Quiz 25: Sole Proprietorships and Private Franchises


Below mentioned are the advantages of sole proprietorship: • Corporate tax is not applicable in case of sole proprietorship. • Business requirements are very formal. • Very minimal legal cost is involved in forming sole proprietorship. • Sole proprietor has the discretion over sale and transfer of the business. • Sole proprietor has decision making power and complete control over the business. Below mentioned are the disadvantages of sole proprietorship: • Sole proprietor is personally liable for debts and business obligations. • Risk off wrongdoing of employees must also be bared by the sole proprietor. • Investors generally do not invest in sole proprietorship. • Sole proprietors have to finance their business through personal assets and loans.

The court should rule in favour of the plaintiff i.e. Ms S because company N is fully responsible for the harassment of the employees by the manager at the franchise restaurant. The reason behind this is that the employees are the agents of company N and agency relationship is implied by the circumstances and conduct of the parties involved. In this case, company N retained substantial control over fresh hiring and policies of the franchisee along with the right of terminating the franchise in case of any violations. Even though its supervisors routinely scrutinized and approved the policies but still it would not undercut company N's liabilities in this case.

Facts of the case: CA entered a franchise contract with LA. The contract includes several instructions that were supposed to be implemented by CA. If any mislead to implement the rules of the contract, this would lead to the termination of the contract. Franchise agreement: It is a legal contract maintained between franchisor and franchisee. In this contract, the franchisor would provide its organization's operational model, and license to carry out business operations like right to sell branded products, etc. 1.The franchise agreement between CA and LA is observed to business format franchise. It is a complex and complete format franchise agreement which allows a franchisee to use the franchisors' brand name. The agreement also agrees to sell and distribute its goods under the franchisors' trade mark. 2.If CA is the sole proprietor of the Company FA in ME, he will be responsible to repair the damages for the accident that took place in the kitchen. CA would be liable for the repair as he has all the rights to operate business, to make use of profits earned, and also he will be responsible for the loss that may occur while carrying the business operations. 3.CA cannot file a case against LA as the contract stated every aspect that was supposed to be implemented by the CA. As per the contract, if any inability to implement the instructions would lead to termination of the contract. Hence, it can be concluded that CA has no flaw from its side. Thus, there is no way to assume that CA would file case against LA. 4.It can be agreed that LA had a good cause to terminate the franchise agreement. It is evident to say this, as the rules to be implemented to have healthy contract were given to CA. In spite of the sharing the information CA failed to implement instructions as per the contract requirements. Hence, a court can be likely to rule that LA had good cause to terminate contract from CA.

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