Who Benefits from Business Opportunity Laws?
Business opportunity laws are complex.
These laws are designed to protect buyers who enter into a deal classified as a business opportunity. However, a seller may fail to comply with these rules and ultimately place a prospective buyer at risk.
If you are a buyer interested in purchasing a business opportunity, it is important to wholly understand the rules that may apply to your potential venture. Understanding these rules will help you to better assess this arrangement and avoid the risks that may be associated with this deal.
An experienced franchise and business lawyer can help you to demystify the business opportunity requirements for your state.
What are Business Opportunity Laws?
Business opportunity laws are disclosure rules that mandate what information a seller should disclose to a buyer, in order to aid them in evaluating the business opportunity and the prospective risks that could be associated with this sale.
These laws are regulated at both the federal and state level. The federal law as outlined by the Federal Trade Commission (FTC) applies to all business opportunities that do not meet an exemption under this rule. Otherwise, state business opportunity laws are comparable to the federal laws and apply in 26 states.
Keep in mind, however, that business opportunity rules do not apply to all commercial sale arrangements—only to business opportunity deals.
What is a Business Opportunity?
A business opportunity is an agreement where:
- A seller petitions a potential buyer to enter a commercial deal.
- The potential buyer gives the seller payment of over $500 for this deal.
- The seller promises to provide the sites for the buyer’s equipment, provide customers for the buyer’s goods or services, and buy back any goods or services that the buyer provides.
If you have entered into a commercial deal that meets the above requirements, you have entered into a business opportunity and the seller must disclose the information they are mandated to under the law.
What Should a Seller Disclose?
A seller should disclose the below details to the buyer for any business opportunity deal:
- Identifying information: The seller’s name, business address, contact number, etc.
- Earnings claim: A copy of the seller’s earning statement if they have made an earnings claim.
- Legal actions: The seller’s civil or criminal litigation history for fraud, misrepresentation, etc.
- Cancellation or refund policy: Conditions of the seller’s refund or cancellation policy.
- Receipt: A copy of the disclosure document with the buyer’s signature.
These items make up the disclosure document that you should ensure that you review before signing an agreement or making a payment for a business opportunity deal.
How Does a Buyer Benefit from Business Opportunity Laws?
If you are a buyer planning to enter into a business opportunity, you should verify whether the seller of this deal is required to make the business opportunity disclosures in your state. These disclosures shine the light on red flags that may exist for this business and they can help you to make a more informed decision about whether you should proceed with this sale.
If you are unsure about what risks to look out for, an attorney can guide you through this process.
If you need help understanding the business opportunity laws that may apply to your commercial deal, contact us today for assistance!