Which of the Following Is True About the FTC Franchise

question 3

Multiple Choice

Which of the following is true about the FTC franchise rule with respect to earnings projections made by a franchisor in materials provided to prospective franchisees?

• A) Because they are inherently misleading,financial projections cannot be made.
• B) Any earnings projections must be based on the actual results of an existing franchisee.
• C) Any earnings projections cannot be based on an actual franchisee and must be based on a hypothetical franchisee and be relevant to the franchisee receiving the information.
• D) The franchisor can provide projections based on either actual or hypothetical franchisees,but if projections are provided,certain additional disclosures must be made.
• E) The franchisor can provide projections based on either actual or hypothetical franchisees,but can be liable for damages to the franchisee if the results are not reasonably achievable.

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Definitions:

De Facto Corporation

A company that operates like a corporation and may be treated as one for legal purposes, despite not having completed formal incorporation steps.

State Incorporation Statute

Laws established by individual states governing the process, requirements, and regulations for the incorporation of businesses within their jurisdiction.

Closely Held

Refers to a business that has a small number of shareholders, often family members, without public stock offerings.

Offer Stock

The process by which a corporation issues new shares of stock to potential buyers, typically to raise capital.