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What Makes a Franchise a Partnership?

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Explain how a franchise could be considered a partnership. What makes a franchise agreement simpler than a partnership that you would start with another individual?

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Hi,

A franchise is a type of business organization that is usually owned and operated by an individual who has an agreement with the franchisor (Vitez, 2013). This is a contractual agreement and relationship between those two parties. A partnership usually includes two or more individuals who are responsible for managing and operating a business (Vitez, 2013). Partnerships can also use legal agreements, ...

Solution Summary

A discussion regarding franchises and partnership and how they are simliar and different from each other, including how one may be simpler than the other in specific situations. 197 words, 1 reference.

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3. Which of the following is false regarding a limited liability partnership?
A limited liability partnership is considered a separate legal entity.
Limited liability partnerships are fairly new.
The business name must include "Limited Liability Partnership" or an abbreviation in the name.
The parties must file a form with the secretary of the state to create a limited liability partnership.
Each partner pays taxes on his or her share of the income of the business.
5. Which of the following is false regarding limited liability companies?
The limited liability company was first recognized in Wyoming.
Limited liability companies have the limited liability of partnerships yet are taxed like corporations.
Limited liability companies must file a form with a state agency.
The company name must include "Limited Liability Company" or an abbreviation of those words.
Owners of an LLC are referred to as members.
6. Which of the following is true regarding joint ventures?
Generally, joint ventures are taxed like corporations.
If one of the members of a joint venture dies, the joint venture is automatically terminated.
Members of a joint venture are agents of the other members.
A joint venture may be formed without drawing up a formal agreement.
Courts frequently apply sole proprietorship law to joint ventures.
7. Which of the following is false regarding franchises?
The franchisee often receives help from the franchisor in starting the franchise.
The franchisor has the legal authority to ensure that the franchisee maintains the quality of goods and services associated with the franchise.
The franchisor is not liable for torts of the franchisee's employees regardless of the amount of control exerted by the franchisor.
A franchise is a contractual relationship between the franchisor and the franchisee.
The Federal Trade Commission has a franchise rule requiring franchisors to present prospective franchisees with material facts necessary for the franchisee to make an informed decision about entering a franchise relationship.
10. Reference - Peanut Allergy. Kitty, who had a love of baking, decided to open her own bakery. She decided that she did not need and did not want to pay for a lawyer to advise her on different forms of ownership. Unfortunately, Kitty had not paid attention in business law class. She proceeded, with little thought, to simply open her business called Kitty's Baking. Bobby came in to order some cookies for his girlfriend, Bitsy, who was allergic to peanuts. Bobby told Kitty that he needed some cookies for Bitsy but that Bitsy had allergies to peanuts. Kitty told him not to worry because she would make up a special batch just for him. Kitty had hired some assistants because she was so busy. She told an assistant, Cathy, to make up several batches of cookies for different customers including Bobby and to leave out the peanuts in Bobby's order. Cathy, however, forgot the instruction and proceeded to make Bobby's cookies with crushed peanuts. Bobby picked up the cookies and gave one to Bitsy in the car while they were on the way to the movie in Bobby's new car. Bitsy became violently ill, vomited in Bobby's car, and had to have her stomach pumped. Bobby and Bitsy sought recovery from Kitty who told them that Bitsy's doctor bill and Bobby's car cleaning bill were business debts, that the business was new and not making any money at the moment, and that she had no personal liability. Following the incident involving Bobby and Bitsy, Kitty discussed with her parents her problems with the bakery. Kitty's parents would like to invest in her business and share in any profits, but they do not want to share in the management responsibilities. What type of business did Kitty initially set up?
A limited liability company
A sole proprietorship
An individual proprietorship
A general company
An S corporation
12. Reference - Peanut Allergy. Kitty, who had a love of baking, decided to open her own bakery. She decided that she did not need and did not want to pay for a lawyer to advise her on different forms of ownership. Unfortunately, Kitty had not paid attention in business law class. She proceeded, with little thought, to simply open her business called Kitty's Baking. Bobby came in to order some cookies for his girlfriend, Bitsy, who was allergic to peanuts. Bobby told Kitty that he needed some cookies for Bitsy but that Bitsy had allergies to peanuts. Kitty told him not to worry because she would make up a special batch just for him. Kitty had hired some assistants because she was so busy. She told an assistant, Cathy, to make up several batches of cookies for different customers including Bobby and to leave out the peanuts in Bobby's order. Cathy, however, forgot the instruction and proceeded to make Bobby's cookies with crushed peanuts. Bobby picked up the cookies and gave one to Bitsy in the car while they were on the way to the movie in Bobby's new car. Bitsy became violently ill, vomited in Bobby's car, and had to have her stomach pumped. Bobby and Bitsy sought recovery from Kitty who told them that Bitsy's doctor bill and Bobby's car cleaning bill were business debts, that the business was new and not making any money at the moment, and that she had no personal liability. Following the incident involving Bobby and Bitsy, Kitty discussed with her parents her problems with the bakery. Kitty's parents would like to invest in her business and share in any profits, but they do not want to share in the management responsibilities. Which of the following would be a form of business organization for Kitty and her parents such that her parents could invest but not participate in management?
General partnership
Limited partnership
Managed partnership
Combined partnership
Family-Based partnership
13. Reference - Tutoring Concerns. Wally and Sally want to go into business together and plan on offering a tutoring service to high school and college students. Wally proposes that they share control of the business and split profits equally and not bother with a written agreement. Sally, however, is concerned about being able to pay their debts since they will have to rent tutoring space and purchase computers and supplies. She is also concerned about parents and students who may sue if the students' test scores do not improve. She tells Wally that she just bought a new boat and car, and that she does not want her assets to be in jeopardy. She tells Wally that they should form a corporation to shield their personal assets. Wally, however, says their personal assets are not in danger with his proposal because they are a business and that, furthermore, forming a corporation would likely result in double taxation. What type of arrangement did Wally propose with his suggestion that they share control of the business and split profits equally?
A joint sole proprietorship
A partnership
A corporation
An S corporation
A limited partnership
14. Reference - Tutoring Concerns. Wally and Sally want to go into business together and plan on offering a tutoring service to high school and college students. Wally proposes that they share control of the business and split profits equally and not bother with a written agreement. Sally, however, is concerned about being able to pay their debts since they will have to rent tutoring space and purchase computers and supplies. She is also concerned about parents and students who may sue if the students' test scores do not improve. She tells Wally that she just bought a new boat and car, and that she does not want her assets to be in jeopardy. She tells Wally that they should form a corporation to shield their personal assets. Wally, however, says their personal assets are not in danger with his proposal because they are a business and that, furthermore, forming a corporation would likely result in double taxation. Is Wally correct that with his proposal that they share control of the business and split profits equally, there could be no personal liability for debts?
Yes, he is correct so long as they do not reach an agreement in writing.
Yes, he is correct because they will be considered a partnership regardless of whether any agreement is in writing.
Yes, because so long as they have nothing in writing, their arrangement will be considered a joint venture.
No, he is incorrect because members of the corporate form chosen would be personally liable for debt.
No, he is incorrect because partners have personal liability for debt
15. Reference - Tutoring Concerns. Wally and Sally want to go into business together and plan on offering a tutoring service to high school and college students. Wally proposes that they share control of the business and split profits equally and not bother with a written agreement. Sally, however, is concerned about being able to pay their debts since they will have to rent tutoring space and purchase computers and supplies. She is also concerned about parents and students who may sue if the students' test scores do not improve. She tells Wally that she just bought a new boat and car, and that she does not want her assets to be in jeopardy. She tells Wally that they should form a corporation to shield their personal assets. Wally, however, says their personal assets are not in danger with his proposal because they are a business and that, furthermore, forming a corporation would likely result in double taxation. Is Wally correct that forming a corporation would likely result in double taxation?
Yes, because the corporation would be required to pay tax on its profits, and the shareholders would also be required to pay taxes on dividends.
No, Wally is incorrect because all businesses are taxed in the same manner.
No, Wally is incorrect but only because the law involving taxation of corporations does not apply until there are at least 10 shareholders.
No, Wally is incorrect but only because the law involving taxation of corporations does not apply until there are at least 75 shareholders.
Yes, Wally is correct but only because his proposal does not involve a writing and the filing of paperwork with the secretary of their state.
16. Reference - Tutoring Concerns. Wally and Sally want to go into business together and plan on offering a tutoring service to high school and college students. Wally proposes that they share control of the business and split profits equally and not bother with a written agreement. Sally, however, is concerned about being able to pay their debts since they will have to rent tutoring space and purchase computers and supplies. She is also concerned about parents and students who may sue if the students' test scores do not improve. She tells Wally that she just bought a new boat and car, and that she does not want her assets to be in jeopardy. She tells Wally that they should form a corporation to shield their personal assets. Wally, however, says their personal assets are not in danger with his proposal because they are a business and that, furthermore, forming a corporation would likely result in double taxation. What type of arrangement, if any, would avoid double taxation for the endeavor of Wally and Sally?
An S corporation
A limited liability company
A corporation
An S corporation, a limited liability company, and a corporation
An S corporation and a limited liability company, but not a corporation

17. Reference - Chocolate Chips. Molly makes great chocolate chip cookies and sells them. She calls them "Molly's Famous Chocolate Chips." Some of her friends are interested in selling her cookies. They want to use her name and identify the cookies as "Molly's Famous Chocolate Chips." Molly says, however, that she does not have enough time to bake any more cookies. She agrees, for a price, to allow her friends to use her recipe and her name. Suzette, one of Molly's friends who was selling the cookies, was not being sufficiently careful and negligently put a harmful ingredient into the cookie dough resulting in a customer, Fred, becoming ill. Fred threatens to sue both Suzette and Molly. Molly is so exasperated that she cancels all the franchise contracts on the basis of aggravation although the franchise agreements provided that so long as requirements were met, the franchise agreements were good for a period of two years, Molly took the position that the cookies involved a personal service and that she could not be held liable for discontinuation. What type of arrangement did Molly make with her friends?
A franchise that was a production-style business operation.
A franchise that was a distributorship.
A franchise that was a manufacturing arrangement.
A franchise that was a manufacturing distributorship.
A joint venture.
18. Reference - Chocolate Chips. Molly makes great chocolate chip cookies and sells them. She calls them "Molly's Famous Chocolate Chips." Some of her friends are interested in selling her cookies. They want to use her name and identify the cookies as "Molly's Famous Chocolate Chips." Molly says, however, that she does not have enough time to bake any more cookies. She agrees, for a price, to allow her friends to use her recipe and her name. Suzette, one of Molly's friends who was selling the cookies, was not being sufficiently careful and negligently put a harmful ingredient into the cookie dough resulting in a customer, Fred, becoming ill. Fred threatens to sue both Suzette and Molly. Molly is so exasperated that she cancels all the franchise contracts on the basis of aggravation although the franchise agreements provided that so long as requirements were met, the franchise agreements were good for a period of two years, Molly took the position that the cookies involved a personal service and that she could not be held liable for discontinuation. Will Molly likely be held liable to Fred?
Yes, but only if Suzette has officially filed for bankruptcy protection.
Yes, but only if Suzette is insolvent.
Yes, because the cookies had her name on them.
No, because she was a franchisor.
It is unclear and depends on whether she exercised too much authority in the day-to-day affairs of Suzette's business.
19. Reference - Chocolate Chips. Molly makes great chocolate chip cookies and sells them. She calls them "Molly's Famous Chocolate Chips." Some of her friends are interested in selling her cookies. They want to use her name and identify the cookies as "Molly's Famous Chocolate Chips." Molly says, however, that she does not have enough time to bake any more cookies. She agrees, for a price, to allow her friends to use her recipe and her name. Suzette, one of Molly's friends who was selling the cookies, was not being sufficiently careful and negligently put a harmful ingredient into the cookie dough resulting in a customer, Fred, becoming ill. Fred threatens to sue both Suzette and Molly. Molly is so exasperated that she cancels all the franchise contracts on the basis of aggravation although the franchise agreements provided that so long as requirements were met, the franchise agreements were good for a period of two years, Molly took the position that the cookies involved a personal service and that she could not be held liable for discontinuation. Is Molly correct that she was entitled to cancel all franchise agreements?
No, she was not entitled to cancel any franchise agreements.
No, while she was arguably justified in canceling Suzette's franchise agreement, she was not justified in canceling other franchise agreements because no breach of the other franchise agreements had occurred.
No, she could only cancel all franchises after a judgment was entered against her, and that had not yet occurred.
Yes, because a personal service type of franchise was involved, she could cancel all the franchises at will.
Yes, she can cancel the franchises but only if she can establish that her profits were less than had been expected.
20. Reference - Community Fair. Craig and Melinda are searching for a one-time business opportunity that will enable them to make a sufficient amount of cash to take a really great vacation to Galapagos. They live in a rather small rural community that has not, to date, had a community fair. Craig and Melinda decide to sponsor a fair on a weekend in October and to arrange for exhibits and awards, beauty contests, pie eating contests, food vendors, and amusement rides. The profit to Craig and Melinda will come from ticket sales and from charges to food vendors for the privilege of setting up shop. Apart from some minor skirmishes between Craig and Melinda regarding management rights, preparations go fairly well. When the weekend of the fair arrives, things initially go fairly smoothly. Unfortunately, however, one of the beauty contestants slips on the runway. An argument broke out during the pie eating contests resulting in angry contestants throwing pies and injuring spectators. Finally, an elderly lady, who was angry because she did not win the prize for the best honey, jabbed the volunteer judge with her cane. All injured parties threaten to sue Craig and Melinda. Craig tells Melinda that she should bear the larger percentage of any damages because the idea for the fair was initially hers, and she obtained all necessary permits. Melinda, on the other hand, tells Craig that he should be wholly responsible for any damages because he was put in charge of all competitions. They can reach no agreement regarding winding up the project and splitting the meager profits, and angrily go their separate ways with no resolution. As she is leaving, Melinda shouts to Craig that as her agent he should have done a better job with security. Which of the following is the type of business organization that best fits Craig and Melinda's project?
A partnership
A double proprietorship
A business trust
A joint venture
A distributorship
21. Reference - Community Fair. Craig and Melinda are searching for a one-time business opportunity that will enable them to make a sufficient amount of cash to take a really great vacation to Galapagos. They live in a rather small rural community that has not, to date, had a community fair. Craig and Melinda decide to sponsor a fair on a weekend in October and to arrange for exhibits and awards, beauty contests, pie eating contests, food vendors, and amusement rides. The profit to Craig and Melinda will come from ticket sales and from charges to food vendors for the privilege of setting up shop. Apart from some minor skirmishes between Craig and Melinda regarding management rights, preparations go fairly well. When the weekend of the fair arrives, things initially go fairly smoothly. Unfortunately, however, one of the beauty contestants slips on the runway. An argument broke out during the pie eating contests resulting in angry contestants throwing pies and injuring spectators. Finally, an elderly lady, who was angry because she did not win the prize for the best honey, jabbed the volunteer judge with her cane. All injured parties threaten to sue Craig and Melinda. Craig tells Melinda that she should bear the larger percentage of any damages because the idea for the fair was initially hers, and she obtained all necessary permits. Melinda, on the other hand, tells Craig that he should be wholly responsible for any damages because he was put in charge of all competitions. They can reach no agreement regarding winding up the project and splitting the meager profits, and angrily go their separate ways with no resolution. As she is leaving, Melinda shouts to Craig that as her agent he should have done a better job with security. Which of the following is true regarding management rights in regard to the project?
Unless an agreement gives one party greater management responsibilities, Craig and Melinda would share equal management for the task for which they have come together.
For this type of project, generally state law requires that responsibilities of management be specifically assigned in writing to one of the parties.
For this type of project, generally state law requires that responsibilities of management be specifically assigned to one of the parties; but the assignment may be oral.
In the absence of an agreement between the parties, the party who filed for the business license for the project is charged with management responsibilities.
Regardless of any agreement existing between the parties, the party who filed for the business license for the project is charged with management responsibilities.
22. Brice just finished a residence in internal medicine and wants to go into practice with Horace and Joyce. Brice tells you that while he needs to practice with other physicians for call coverage and for other reasons, he does not want to be personally liable should the other physicians be found guilty of malpractice. You discuss various incorporation options with him, but he tells you that he would like to form a partnership. What business form would you recommend to him and why?

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