Tuesday, November 22, 2011

FTC Releases Final Version of Business Opportunities Rule

This posting was written by Pete Reap, Editor of CCH Business Franchise Guide.

The Federal Trade Commission has approved changes to and released the final version of its business opportunity rule that will be effective on March 1, 2012.

The rule (16 CFR Part 437, "Disclosure Requirements and Prohibitions Concerning Business Opportunities") is intended to ensure that consumers have the information they need when considering buying a work-at-home program or any other business opportunity. The Commission vote approving the final amendments to the Business Opportunity Rule was a unanimous 4-0.

Simplified Disclosures

The changes made to the rule simplify the disclosures that business opportunity sellers must provide to prospective buyers. The simplified disclosures will help prospective purchasers assess the risks of buying a business opportunity, while minimizing compliance burdens on businesses, according to the FTC.

The final rule applies to business opportunities previously covered under the rule, as well as work-at-home offers such as envelope stuffing and craft assembly opportunities. The final rule requires business opportunity sellers to give consumers specific information to help them evaluate a business opportunity.

Sellers must disclose five key items of information in a simple, one-page document:

(1)The seller's identifying information;

(2) Whether the seller makes a claim about the purchaser's likely earnings (and, if the seller checks the "yes" box, the seller must provide information supporting any such claims);

(3) Whether the seller, its affiliates or key personnel have been involved in certain legal actions (and, if yes, a separate list of those actions);

(4) Whether the seller has a cancellation or refund policy (and, if yes, a separate document stating the material terms of such policies); and

(5) A list of persons who bought the business opportunity within the previous three years.

Misrepresentations and omissions are prohibited under the rule, and for sales conducted in languages other than English, all disclosures must be provided in the language in which the sale is conducted.

Furthermore, the rule permits earnings claims to be made by sellers of business opportunities only if the seller:

(1) Has a reasonable basis for its claim at the time the claim is made;

(2) Has in its possession written materials that substantiate its claim at the
time the claim is made;

(3) Makes the written substantiation available upon request to the prospective
purchaser and to the Commission; and

(4) Furnishes to the prospective purchaser an earnings claim statement in a required format.

The announcement of a final business opportunity rule completes the process that started on April 12, 2006, when the Commission published an Initial Notice of Proposed Rulemaking and proposed creating a business opportunity rule separate from the franchise rule.

A press release on the action appears here on the FTC website. Text of the Federal Register notice appears here.

The final version of the rule, along with its extensive Statement of Basis and Purpose, will appear in the CCH Business Franchise Guide.

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