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Q1: Del Rey’s restaurant is a chain-style business operation as it is under a select group and name (Miller 731). Since the franchisee uses their trademark on the deal, this form of a franchise is expected to follow strict operating procedures. In addition, the franchisor supplies the goods and materials needed to serve customers in the same style.
Q2: Del Rey would bear the loss if his business were a sole proprietorship instead of a franchise since sole proprietors have unlimited liability (Miller 729). The sole proprietorship is more popular, and the majority of individuals have small companies in which they capitalize on what they are skilled at, such as handymen. However, one of the most significant drawbacks is that they assumed both corporate and personal responsibilities as one.
Q3: If Del Rey files a claim for wrongful termination, the key aspect that the judge would weigh is the basis for the termination clause stipulated in the two parties’ contract (Miller 729). Until deciding on a bad-faith termination, the court will investigate La Grande Enchilada’s conduct and see whether they are in accordance with the deal.
Q4: The court is expected to find that La Grande Enchilada lacked reasonable cause to revoke Del Rey’s franchise unless the latter’s restaurant met contractual requirements (Miller 729). In such a case, La Grande Enchilada may have violated franchisee termination rules. To prevent a deal cancellation in poor conscience, the franchisor must satisfy the conditions for termination, according to the Federal Trade Commission (Miller 733).
Franchisors are required by statute in the United States to report profitability figures and other financial estimates to help prospective franchisees make informed decisions during the buying process. The Franchise Rule of the Federal Trade Commission (FTC) mandates franchisors to offer detailed reporting and disclosures to prospective franchisees on a timely basis (“Franchise Rule”). This criterion is justified because it provides prospective business owners with adequate knowledge to create profit estimates. To ensure the statistics are as reliable as possible, the Franchise Rule demands the basis of this data be explained. Furthermore, the franchisor must clarify whether the observations in these reports are based on actual or projected evidence (Miller 732). When looking at new market prospects, these reports assist potential franchisees in avoiding fraud. While some companies may be opposed to such regulation due to concerns over secrecy or accountability, it is important to note that the FTC’s Franchise Rule does not require franchisors to include estimates for their expected future profits.
“Franchise Rule.” Federal Trade Commission. May, 2008. www.ftc.gov/enforcement/rules/rulemaking-regulatory-reform-proceedings/franchise- rule. Accessed 16 May 2021.
Miller, Roger L. Business Law Today. 12th ed., Cengage Learning, 2018.
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