A new Business Opportunity Rule from the Federal Trade Commission (FTC) will take effect on March 1, 2012. The new Rule simplifies the seller’s disclosure but expands the definition of the types of businesses that must comply. This new Rule does not, however, eliminate state business opportunity laws; sellers in the 25 states with business opportunity laws would be subject to both federal and state requirements. Franchisors and multi-level marketing businesses would be exempt.
Who is subject to this new Rule? In addition to those businesses covered by the current Interim Business Opportunity Rule, work-at-home opportunities such as assembling crafts or stuffing envelopes will now be subjected to the Rule if they meet the 3 required elements:
1. A seller must solicit prospective buyers to enter into a business that is new to them.
2. A purchaser must make a “required payment” to enter into the business.
3. A seller must provide any of 3 types of assistance:
a) providing locations for the buyer’s use or operation of equipment, displays, vending machines or other devices controlled by the buyer or;
b) providing outlets, accounts or customers to the buyer or;
c) buying back any goods or services that the buyer makes, including payment for services for things like stuffing envelopes or making crafts.
Sellers who are subject to the new Rule must provide prospective buyers with the new one page disclosure document at least seven (7) calendar days before a buyer can sign documents or submit payment. This document must be signed and dated by the buyer. The form contains five sections:
1. Seller’s identifying information (name, address, phone number, etc.).
2. Any legal actions involving misrepresentation, fraud, unfair or deceptive practices, etc. in the past 10 year against seller or key personnel (with attachments for all).
3. Seller’s cancellation or refund policy, if any (with attachment containing policy details if applicable).
4. Seller’s earnings claims, if any (with attachment supporting all claims).
5. A list of at least 10 people who have purchased this business opportunity from the seller in the past three (3) years (including name, state and phone number for each).
There are numerous other details contained in the new Rule; if you have specific questions or issues, you should contact an attorney.
Submitted by: Suzanne C. Cummings, Esq., Cummings Franchise Law, P.C., www.cummingsfranchiselaw.com.