On November 22, 2011, the FTC issued the long-awaited Disclosure Requirements and Prohibitions Concerning Business Opportunities. The Final Rule, which is the product of a five-year rulemaking process, outlines what the FTC considers a “business opportunity,” what disclosures are required when marketing a business opportunity, and what acts are specifically prohibited when marketing a business opportunity. The Final Rule goes into effect on March 1, 2012.
Under the Final Rule, a “business opportunity” is any commercial arrangement in which:
- a seller solicits a prospective purchaser to enter a new business;
- the prospective purchaser is required to make a payment; and
- the seller represents that it will provide the purchase with locations, outlets, accounts, or customers as part of the business, or will buy back any or all of the goods or services that the purchaser makes.
The Final Rule requires a business opportunity seller to provide a prospective purchaser with a single written disclosure document that identifies the seller and provides information on any earnings claims, refund policies, and civil or criminal actions involving the business opportunity seller. Where applicable, the Final Rule requires the disclosure of detailed supplementary information on these topics.
The Final Rule prohibits business opportunity sellers from making various types of misrepresentations regarding earnings claims, the cost of the business opportunity, the nature of any promised assistance, and endorsements, among others. It also prohibits business opportunity sellers from failing to make promised refunds, and from assigning to any purchaser a purported exclusive territory that has been sold to another purchaser.
Go here to read a post on the FTC’s Business Center Blog explaining the Final Rule.
Go here to read the text of the Final Rule.