Understanding business Test bank solution Chap 5 How to form a business

Although most new firms start out as sole proprietorships, few large firms are organized this way. Why is the sole proprietorship such a popular form of ownership for new firms? What features of the sole proprietorship make it unattractive to growing firms? What is the difference between a general partner and a limited partner? Give an example of a situation in which a person would want to be a limited partner. What is a C corporation? What are the major advantages and disadvantages of this form of business ownership?

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Test Planning Table for Chapter 5

Learning Objective Knows Basic LL:1

Terms and Facts

LL:2

Understands

Concepts and Principles

189,190,191,192,193,194, 195,196,197,198,199

18,19,20,21,

200,201,202,203,204, 205

22,23,24,

206,207,208,209,210, 211,212,

336, 342*

2 Describe the

differences between

general and limited

partners, and compare

the advantages and

disadvantages of

partnerships.

25,26,27,28,29,30,31,32, 33,34,35,36,37,38,39,40, 41,42,43,44,45,

213,214,215,216,217,218, 219,220,221

46,47,48,49,50,51,

222,223,224,225,226, 227,228

52,53,54,55,56,57,58,

59,

229,230,231,232,233, 234,235,236,237,238, 337,

239,240,241,242,243,244, 245,246,247,248,249,250, 251,252,253,254,255,256

101,102,103,104,105, 106,107,108,109,110,

257,258,259,260,261, 262,263,264,265

111,112,113,114,115, 116,117,118,119,

266,267,268,269,270, 271,272,273,274,275, 338,339,

345*

4 Define and give

examples of three types

of corporate mergers,

and explain the role of

leveraged buyouts and

taking a firm private.

120,121,122,123,124,125, 126,127,128,129,130,131,

276,277,278,279,280,281, 282,283,284,285,286

132,133,134,135,136, 137,

287,288,289,290,291, 292

138,139,140,141,142,

293,294,295,296,297, 298,299,

340

5 Outline the

advantages and

disadvantages of

franchises, and discuss

the opportunities for

diversity in franchising

and the challenges of

global franchising.

143,144,145,146,147,148, 149,150,151,152,153,154, 155,156,157,158,159,160, 161,

300,301,302,303,304,305, 306,307,308,309,310,311, 312

162,163,164,165,166,

167,168,169~,170~,

313,314,315,316,317

171,172,173,174,175, 176,177,178,

318,319,320,321,322,3 23,324,325,

341, 346*,347*

6 Explain the role of

cooperatives 179,180,181,182,183,184,326,327,328,329,330 185,186,331,332,333 187,188,334,335

Total number of test items: 347

True/false questions are in plain text.

Multiple choicequestions are in bold text

Questions on boxed material are in bold text with a tilde~.

Essayquestions are in bold underlined text.

Minicase questions are in bold with an asterisk*.

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Chapter 05 - How to Form a Business

Chapter 05 How to Form a Business Answer Key

True / False Questions

Answer: False

AACSB: Reflective Thinking

Bloom’s: Remember

Learning Objective: 05-01 Compare the advantages and disadvantages of sole proprietorships

Level of Difficulty: 1 Easy

Topic: The Importance of Small Business Ownership to the U.S Economy

2. The three major forms of business ownership in the U.S are sole proprietorships, partnerships, and corporations

Answer: True

Answer: False

4. Once a business is established, it's almost impossible to change from one form of business ownership to another

Answer: False

of business is called a partnership

Answer: True

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6. A legal entity with authority to act and have liability separate from its owners is called

a partnership

Answer: False

7. Corporations represent 20 percent of all the businesses in the U.S and earn 81 percent

of the total U.S business receipts

Answer: True

proprietorships are usually the most difficult type of business to establish

Answer: False

9. The first step in starting a sole proprietorship is to fill out a proprietorship charter application form and file it with the state government

Answer: False

Topic: Sole Proprietorships

10. It is usually easy to start and end a sole proprietorship

Answer: True

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11. The profits of a sole proprietorship are taxed as the personal income of the owner

Answer: True

12. The sole proprietorship form of ownership tends to be attractive to people who want toinvest in a company without taking an active role in management

Answer: False

13. A major advantage of sole proprietorships is that an owner has limited liability for the debts of his or her business

Answer: False

14. One of the strengths of the sole proprietorship is its ability to sustain rapid growth by raising large amounts of financial resources

Answer: False

15. The debts of a business operated as a sole proprietorship are considered to be the personal debts of the owner of the business

Answer: True

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16. A drawback of sole proprietorships is that they usually have limited access to

additional financial resources

Answer: True

17. An advantage of forming a sole proprietorship is that it allows the owner to have moretime for leisure activities

Answer: False

18. If a sole proprietorship fails, the owner may lose whatever was invested in the

business; however, the owner's personal assets are not at risk

Feedback: Sole proprietors have unlimited liability for the debts of their business This means

that if their business gets into financial trouble they can lose their personal assets

Answer: False

Bloom’s: Understand

Level of Difficulty: 2 Medium

19. If the business is designated a sole proprietorship, profits are passed along to the owner For tax purposes, these profits are accounted for with any other personal income the owner may have accumulated and taxed at the owner's personal income tax rate

Feedback: The profits of a sole proprietorship are passed through to the owner, and taxed at

the owner's personal tax rate However, owners do have to pay self employment tax (for Social Security and Medicare) By law, sole proprietors are required to estimate their taxes and make quarterly payments to the government or suffer penalties for nonpayment

Answer: True

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20. A difficulty that sole proprietors try to overcome is the fact that they have trouble competing with large firms for expert talent Large firms can usually pay better and offer fringe benefits that are unaffordable to the sole proprietor

Feedback: Sole proprietors often find it difficult to attract qualified employees to help run the

business because often they cannot compete with the salary and benefits offered by larger companies

Answer: True

21. Unlike partnerships, if sole proprietorships find themselves in bankruptcy, they need not worry about a court of law requiring them to sell off personal assets to pay for the debts of the firm

Feedback: Sole proprietorships have unlimited liability This means that the proprietor is

financially responsible for all debts incurred by the company In a court of law, a judge could require the owner/proprietor to liquidate personal assets to pay the debts of the business

Answer: False

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22. Eric wants to start a business He is attracted to the idea of being his own boss, and wants to get started with a minimum of expense and hassle He is confident in his abilities,and the market he can draw from, so he is not particularly worried about financial risks All of these factors suggest that Eric may favor starting his business as a sole

proprietorship

Feedback: People who want to be their own boss often prefer to operate their business, at

least initially, as a sole proprietorship An advantage of the sole proprietorship is that it is a relatively easy and inexpensive form of business to set up One drawback of a sole

proprietorship is that the owner has unlimited liability However, at this time, Eric is not worried about risk The unlimited liability factor does not appear to be a problem for him

Answer: True

AACSB: Knowledge Application

Bloom’s: Apply

Level of Difficulty: 3 Hard

23. Sandy Beech, a talented fashion designer who wants to start her own women's

swimwear and beach towel line, is trying to decide which form of business ownership is right for her As a young mother who aspires to send her children to college some day, shedoes not want to jeopardize her savings account in any way In order to overcome these risks, Sandy should start her business as a sole proprietorship

Feedback: Sandy is concerned about the risk of losing personal assets if her business does not

succeed Although the sole proprietorship is easy to set up, it may not be the best form of business ownership for Sandy due to her need to protect personal assets She may want to consider a form of ownership that provides limited liability

Answer: False

Bloom’s: Apply

24. Rocky Rhodes is convinced that he has a great idea for a new business Unfortunately, the type of business he wants to start would require a fairly high initial investment and Rocky has a poor credit rating and very little personal wealth Rocky would be unlikely to find success if he organized his business as a sole proprietorship

Feedback: Funds available to sole proprietorships are often limited to the amount the owner

can raise Thus, Rocky's business would probably have a hard time raising enough money if

he organized it as a sole proprietorship

Answer: True

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Bloom’s: Apply

25. A general partner takes an active role in the management of the business

29. Limited partnerships are just like general partnerships, except that they are partners for

a limited time period

Answer: False

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liability for losses beyond the amount invested

32. Although shares of master limited partnerships can be purchased on one of the

national stock exchanges, these companies are taxed like partnerships

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34. According to the Uniform Partnership Act, the three key elements of any general partnership are (1) shares of stock to represent ownership, (2) limited liability, and (3) ease of ownership transfer

Topic: Advantages of Partnerships

37. A major objective of limited liability partnerships (LLPs) is to limit each partner's personal liability to the consequences of their own acts and those of people under their supervision

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38. One of the major disadvantages of a partnership is that profits must be divided equally

Topic: Disadvantages of Partnerships

39. A general partner has unlimited liability for the debts of the partnership only if he or she personally approved the decisions that resulted in those debts

41. One advantage of a partnership is that there is a simple process for partners to

terminate their business

42. Compared to sole proprietorships, an advantage of partnerships is their ability to obtain more financial resources

Answer: True

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Learning Objective: 05-02 Describe the differences between general and limited partners, and compare the advantages and disadvantages

of partnerships

43. Setting up a partnership under the terms of a written agreement is a bad idea, because written agreements tend to be too inflexible and impersonal

44. Compared to sole proprietorships, partnerships offer the advantage of shared

management and pooled knowledge

45. A limited partnership refers to a partnership set up for a temporary purpose, such as a real estate development project

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46. In a limited partnership, the general partners should encourage the limited partners to take a more active role in the operations of the business After all, the limited partner has comparable liability in the business, even though he/she may not be a partner for as long aperiod of time as the general partners

Feedback: By definition, a limited partnership will consist of one or more general partners

and one or more limited partners The limited partners are passive investors By law, they do not take an active role in the management of the business, yet they may share in the profits of the business and remain a partner for as long as the partnership exists

47. If a partner in a limited partnership dies, the partnership ceases to exist

Feedback: If a partner in any partnership dies, the partnership agreement automatically ceases

to exist Good partnership agreements usually have provisions for these situations

48 In the Figure 5.2, the authors suggest that potential partners discuss the types of skills

that each brings to the business Partners with complementary skills may enhance the business

Feedback: It is suggested that you ask yourself what types of skills you and your potential

partners bring to the business, and whether those skills complement each other Successful partners often come with varying backgrounds Sometimes one partner will have the technicalskills to get the job done, while others might have the business or accounting knowledge

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49. One method to avoid conflicts between partners is to solicit the services of a lawyer to create a well-written partnership agreement

Feedback: One of the most important tasks to achieve before forming a partnership is to

create a partnership agreement The partnership agreement addresses a number of rules that will govern the activities of the partnership, including but not limited to: the duties of each partner; the rules for adding partners; contributions by each partner; and, how profits will be distributed

50 According to Figure 5.2, attributes such as trust and integrity are not something you

should get overly concerned about when selecting partners, due to the fact that this is a business decision, not a friendly game of golf

Feedback: Prospective partners should concern themselves with several aspects of the

business relationship, including the values shared by partners who are entering into business together Other things that you should ask yourself is whether the partners share the same goals and whether each partner's skills complement the others

Feedback: The partnership agreement should stipulate the way the business plans to share the

profits The partnership may not necessarily divide the profits equally among members Several criteria may enter into the decision of how to share profits, including the expertise of each partner, the investment amount of each partner, and the amount of time each partner spends in the business

Answer: False

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Feedback: A partnership consists of two or more owners Unless explicitly written in the

original partnership agreement, the partnership can add partners

Feedback: In a general partnership, all partners share in the management of the business, and

have unlimited liability for the firm's debts Since Diana has no interest in managing a

company and wants to limit her risk, she is more suited for a limited partnership, where her friends would serve as general partners and she would serve as a limited partner

Answer: False

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AACSB: Analytical Thinking

their arrangement, Emma actively manages the company and assumes unlimited liability for the firm's debts Chase has invested several thousand dollars of his money with plans

to share in the profits, but does not actively make management decisions, nor will he assume liability beyond his initial investment Emma and Chase participate in a limited partnership

Feedback: A limited partnership consists of at least one general partner, who has unlimited

liability, and at least one limited partner, who risks only what he or she has invested By law, the limited partner cannot actively manage the partnership

56. Sergio has agreed to become a partner in his brother's horse-breeding business Since

he provided 30 percent of the money to start the firm and built an air-conditioned barn, he

is entitled to 30 percent of any profits the firm earns during its first year of operation

Feedback: The division of profits in a partnership is negotiable and is not necessarily tied to

the amount of the initial investment

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57. After spending a summer “down under,” two Oregon friends, Rick and Mick, created

a general partnership to import emu from Australia to the U.S After a year, Rick found himself at the mercy of Mick, who seemed to keep the books and seldom share the

financial results, even though Rick was out selling the emu idea to farmers and

ecologically conscious consumers and shipments were increasing As their consultant, one

of the first things that you inquire about is whether they are familiar with the UPA

(Uniform Partnership Act), specifically the right to participate in managing the operations

of the business

Feedback: The Uniform Partnership Act (adopted in every state except Louisiana) stipulates:

(1) common ownership; (2) shared profits and losses; and (3) the right to participate in

managing the operations of the business Rick has the right to know and be provided with regular financial statements that pertain to his business

Feedback: A limited partner has limited liability and cannot actively manage the firm, but his

involvement is not restricted as to length of time

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59. Last night as you scrolled through the TV channels to find an action flick, you came across an old movie with tough guy James Cagney, called "Yankee Doodle Dandy." Although not particularly your kind of movie, you stayed on that channel for a few

minutes because Cagney and another guy were in partnership together They were arguingover who was the senior partner and who was the junior partner, even though, clearly, they started the business at the same time If you were brought on board as their present-day business advisor, you would explain to them that all partnerships have at least one general partner (known as the senior partner) and one limited partner (known as the junior partner)

Feedback: According to the Uniform Partnership Act adopted in every state except Louisiana,

partners have the right to (1) common ownership; (2) shared profits and losses; and (3) the right to participate in managing the operations of the business In some cases, partners may have differing skills and skill levels (or level of experience) of the other partners, but as partners they are on equal footing A good partnership agreement will spell out the details of the partnership Further, partnerships can be (1) general partnerships or (2) limited

partnerships, but these variations do not hold the senior/junior designation

Learning Objective: 05-03 Compare the advantages and disadvantages of corporations, and summarize the differences between C

corporations, S corporations, and limited liability companies

Topic: Corporations

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62. The owners of a corporation are known as general corporate partners

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67. Corporations are easy to start and easy to terminate

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72. Stockholders in a corporation exert a significant degree of control over the company's daily operations

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77. Most states have legal restrictions that prevent individuals from incorporating

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82. Delaware is a popular state in which to seek incorporation due to its reduced costs andother perks

Answer: True

83. A closed corporation is one whose stock is held by a few people and is not available

to the general public

Answer: True

85. A quasi-public corporation is a corporation chartered by the government as an

approved monopoly to perform services to the general public

Answer: True

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87. To change ownership in a corporation you simply sell your stock to someone else

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92. By filling out the correct paperwork annually, any corporation can qualify to be classified as an S corporation

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97. Limited liability companies have both flexibility in tax treatment of earnings and limited liability protection for owners

101. The organization structure of a corporation allows for stockholders to exert a

significant degree of control over the company's daily operations

Feedback: Stockholders elect the Board of Directors of a corporation The Board of Directors

appoints the management The management operates separately from stockholders

Answer: False

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102. Public utilities are examples of quasi-public corporations

Feedback: Quasi-public corporations are corporations authorized by the government to serve

103. In order to establish a C corporation, it is a requirement that investors run the

company, whereas in an S corporation, this is not the case

Feedback: In a C corporation, the investors elect the Board of Directors The Board of

Directors appoints the officers and management team It is not a requirement that investors run the company S corporations also have stockholders, directors, and employees, but S corporations are taxed differently from C corporations

Feedback: There is ease of ownership in a corporation If you no longer want to be an

owner/stockholder, you sell your shares to another party The corporation has perpetual life, but your ownership does not need to be for life

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105. The stockholders of large, publicly traded corporations have a daily pulse on the operation of the business

Feedback: The owners/stockholders elect a Board of Directors, who hire the officers of the

corporation and oversee major policy issues The owners/stockholders thus have some say in who runs the corporation but have little to no control over the daily operations

106. If a corporation distributes after-tax profits to its stockholders in the form of

dividends, the government considers these distributions as part of each stockholder's personal income Stockholders pay taxes on these distributions

Feedback: A disadvantage of the corporate form of business ownership is double taxation If

corporations distribute after-tax profits to stockholders, these individuals are required to pay taxes on this income Unfortunately, these amounts were already taxed once, when the corporation paid taxes on them

107. If a corporation has after-tax profits of $360,000, and elects to distribute this amount

in the form of dividends to its stockholders, these distributions are free and clear of taxes because the corporation paid taxes on this amount prior to distribution

corporations distribute after-tax profits to stockholders, these individuals are required to pay taxes on dividend income Unfortunately, these amounts were already taxed once, when the corporation paid taxes on them, hence the term double taxation

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108. Double taxation means that a corporation pays twice the amount of taxes as a sole proprietorship or partnership

corporations distribute after-tax profits to stockholders, these individuals are required to pay taxes on dividend income Unfortunately, these amounts were already taxed once, when the corporation paid taxes on them, hence the term double taxation

Feedback: A limited liability company (LLC) is similar to an S corporation but without the

special eligibility requirements S corporations require their owners to be U.S citizens or the estates of U.S citizens The LLC does not have these requirements

Feedback: Although the LLC allows for profits to be distributed to owners and taxed at each

owner's personal tax rate, the owners must also pay self-employment taxes on those earnings Self-employment taxes include Medicare and Social Security taxes

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111. A group of medical doctors are interested in incorporating their business There is no advantage due to the costs involved

Feedback: Many individuals choose to incorporate to obtain limited liability In some cases,

they may also receive tax savings by doing so

Answer: False

Bloom’s: Apply

112. Nutty Dough is a small chain of donut shops currently owned and operated by a group

of seven partners The owners think that their chain has the potential for rapid growth, but several of the partners are concerned about the growing financial risks that will

accompany this growth One way the partners could deal with this problem would be to incorporate their business

Feedback: An advantage of corporations is that they provide their owners (stockholders) with

the protection of limited liability

Answer: True

Bloom’s: Apply

113. Chad recently invented Wave-Aerobics, a next generation watercraft that can safely perform water stunts similar to an amusement park ride As the founder of a fast growing business, you think his goal of incorporating, "to remain in steadfast control of the firm's operations for an indefinite number of years," is good strategy

Feedback: One potential drawback of incorporation is the possibility of conflict between the

entrepreneurs who originally start a business and the stockholders and board of directors who may eventually gain control

Answer: False

AACSB: Analytical Thinking

Bloom’s: Analyze

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114. Mojo Motors is a small conventional corporation with only 212 stockholders Eleven

of the stockholders are citizens of Mexico, and eight others are citizens of Canada Due to its size and diversity in ownership, you would recommend that Mojo Motors change to an

S corporation

Feedback: Mojo Motors does not satisfy the requirements for an S corporation—it has more

than 100 stockholders, some of whom are not U.S citizens or permanent residents of the United States

Unfortunately, their lawyer advised them that they do not meet some of the requirements necessary to qualify as an S corporation An alternative form of business that would give them similar advantages is a limited liability company

Feedback: Limited liability companies offer many of the same advantages as S corporations,

including limited liability and the possibility of taxation like a partnership, without the specialeligibility requirements required to qualify for S corporation status

116. The owners of California Canines, a firm that designs and manufactures coats,

sweaters, jackets, and rainwear for dogs, want to organize as an LLC Two members are college students and two others are thirty-something couples with young children This is good strategy because each member can choose to commit to limited or unlimited

liability

Feedback: All members of an LLC have limited liability There is no choice in that matter

The purpose of organizing as an LLC is to eliminate the risk of losing personal assets in an unprofitable venture In terms of taxes, a limited liability company offers the best of both worlds, allowing the owners to choose to be taxed as a partnership or a corporation depending

on which tax rates would benefit them the most

Answer: False

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Feedback: While S corporations have several restrictions, one advantage they have compared

to the limited liability company is the self-employment tax requirements Any profits earned

by the LLC are considered part of the owner's wages/salary/income These wages are subject

to self-employment taxes The S corporation pays self-employment taxes only on those dollars designated as salary or wage expenses by the business They do not pay self-

employment taxes on the profits of the business

Feedback: If Peaceful Pastures decides to change its form of business ownership to a

nonprofit corporation, it will not seek personal profits for its owners If the owner(s) works in the business, he/she can expect a salary By law, the firm cannot distribute any additional income to owners It must put all revenues and/or contributions back into the business

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119. Chipper's Golf Resort has the opportunity to buy 1,000 acres of property adjacent to its 18-hole golf course After talking with her banker, the owner is encouraged to begin the paperwork to change from a limited liability company form of business ownership to acorporation You applaud this strategy because she will eliminate the problem of double taxation

Feedback: C corporations (not LLCs) face the disadvantage of double taxation A C

corporation's income is taxed twice First the corporation pays tax on all income before it can

distribute any, as dividends, to stockholders The stockholders pay income tax on the

dividends they receive

Topic: Mergers and Acquisitions

121. The three major types of mergers are acquisition, joint, and connective

122. An acquisition is when one company buys the property and obligations of another company

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123. Taking a firm private involves converting a firm from a corporation to a general partnership

124. If firms wish to gain market share in their current market, they would consider a conglomerate merger

125. The purpose of a conglomerate merger is to diversify operations and investments

126. A merger between two businesses in different stages of related businesses is known as

127. A horizontal merger refers to a merger between two companies that serve entirely different markets

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128. A horizontal merger refers to a merger between two companies in the same industry, and serving the same markets

129. A leveraged buyout is an attempt by top management to gain control of a company by issuing a large amount of new stock

130. When a group of investors take a firm private, they purchase all the company's

131. In recent years, foreign firms were reluctant to merge with or acquire American corporations

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132. A merger is a mutual agreement where a firm joins together with another firm,

whereas an acquisition is when one firm purchases the assets and obligations of another firm

Feedback: When companies merge, there is a mutual agreement to join forces Although the

assets and obligations are combined, there is no offering of funds or stock by one company, for the other, as in an acquisition

133. One reason that a firm would choose to merge or acquire another company would be

to gain market share

Feedback: Firms know that the fastest way, but not always the least expensive way, to acquire

market share or expand their market is to merge with or buy out a competitor

diversity of products or services

Feedback: When firms participate in conglomerate mergers, they purchase companies whose

products and services are different or unrelated to what they currently offer They choose to diversify the portfolio of business units and even the industries where they operate

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135. The strategy of a leveraged buyout is used when employee talent is at a minimum

Feedback: If employees and/or management believe they can improve performance by

running the company themselves, they will seek financial backing (borrow funds) and take ownership, by buying all available stock from the current stockholders

136. Taking a firm private means turning a profit-seeking corporation into a nonprofit corporation in order to avoid a hostile takeover

Feedback: Taking a firm private involves an effort by a group of stockholders or managers to

gain control of all of a corporation's outstanding stock

137. A major objective of a leveraged buyout is to enable investors to gain control of a company by issuing new shares of ownership, thus minimizing the use of debt

Feedback: Leveraged buyouts involve financing the acquisition of an organization through

the use of debt financing

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obligations of Champion Golf, Inc., one of its major competitors Hole-In-One Golf Company's plans are an example of a merger

Feedback: Hole-In-One Golf Company's actions are an acquisition rather than a merger An

acquisition refers to one firm's purchase of the assets and obligations of another firm Since the firms are competing in the same market rather than at different stages, this is a horizontal move

139. Two competitors, Stanley's Food Mart and Bluejay Groceries, recently issued a joint announcement stating their decision to merge The announcement claimed that the new firm would have more financial resources, which would enable it to expand services and broaden offerings to consumers This proposed merger is an example of a horizontal merger

Feedback: A merger between two firms in the same industry, such as two grocery stores, is a

140. Tech Solutions, Inc., a manufacturer of laptops, is considering a merger with Outtel, a leading producer of microprocessors and other computer chips Tech Solutions believes such a merger would give them a guaranteed source of needed components, and enable them to have better control over quality If this merger occurs, it would be an example of ahorizontal merger

Feedback: A merger between two companies at different stages of related business is known

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141. Cory Raider is leading a group of stockholders who want to take the Bigbux

Corporation private If Cory's group succeeds, Bigbux's stock will no longer be available

to investors on the open market

Feedback: Taking a firm private involves gaining control of a firm's stock so that it is no

longer available to investors on the open market

142. Due to several years of poor performance, Scrappy's Metal Fabrication, Inc., is

closing Through the use of debt financing, workers plan to purchase the company's stock from current shareholders in order to buy the firm, improve company performance, and save jobs

Feedback: A leveraged buyout involves the use of debt financing to buy the stock of a

company Skilled workers want to save their jobs and make their company profitable again

143. A franchise agreement is an arrangement where a franchisor sells the rights to a business name and the right to sell a product or service within a given territory to a franchisee

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the franchisor In some cases, franchisees have been known to band together to express concern over marketing and management direction

146. Franchisors give franchisees the right to use their name and product, with the

understanding that franchisees obtain all financing and develop all marketing strategies ontheir own

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