Future Business Leaders of America (FBLA) Entrepreneurship Practice Test

What term describes an arrangement in which one person manages a business on behalf of another?

1. Franchise

2. Joint Venture

3. Agency

4. Partnership

The correct answer is: Agency

The term that describes an arrangement in which one person manages a business on behalf of another is "Agency." In this context, one party, known as the agent, is authorized to act on behalf of another party, referred to as the principal, in business transactions. This relationship establishes a fiduciary duty, where the agent is expected to act in the best interests of the principal and carry out their directives regarding the operation and management of the business. In contrast, a franchise involves a business model where one party (the franchisee) is granted the rights to operate under the trademark and business model of another party (the franchisor). A joint venture is a collaborative arrangement where two or more parties come together to undertake a specific business project, sharing resources and risks. A partnership refers to a business arrangement where two or more individuals share ownership and operational responsibilities. The agency relationship is distinct because it emphasizes the role of one party managing and executing tasks on behalf of another, making it the most accurate term for the given definition.