Get Ready For The New FTC Business Opportunity Rules

Well, it’s official. On March 1, 2012 the Federal Trade Commission’s new “Disclosure Requirements and Prohibitions Concerning Business Opportunities” or “business opportunity rules” go into effect. According to the FTC’s website, amendments to the original rules were done to “broaden the scope” of businesses to include “sellers of work-at-home opportunities.” The new guidelines stipulate three disclosure and sales obligations that “bizopp” marketers must follow.

Advocates for the new business opportunity rules say it’ll reduce costs, simplify the compliance process, and allow for greater transparency. But of course, there are at least two sides to every story; so while some may be lauding the new FTC business rules, others are most certainly grumbling.

Who The New FTC Business Opportunity Rules Affect

What exactly is a “business opportunity” you ask? They’re turn-key, packaged business investments. Unlike franchises, business opportunity buyers and sellers don’t maintain a professional relationship after the sale. Vending machines, rack routes, work-at-home craft assembly, envelope stuffing services and a slew of various Internet work-at-home opportunities are the types of things the FTC considers being “business opportunities.” Specifically, the new rules target business opportunity promotional materials that expressly state or imply that buyers will:

(1) Have help setting up or running a business;

(2) Be provided locations for equipment and displays;

(3) Be given outlets, accounts and customers as part of the package; or

(4) Have the ability to sell their products back to the seller.

While the above list is not exhaustive by any means, it serves to illustrate that the FTC is concentrating on making business opportunity sale claims more transparent by requiring substantiating evidence to back up marketing materials. If you run a multi-level marketing company or a franchise, then the new FTC business opportunity rules don’t apply to you[1]. Officials explained that Franchises have their own set of regulations and MLM issues are still best dealt with under section 5 of the FTC Act, which governs unfair and deceptive interstate commerce.

FTC Business Opportunity Rule Obligation #1: One-Page Disclosure

The crux of the new FTC business opportunity rule is the one-page disclosure requirement. Any person who sells a bizopp, regardless if they make earnings claims in their marketing material or not, must present all buyers with a document that includes the following information:

  • Company name, address, phone;
  • Name of bizopp sales person;
  • Date prospective buyer was given disclosure statement;
  • Disclosure statement if you or any associated bizopp affiliate have ever been the subject of a legal action for misrepresentation, fraud, securities law violations, or deceptive practices in the past 10 years.
  • Clear explanation of all policies related to refunds or cancellations.
  • List of references including name, state and phone number of everyone who’s bought the bizopp in the past three years. If more than 10 people have purchased the business opportunity, you can choose the 10 people closest by location to the prospective buyer. In addition, someone where on the disclosure statement, the statement: “If you buy a business opportunity from the seller, your contact information can be disclosed in the future to other buyers” must be conspicuous.
  • The seller must sign a copy of the statement and return it to the seller, who then must keep the paperwork on file.

Other things to note about the FTC business opportunity rules are that you must have a one-page disclosure statement for every language in which you market your product.

FTC Business Opportunity Rule Obligation #2: Earnings Claim Statement

Materials related to all three FTC business opportunity obligations must be kept for three years. In addition, bizopp sellers must update their disclosure information every quarter.

If you make earnings claims in your business opportunity marketing material, you must attach an earnings claim statement to the one-page disclosure described above. It must include:

  • The following statement in “big letters” across the top of the page: “Earnings Claim Statement Required By Law.”
  • Name of the person making the claim;
  • Start and end dates of the claim;
  • Number and percentage of buyers who’ve experienced at least the claimed amount of earnings;
  • Any information about buyers that may vary from prospective buyers that could have an effect on earning potential – like location;
  • Statement explaining how buyers can obtain proof of earnings claims; and
  • If your claims focus on industry-wide performance trends, you must have evidence showing how your offer is at least as good, or better, than the industry benchmarks.

Essentially, the earnings claim statement requirement for the new FTC business rules can be broken down into one simple sentence: If you make any earnings claims, you better have the material to back it up clearly and conspicuously.

FTC Business Opportunity Rule Obligation #3: Be Truthful & Other Miscellaneous Don’ts

The third obligation of the new FTC business rules is straightforward: Don’t do anything that’s already prohibited, and make sure you don’t have conflicting information across your one-page disclosure statement, earnings statement, or supporting material. Other “don’ts” include:

  • Don’t lie.
  • Don’t tell people they’ll have exclusive territories if they won’t.
  • Don’t embellish the likelihood of getting clients.
  • Don’t keep secret a relationship—whether familial, friendly or business-related—you may have with any person highlighted in your marketing material as having had great success with the given bizopp.
  • Don’t tell people you’re offering them a job if you’re really selling them a business.

What Should You Do If The New FTC Business Rules Will Affect Your Business

While there are upsides to the new FTC business opportunity rules, it will be interesting to watch how the regulations affect various bizopp affiliate marketing businesses down the line. If you operate a bizopp and maintain an online presence, you may want to contact an Internet lawyer who can audit your site and make sure you’re in compliance with the new regulations. Furthermore, if you do make earnings claims in your marketing material, it’s wise to have a lawyer well-versed in affiliate marketing law draft the required earnings statement.

Do you need legal assistance or advice about the new FTC business opportunities rule? Contact the Kelly Law Firm today.

References

Sniegowski, Don (11/22/2011). FTC Issues Final Business Opportunity Rule. Retrieved from http://www.cdt.org/files/pdfs/20111129_medjustice_complaint.pdf on 12/5/2011.

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