Georgia Assessments for the Certification of Educators GACE Practice Test

Which of the following terms best describes a situation where an individual enters into an agreement with a company to use the company's business model within a given territory, usually in exchange for a fee?

1. Franchise

2. Incorporation

3. Limited liability corporation

4. Sole proprietorship

The correct answer is: Franchise

The term that best describes a situation where an individual enters into an agreement with a company to use the company's business model within a specific territory, typically in exchange for a fee, is a franchise. A franchise arrangement allows the franchisee to operate under the franchisor's brand and business system, benefiting from established marketing, operational procedures, and brand recognition. This strategy provides the franchisee with a proven business model and ongoing support, making it a popular choice for entrepreneurs looking to start a business with an established framework. In contrast, incorporation refers to the process of legally forming a corporation, which involves structural and regulatory elements but does not include the same kind of operational agreement as a franchise. A limited liability corporation (LLC) is a business structure that offers personal liability protection to its owners, but it also lacks the franchising aspect of operating under another company's brand. Finally, a sole proprietorship is a simple business structure owned and run by one individual. It does not involve agreements with other companies for the use of their business models and often operates independently without the support systems characteristic of a franchise.