The Business Opportunity Rule requires business opportunity sellers to provide prospective buyers specific information to assist them with evaluating a business opportunity. The policy behind the Business Opportunity Rule is to ensure that prospective purchasers have the information they need in order to meaningfully assess the risks of buying a work-at-home program or any other business opportunity.
The FTC is actively enforcing violations of the Biz Opp Rule. Familiarity with the Rule’s requirements, including necessary disclosures, is critical to ensure compliance.
Numerous states have also adopted business opportunity laws.
What the Biz Opp Rule Covers
The Rule applies to commercial arrangements where a seller solicits a prospective buyer to enter into a new business, the prospective purchaser makes a required payment, and the seller – expressly or by implication – makes various types of claims.
Examples of what the Biz Opp Rule covers, include, without limitation:
- Work-at-home opportunities (e.g., envelope stuffing or craft assembly) where the seller offers to buy back merchandise from the business opportunity purchaser; and
- Opportunities where a seller represents that it will assist the purchaser set-up or run the business (e.g., providing the purchaser with customers, accounts, or locations to sell products or services.
Consult with an FTC advertising compliance and defense lawyer to discuss whether a particular opportunity falls within the scope of the Biz Opp Rule.
If a transaction falls within the scope of the Biz Opp Rule, a seller has critical legal responsibilities, including, without limitation:
- Providing the purchaser with a Disclosure Document. The Disclosure Document must be provided at least seven days before the prospective purchaser executes a contract or pays any money for the business opportunity;
- If any earning claims are made, the prospective purchaser must be provided with a separate document that states “EARNINGS CLAIM STATEMENT REQUIRED BY LAW” across the top; and
- Sellers must comply with general truth-in-advertising principles and avoid deceptive marketing practice. The Biz Opp Rule sets forth examples of “dos” and “don’ts.”
At least seven days prior to a prospective buyers signing a contract or paying any money for a business opportunity, sellers are required to provide a Disclosure Document that lists five pieces of information.
- Identifying information that sets forth a seller’s company name, business address, telephone number; the sales person’s name; and the date a seller provided the document to the prospective buyer;
- Sellers are required to disclose whether the company or certain key personnel have been the subject of civil or criminal actions involving misrepresentation, fraud, violation of securities laws, or any unfair or deceptive practices – including violation of any FTC rule – within the past ten years. If so, a list of such actions must be attached;
- Sellers are required to indicate whether they maintain a cancellation or refund policy. If so, a statement describing the policy must be attached;
- Sellers must indicate whether they have expressly or impliedly represented how much money a prospective purchase can earn. If so, sellers must attached an Earnings Claim Statement to the Disclosure Document; and
- Sellers are required to list contact information for at least ten people that have purchased a business opportunity therefrom. If there are fewer than ten, sellers must list everyone. Sellers are also required to update the list every month, until ten people have purchased the business opportunity. The Disclosure Document must also clearly and conspicuously state that: “If you buy a business opportunity from the seller, your contact information can be disclosed in the future to other buyers.”
A prospective purchaser must also sign, date, and return the Disclosure Form. All documents required by the Biz Opp Rule must be attached. The Disclosure Form must be updated quarterly and if the business opportunity is in a language other than English, the form and other required disclosures must be stated in that language.
If a prospective purchaser is told something in person, via email or telephonically, or in any other advertisement or promotion, there can be no contradiction with what is stated in written disclosures.
Earnings Claim Statement
Express or implied representations regarding how much money a person can earn from a business opportunity must be placed in writing. It is unlawful to make earnings claims unless sellers are able to substantiate them with written materials. Such materials must be made available to a prospective purchaser upon request.
Earnings claims must be accompanied by a separate document that clearly and conspicuously states across the top EARNINGS CLAIM STATEMENT REQUIRED BY LAW.
The document must also contain, without limitation:
- The name of the person making the claim and the date;
- The specifics of the claim;
- The start and end date those earnings were achieved;
- The number and percentage of the purchasers that obtained at least that result;
- Any information about the purchasers that obtained those results that might vary from prospective buyers (e.g., where they are located); and
- A statement that prospective purchasers can obtain written proof for earnings claims, if request.
Sellers that promote your business opportunity in a language other than English must ensure that the Earnings Claim Statements are that language, as well.
Earnings claims made online, television or in other media must also be backed by proof that supports express and implied representations. Certain information must be disclosed with making such claims, including, but not limited to, start and end dates the earnings were achieved, and the number and percentage of purchasers that obtained at least that result. General statements regarding earnings or discussions regarding industry-specific performance statistics also require written substantiation.
Changes to Earnings Claim Information
Substantive changes to information that prospective purchasers have been provided in the Earnings Claim Statement must be conveyed, in writing, prior to the execution of a contract or the payment of money.
Avoid Deceptive or Unfair Practices
It is unlawful to engage in deceptive or unfair practices in the promotion, marketing or sale of any business opportunity. Sellers should ensure that they do not say anything verbally or in writing that contradicts information set forth in the Disclosure Document or Earnings Claim Statement.
The Biz Opp Rule sets forth various lists other clear “dos” and “don’ts.”
- Do not include anything in the Disclosure Document or Earnings Claim Statement other that what the Rule permits;
- Never expressly or impliedly mislead people about what other purchasers have earned, what they could earn or how much assistance they will be provided;
- Do not misrepresent the existence of “exclusive territories,” or the likelihood of finding locations, outlets or customers;
- If you hold someone out as a successful purchaser of a business opportunity, clearly disclose if they have been paid or have some other material connection to them; and
- Do not represent that you are offering a job if you are really selling them a business.
The Biz Opp Rule requires that sellers maintain certain records and make them available to the FTC for three years. Examples of what must be kept include, without limitation, each purchaser’s signed disclosure receipt, all executed written contracts and substantiation supporting earnings claims.