How to Research a Business Opportunity

How the Government Protects You

The FTC Rule, which has been in effect since the latter part of 1979, has had a broad-ranging impact on the franchise and business opportunity industry and would-be franchisees and licensees. The rule is designed to assure all prospective buyers, of either a franchise or business opportunity, that they'll receive a full disclosure containing the type of background information needed to make an informed investment decision.

In spite of the FTC's rule and aggressive action at the state level, there are sellers who seek every possible means to escape regulation. Neither the FTC rule nor state regulations can guarantee freedom from fraud. That's why you should pay especially close attention to the FTC disclosure statement that is presented to you.

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Every prospective buyer of a business opportunity must receive the FTC disclosure statement at least 10 business days before signing a binding contract or paying money (or other consideration) to the seller. The 10-business day requirement is minimal. If you meet face-to-face with the licensor or a representative to discuss a proposed sale or purchase of the business opportunity, and if the conversation results in a serous sales presentation, the licensor must provide you with a disclosure document at that time.

If you haven't received an FTC disclosure document, don't sign anything or pay out any money, even if claims are made that it is "refundable."

If the seller doesn't give you a disclosure document, they're violating federal law and may also be violating state law. If the salesperson claims his or her offering is exempt from the FTC requirements, demand to see an opinion letter from counsel before dealing with them any further. Also ask the salesperson for the phone number of the local state agency or FTC office that has advised them they are exempt. Very few business opportunity offerings are exempt. The only major exceptions are those where the total initial payment within the first six months is less than $500, or where payment is made only for initial inventory sold at bona fide wholesale price.