CFC Franchise Agreements & Contract Law 1

Question 1

In a franchise agreement, what does the 'grant clause' primarily establish?

Accepted Answer

The franchisee's right to operate using the franchisor's system and marks

Answer

The grant clause establishes the franchisee's right to use the franchisor's trademarks, system, and methods to operate the franchise business.

Question 2

Which federal regulation requires franchisors to provide a Franchise Disclosure Document (FDD) to prospective franchisees?

Accepted Answer

The FTC Franchise Rule

Answer

The FTC Franchise Rule mandates that franchisors provide an FDD to prospective franchisees at least 14 calendar days before any agreement is signed or money is paid.

Question 3

What is the primary purpose of a 'non-compete' clause in a franchise agreement?

Accepted Answer

To restrict the franchisee from operating similar businesses during and after the franchise term

Answer

Non-compete clauses protect the franchisor's system by prohibiting the franchisee from operating similar businesses both during the franchise term and for a specified period after termination.

Question 4

What does 'in-term' non-compete refer to in a franchise agreement?

Accepted Answer

A restriction on competitive activity that applies during the active franchise relationship

Answer

An in-term non-compete restricts the franchisee from engaging in competitive business activities while the franchise agreement is currently in effect.

Question 5

What is the primary purpose of a 'transfer fee' in a franchise agreement?

Accepted Answer

To cover the franchisor's administrative costs in reviewing and approving a franchise transfer

Answer

Transfer fees compensate the franchisor for the administrative costs involved in reviewing, approving, and processing the transfer of a franchise to a new owner.

CFC - Certified Franchise Consultant Practice Test

CFC - Certified Franchise Consultant Practice Test

CFC Franchise Agreements & Contract Law 1