March 1, 2012: FTC’s Business Opportunity Rule
Effective March 1, 2012, the BOR requires sellers of business opportunities to provide a one-page disclosure to prospective buyers. The rule essentially defines a “business opportunity” as a commercial arrangement in which: (1) a seller solicits a prospective buyer to enter into a new business; and (2) the prospective buyer makes a required payment; and (3) the seller represents that the seller or another designated person will: (i) provide locations for the use or operation of equipment owned or controlled by the buyer; or (ii) provide accounts or customers to the buyer; or (iii) buy back goods or services the buyer produces or provides.
The required disclosures must be provided at least seven days before the buyer signs any contract in connection with the business opportunity sale or makes a payment or provides other consideration to the seller, and it must be provided in the language in which the sale is conducted. In addition, misrepresentations and omissions are prohibited.
If compliance with the BOR is required, the brokerage or broker should closely review the disclosure requirements and work with legal counsel when making the disclosures, as failure to comply can result in severe penalties.