Kaufman and Canoles

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New Business Opportunity Rule

The Federal Trade Commission has recently issued the final Business Opportunity Rule which will be effective March 1, 2012.  The Business Opportunity Rule applies to commercial arrangements where a seller solicits a buyer to enter into a new business, the buyer makes a required payment to the seller, and the seller (either expressly or implicitly) makes claims that it will provide locations, outlets, accounts or customers or buy back the goods or services that the buyer makes.  Business opportunities include work-at-home opportunities and many vending opportunities.

The new rule streamlines the disclosures that must be made to a buyer.  The seller must give the buyer a standard one-page document (with supplemental disclosures attached if necessary) at least seven days before the buyer signs a contract or pays any money for the business opportunity.  The new disclosure document requires the seller to disclose (1) its identifying information (2) whether the seller or key personnel have been the subject of any civil and criminal legal actions involving misrepresentation, fraud, violation of securities laws or unfair or deceptive practices, (3) whether the seller has a cancellation or refund policy, (4) if the seller has expressly stated or implied how much money a buyer can earn, and (5) contact information for ten people who bought the business opportunity.  If the seller’s disclosures with respect to legal actions, cancellation/refund policy and/or earnings claims are affirmative, the seller must include supplemental information required by the Business Opportunity Rule.

The Business Opportunity Rule makes clear what the seller must produce in connection with an earnings claim, whether made in person, on paper, online, on television, in newspaper or in other media.  It also reemphasizes the Federal Trade Commission’s (“FTC”) long standing position that it is illegal to engage in unfair or deceptive practices in the promotion, marketing or sale of any business opportunity and includes a list of “dos” and “don’ts” for sellers.

A seller’s failure to comply with the Business Opportunity Rule entitles the FTC to bring an action against the seller, but does not entitle the buyer to bring a private cause of action.  Many states, including Virginia, have laws governing unfair and deceptive trade practices and a violation of the Business Opportunity Rule may also be a violation of state law which may give rise to a private right of action by the buyer.  Virginia does permit the buyer to bring a private cause of action against the seller.

For more information about the new Business Opportunity Rule, click here or contact Nicole Harrell. —Nicole J. Harrell

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