Chapter 26 - Franchises, Joint Ventures and Nonprofit Corps.

Question 1

Franchises

Answer 1

1-Franchisor (McDonalds), Franchisee (who buys)

Question 2

Franchisee Rule

Answer 2

1- Not fully disclosing everything to franchisee is why this rule was made
2. There are certain things a franchisor must disclose - copy of the franchisor’s current disclosure document (14 days before signing)

Question 3

Franchisor Liability

Answer 3

• Frnachisor is typically not liable for torts and crimes of franchisees
• Is liable if involved in the day to day activities.
• Franchisor can mandate how the food is mad and design of the store

Question 4

Allen v. Choice Hotels International

Answer 4

• Mrs. Allen
  s husband was killed by some burglars that followed them to the hotel.
• The Allen’s went into the room the the burglars knocked on the door and they robbed the Allens and killed him.
  -Mrs. Allen said that the hotels had a duty to protect - peep hole and door secure.
  -She believed the hotels should be responsible for the death.
  -Choice Hotels as the franchisor was not liable.

Question 5

Joint Ventures

Answer 5

• Two or more persons enter into an agreement to accomplish a common project
• Usually, when project is over, they dissolve the entity.
• Usually short term
• Taxed like a partnership (flow through) unless they form a corporation.

Question 6

Non-profit Corporations

Answer 6

• Nonprofit v. Tax exempt v. Charity - are not synonomous
• To be charity, need to meet requirements under the internal revenue code 501(C)(3)
• File “Articles of Incorporation”

Question 7

New Faith v. Commissioner of IRS

Answer 7

• Fighting over tax status
• New Faith operated lunch trucks and said purpose was to feed the poor as part of charity, but they were charging people for the lunch. They were making a profit.
• If not charitable, they should be paying taxes
• Court ruled in favor of the IRS because new faith was involved in a trade business.
• Revoked their status and treated as a c-corp.