“Be your own boss!”
For would-be entrepreneurs, a claim like that is sure to attract attention.
And if you’re an entrepreneur who markets business opportunities, we have some important information about an FTC rule that affects the business of bizopps.
Hello. I’m Christine Todaro, an attorney with the Federal Trade Commission, the nation’s consumer protection agency. The goal of the FTC’s Business Opportunity Rule is to make sure people who are thinking about buying a bizopp get informed before they invest.
If you offer to sell someone a business opportunity and say certain things – or imply them – this Rule applies to you.
For example, if you say or imply:
• That you’ll help the buyer set up or run the business -- like provide locations where they can use equipment or displays they buy from you;
• OR that you’ll provide the buyer with outlets, accounts, or customers;
• OR that you’ll buy back any products they create or, for example, pay for envelopes they stuff.
Well, then you have three key responsibilities under the Business Opportunity Rule.
First, at least 7 days before a prospective buyer signs a contract or pays any money for a biz opp, you have to give them a one-page disclosure document. To make sure all buyers get the information they need – and to simplify compliance – there’s a form the Rule requires you to use. You can get copies at business.ftc.gov/businessopportunitydisclosure.
Briefly, here’s the information you have to disclose on the form:
• Your company’s name, business address, and phone number; the sales person’s name; and the date you gave the document to the prospective buyer.
• Any earnings claims. If you say or imply how much money a prospective buyer can earn, your claim must be in writing.
• You have to disclose whether you, certain people you’re affiliated with, or your former businesses have been the subject of a legal action for misrepresentations, fraud, securities law violations, or deceptive practices in the past 10 years.
• If you offer refunds or the right to cancel, you need to attach all material terms and conditions to the form. If you don’t offer refunds, check the box to make that clear.
• You also have to list references – the name, state, and phone number of everyone who’s bought the business opportunity in the past three years. If more than 10 people have bought it, it’s OK to list the 10 who live closest to the prospective buyer. In addition, the document must say clearly and conspicuously: “If you buy a business opportunity from the seller, your contact information can be disclosed in the future to other buyers.”
• You’ll have to attach a copy of the disclosure document that the buyer has to sign and date. Let the buyer know how to return the signed receipt to you.
And if you promote your business opportunity in Spanish or another language,
The one-page disclosure document along with the required disclosures must be in that language.
Visit business.ftc.gov/businessopportunitydisclosure for a copy of the Spanish-language disclosure form. In addition, you have to update the form every quarter.
Now your second responsibility under the Rule relates to earnings claims.
If you make a claim about how much money a person can earn, you have to put the claim in writing. It’s illegal to make an earnings claim unless you have written materials on hand that back up your claim. You must have these materials available to a prospective buyer or to the FTC, if they ask for them.
In addition, if you make an earnings claim, you have to give the prospective buyer a separate document that says in big letters across the top -- EARNINGS CLAIM STATEMENT REQUIRED BY LAW. This document has to include:
• The name of the person making the claim and the date;
• The specifics of the claim;
• The start and end date those earning were achieved;
• The number and percentage of your buyers who got at least that result;
• Any information about the buyers who got those results that might vary from prospective buyer’s – like their location; and
• a statement that prospective buyers can get written proof for your earnings claims if they ask for it.
What about earnings claims made in ads on TV, online, or in other media?
Same verse, just like the first: You must have written materials on hand that substantiate your claims, and you have to give certain information when you are making the claim. Again: the start and end dates the earnings were achieved, and the number and percentage of your buyers who got at least that result.
What if you’re talking about earnings or performance information for an entire industry? You’ll need to have written materials on hand showing that the results for the opportunity you’re selling are at least as good.
If there have been substantive changes to what you said in the earnings statement, you have an obligation to let prospective buyers know in writing, before they sign a contract or pay you any money. Of course, if you promote your business opportunity in another language, your earnings claim statement has to be in that language, too.
Moving on to your third responsibility under the Rule: It’s about as basic as it gets. Steer clear of any prohibited practices. For example, don’t say anything that contradicts the information in your one-page disclosure document or your earnings claim statement.
Other don’ts:
• Don’t include anything in those two documents other than what the Rule specifically allows.
• Don’t lie about what other buyers have earned, what a prospective buyer will earn, or how much help you’ll give them.
• And don’t tell people they’ll have exclusive territories if that’s not the case. Just tell them the truth when you’re talking about the likelihood of finding locations, outlets, or customers.
• If you hold someone out as a successful buyer of your business opportunity, you’ve got to say whether you’ve paid them or have some other relationship to them.
• Finally, don’t tell people you’re offering them a job if what you’re really doing is selling them a business.
The Rule also requires you to keep certain records and make them available to the FTC for three years. The records include each buyer’s disclosure receipt, all executed written contracts, and substantiation supporting your earnings claims. The Rule generally exempts business opportunities that meet the definition of a “franchise,” but it’s a good idea to check that out to see if it applies to you.
The FTC’s Business Opportunity Rule is designed to prevent unfair and deceptive practices. And by clarifying and streamlining the obligations of sellers, it certainly makes compliance easier, too.
If you’d like more information, visit the BCP Business Center at business.ftc.gov.
