Mystery to Me

State and federal laws regulate the sale of business-opportunity ventures and franchises. However, there's a big difference between the regulation of a franchise and a business opportunity, and you should understand what protections are in place, or not in place, to help you.

First, a business-opportunity package is generally not regulated as thoroughly as a business-format franchise. The principal difference between the two concepts is the presence of a trademark license in a business opportunity. A true business opportunity provides materials necessary to begin a business but prohibits the use of any marks, images or trade names owned by the seller. The business-opportunity buyer is expected to operate under his or her own name or trademark. In a franchise system, the trademark is clearly licensed to the buyer's use. Indeed, franchise programs boast some of the best known trademarks in the world, such as McDonald's® and Holiday Inn®.

Federal and state laws require a franchisor to deliver a comprehensive disclosure document before closing the sale of a franchise. In some business-opportunity transactions, a similar disclosure statement is required and delivered. Why in only some of them? As the elastic concept of a business opportunity is harder to define than a franchise, fewer programs are reached by the regulations, and a lower level of compliance is attained in the marketplace. The bottom line: Fewer protections are in place for business-opportunity buyers than franchise buyers, so be prepared to protect yourself.

In October 1999, the FTC announced it would revise its regulation of business-opportunity ventures, and FTC staffers have signaled that new definitions will reach further into the business-opportunity market than current FTC regulations. Although the FTC and state agencies have aggressively pursued a number of business-opportunity sellers, government budgets and resources are always limited.

If you do receive a disclosure statement prior to closing on the business-opportunity purchase, it should lay out some basic information about the seller, the exact materials and services you're receiving and information about sales in your state. Ask for a disclosure statement from your seller-if you don't receive one, plan on doing your own basic research on the company.