Business Opportunity Rule

The Federal Trade Commission (“FTC”) has released its final amended Business Opportunity Rule, which regulates the offer and sale of business opportunity ventures. Examples of such business opportunities include vending machines and rack displays. The rule, which is similar to the FTC’s Amended Franchise Rule, imposes disclosure and sales method requirements for such business ventures.

Unlike franchises, business opportunity ventures often do not involve the license of a trademark. Furthermore, business opportunity ventures are typically less expensive and involve simpler contractual agreements, resulting in less financial risk to purchasers. Thus, since 2007, business opportunities have been regulated separately from franchises.

The amended rule significantly modifies the scope, disclosure requirements and prohibitions of the interim Business Opportunity Rule. The amendments expand the rule’s scope to include work-at-home ventures, such as envelope-stuffing, products assembly, and medical billing, that often escaped coverage under the prior version of the rule. Despite proposals to the contrary, the FTC chose not to categorically include sellers of multi-level marketing (“MLM”) opportunities within the scope of the final rule.

The rule also streamlines and simplifies the disclosures previously required of business opportunity sellers. Sellers must disclose: 1) the seller’s identifying information; 2) information about the seller’s earnings claims; 3) the existence and nature of any legal actions against the seller; 4) the terms of the seller’s cancellation or refund policy; and 5) a list of purchasers for the previous three years. The rule also prohibits various specific misrepresentations and misleading practices, and requires that disclosures be made in the same language as the offer is made.

The amended rule takes effect on March 1, 2012. We recommend that business opportunity sellers contact legal counsel prior to that date to discuss and prepare disclosures that are compliant with the new rule.

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