Quiz 5 Franchises, Duties, & Taxes

Question 1

Franchise Agreement

Answer 1

A legal agreement between the franchisor and franchisee that creates the legal foundation for the franchise relationship.

Question 2

Franchise Agreement- Termination

Answer 2

The franchise agreement usually sets out conditions of termination.

Question 3

Relationship between Franchisor and Franchisee (3 things) #1

Answer 3

Franchisees must be given reasonable time to wind up the business.

Question 4

Relationship between Franchisor and Franchisee (3 things) #2

Answer 4

A franchisee may receive little or
nothing on termination
since the franchisor owns the trademark and the business.

Question 5

Relationship between Franchisor and Franchisee (3 things) #3

Answer 5

If franchisor arbitrarily or unfairly terminates a franchise, franchisee may be able to sue for wrongful termination

Question 6

Termination not considered “wrongful” if (2 things)

Answer 6

1. Franchisor’s decision to
   terminate was made in the normal course of business operations.
2. Reasonable notice of termination was given to the franchisee.

Question 7

Duty of Care

Answer 7

Acting in good faith
(honestly) exercise the care that an ordinarily prudent
(careful) person would exercise in similar circumstances

Question 8

Duty of Loyalty

Answer 8

Disclosing or avoiding any conflicts of interest

Question 9

Jurisdiction meaning

Answer 9

Where a court will hear a case about disputes regarding a contract

Question 10

What is citizenship for Jurisdiction

Answer 10

A business’ citizenship determines whether a dispute belongs in state or federal court

Question 11

How is a business’ citizenship determined for Jurisdiction

Answer 11

Citizenship depends on whether the business is a corporation or an LLC

Question 12

Corporation Citizenship

Answer 12

Citizen in the state it was incorporated and where it maintains its principal place of business

Question 13

Partnership Citizenship

Answer 13

Citizen in every state that its partners reside ( so multiple states might have jurisdiction)

Question 14

LLC Citizenship

Answer 14

Citizen in every state that its partners reside ( so multiple states might have jurisdiction)
LLCs are treated like Partnerships for Jurisdiction

Question 15

How are LLCs managed #1

Answer 15

Member managed: every member participates in management

Question 16

How are LLCs managed #2

Answer 16

Manager managed:
LLC can elect to be manager managed, where members designate a group of people to manage the business

Question 17

How are LLCs taxed-2 or more members

Answer 17

2 or more members will be taxed as a partnership (pass-through) unless thy choose to be taxed as a corporation (double tax)

Question 18

How are LLCs taxed-one member

Answer 18

Taxed as a sole proprietorship, u less the owner wishes to be taxed as a corporation

Question 19

Duties of Shareholders (2 things)

Answer 19

1 Majority
shareholders owe a duty of fairness and loyalty to minority shareholders and the corporation.
2. They must not abuse their control to the detriment of others (e.g., through oppressive conduct or self-dealing)

Question 20

Duties of Officers (3 things)

Answer 20

1. Responsible for the day-to-day
   management of the corporation
2. Duty of Loyalty and 3. Duty of care

Question 21

Duties of Directors
(2 things)

Answer 21

1. Duty of Loyalty and 2. Duty of care