Too Good to be True?
New FTC Rules May Help You Evaluate that Business Opportunity
By: Susan E.
Wells, Esq.
Challenging times have caused
many of us to consider means of earning a living that we have not
previously considered. Some of those avenues may be business
opportunities, such as vending routes, stuffing envelopes and
product assembly programs, promoted as being shortcuts to wealth
and prosperity. However, business opportunities that sound
too good to be true usually are.
Recent changes to the Federal Trade Commission's Business
Opportunity Rule may make it easier to evaluate the merits of a
business opportunity, as well as avoid an unscrupulous
promoter. Effective March 1, 2012, business opportunity
sellers must give you a one-page document that includes the
seller's name and contact information and contact information for
people who have purchased the business opportunity during the last
three years (or at least the ten purchasers who are located closest
to you). The disclosure document must also state whether the
seller:
•
Makes an earnings claim (information that conveys a range or
specific level of actual or potential sales, income or profits) -
if so, the seller must give you the earnings claim and offer to
make written substantiation available to you
•
Has been involved in legal actions involving fraud,
misrepresentation, securities laws violations or unfair or
deceptive practices within the past 10 years - if so, the seller
must list those actions
•
Has a cancellation or refund policy - if so, the seller must
disclose the material terms and conditions
The information provided to you may not contain any material
misrepresentations or omissions, may not require you to waive any
protections provided by the Business Opportunity Rule and must be
in the language in which the sale is conducted. The
information must be given to you at least seven days before you
sign a contract or pay any money. The seller may not promote
its opportunity as employment or a job. If any purchaser
listed in the disclosure document has a personal or business
relationship with the seller or has received money or anything else
of value from the seller, it must disclose that to you.
You should review the information carefully and evaluate the
information thoroughly. Ask to review written substantiation
of the earnings claim. Is the earnings claim
reasonable? Does it make sense? Run your own
projections, with the assistance of a financial advisor, if
necessary. Is the cancellation or refund policy
reasonable? Is the expiration date too soon to be
practical? Do you forfeit shipping fees or other
amounts? Can you actually comply with it? Seriously
consider whether you should purchase a business opportunity from a
seller if it (or its affiliates, predecessors, directors, officers
or sales managers) has been the subject of legal actions involving
fraud, misrepresentation, securities laws violations or unfair or
deceptive practices.
Contact the people who previously purchased the business
opportunity (not only those that the seller encourages you to
contact) and ask about their experience with the business
opportunity and the seller. Did the seller deliver the
promised goods and services? Were their experiences
consistent with the earnings claims? Is the business
opportunity profitable? If they tried to cancel and obtain a
refund, were they successful? Did the seller impose obstacles
to obtaining a refund?
Check the seller out on-line. Google the business
opportunity, the seller and its key personnel. Be wary of
glowing testimonials - they may be phony. Also check the
Federal Trade Commission's website and the website of your local
Better Business Bureau, Attorney General's office and consumer
protection agency.
A seller's failure to comply with the Business Opportunity Rule
by failing to provide all of the necessary information in the
required manner is a red flag that the business opportunity is
questionable - if the seller fails to comply with the law, it
follows that the seller is not likely to honor its obligations to
you and may defraud you.
About the author: Susan E.
Wells is a partner at the Phoenix law firm of Jaburg Wilk. Her corporate
and business
practice encompasses all aspects of business transactions and
commercial relationships in numerous industries, including franchising. She
can be reached at 602.248.1034 or sew@jaburgwilk.com.
This article is not intended to provide legal advice. Always
consult an attorney for legal advice for your particular
situation.
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. Phoenix . Arizona