose.
d. DIS’s books and records relating to Cody’s capital contribution
1. Mead, Nero, and Olen do business as Pipe & Plumbing Services, a
partnership. After Mead’s relationship to the firm ends, Nero and Olen
agree to discontinue the business. This is
a. dissociation.
b. dissolution.
c. gross negligence.
d. simple misconduct.
1. Ewa, the owner of First-Rate Bild-It, is a sole proprietor. What are the
chief characteristics, advantages, and disadvantages of this form of
business organization? Ewa wants to obtain additional capital to expand
First-Rate, but she does not want to lose control of the firm. As a sole
proprietor, what is her best option to attain these goals?
1. Irwin was the manager of Highlights Grill, a sports bar and restaurant.
Irwin opened a bank account in Highlights’s name, signing the account
signature card as “owner.” Jody, who was often at Highlights and had
free access to its office, told others that she was “an owner” and “a
partner.” She also opened a bank account in Highlights’s name, and
signed the account signature card as “owner.” Irwin told Kelton, the
owner of Natural Cheeses, Inc., that Jody was a member of a
partnership that owned Highlights. On this basis, Natural Cheeses
delivered its goods to Highlights on credit. In fact, Highlights was
owned by a corporation. When the unpaid account totaled more than
$10,000, Natural Cheeses filed a suit against Jody to collect. On what
basis might Jody be liable for the debt?

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