Get The Facts What does business opportunity regulation mean to you?

Business opportunities have roused the interest of would-beentrepreneurs for decades. And it's no wonder why. Promises ofuntold riches built on relatively small investments have eagerfuture business owners breaking down the doors of manyopportunities to grab their share.

Unfortunately, in years past, the all-too-common result was agarage full of vending machines and not much profit to show for it.But the landscape has changed, and though the continuingadjustments make life for business opportunity sellers a littlemore difficult, BIZ Experiencess are starting to come into the profitsthey've been expecting all along--and this time, withoutgetting burned.

First Things First

What exactly is a business opportunity? Definitions vary amongstates, but boiled down to the bare essentials, a businessopportunity exists when: 1) the buyer purchases goods or servicesthat enable him or her to begin a business, 2) the purchase priceis more than a certain amount, usually $500, and
3) the seller makes one of several defined representations aboutthe opportunity, such as guaranteeing the program will beprofitable; offering to provide assistance in locating accounts,vending machines or other display devices; promising to buy backproducts that have been assembled or produced by the buyer; orproviding a sales program or marketing plan.

The definitions cover a dizzying array of product and serviceprograms designed to make it easy for buyers to start a widevariety of businesses. But buying such an opportunity requires ameasure of care to make sure you find a program that fits yourneeds and meets your expectations (see "A Closer Look,"right).

Thanks to new business opportunity regulations--which areforcing greater professionalism on the sale of these packagedprograms, a process that has been lurching forward for the past 15years--purchasing a business opportunity in today's market is abrighter prospect than it was decades ago.

With the addition of Illinois' new Business OpportunitySales Act last year, half the states now regulate the sale ofbusiness opportunities (see "Lay Of The Land," below).The other half rely on a tangled web of state and federal traderegulation rules and consumer protection laws to fend off bogusoperators. Regulators have stepped up enforcement of businessopportunity laws by going to the marketplace, attending businessopportunity trade shows, tapping into the Internet, urginginvestors to contact them for information before they buy, andbringing high-profile enforcement lawsuits against violators.

What does business opportunity regulation mean to potentialbuyers? In most states, it means the seller must provide each buyerwith a copy of the company's registered disclosure statementbefore the sale is completed, in many states at least 10 businessdays before the conclusion of the sale. That statement typicallycontains a description of the offering and the products andservices that will be supplied by the seller. It also usuallydescribes the company's litigation and bankruptcy history andprovides a copy of a sales contract and the seller's mostrecent financial statements.

This is a tough set of laws for most sellers to meet,particularly when the sale is made on the spot at a trade show orseminar without the opportunity to provide advance disclosure. As aresult, state regulators continue to initiate investigations andenforcement actions that show no signs of lessening.

Year In Review

The number of registrations and the enforcement of businessopportunity laws varies dramatically among states. With states suchas Michigan and South Carolina having seen more than 600 businessopportunity registrations last year, these would seem to be greatplaces to get your new business off the ground, right? Notnecessarily: Laws that make it easier for sellers to register maytranslate into less protection for buyers.

Maryland, on the other hand, adopted a stricter set of businessopportunity laws last year--and saw its registration numbers dropfrom 37 at the end of 1995 to 29 at the end of 1996. Enforcementactivity in the state has increased in the past year; the number offormal legal actions filed by the attorney general's office,says Dale E. Cantone, assistant attorney general, increased to 15during the year from 14 in 1995.

After its first year with the Business Opportunity Sales Act onthe books, Illinois reports a sharp increase in the level ofenforcement activity. Philip S. Sanson of the Illinois SecuritiesDepartment at the Secretary of State's Office says thedepartment had already opened 55 investigation cases by the end ofFebruary. This followed an active 1996, in which his departmentinitiated 140 investigations and issued 22 formal cease-and-desistorders.

The registration record in Illinois during its first year ofbusiness opportunity regulation is also revealing. Of the 56applications submitted last year, only 17 companies (about 30percent of the applications submitted) were registered by year-end."The others," Sanson says, "were either deficient orabandoned."

Caught In The Net

As if monitoring activity in their states wasn't challengingenough, regulators are dealing with a new, inevitable source ofbusiness opportunity sales: the Internet. Several state enforcersreport increased business opportunity sales activity on theInternet, and that has drawn regulators to the Net themselves."We recently cooperated with the Federal Trade Commission in anational effort to notify Internet sellers of their obligationsunder federal and state laws," says Sanson.

The Internet is the perfect venue for less-than-honestopportunity sellers to reel in prospects, says Chris DeWitt ofMichigan's attorney general's office. "The graphicsand images projected by many business opportunity Web sites createattractive business propositions, but they have also confusedconsumers," he says. "If you learn about an investmentopportunity on the Internet, it is all the more difficult todetermine if the company is legitimate."

As in Michigan and Illinois, Utah's Department of Commerceenforcement counsel Mark E. Kleinfield reports that the Internethas generated several complaints among Utah consumers. "And weexpect the use of the Internet in this area to continuegrowing," he says. "Our legislature has recently expandedour authority to [regulate] business activity that takes place overthe Internet."

Whether on the Internet or in any other venue, businessopportunity regulation and enforcement is forcing sellers to cleanup their acts. Some states have found success by prowling theaisles of business opportunity trade shows. And enforcementauthorities are especially alert to any earnings claims, promisesof profitability, assurances that programs are can't-loseinvestments, and any other forms of overstatement ormisrepresentation. In the business opportunity neighborhood, theseauthorities are the new cops on the beat.

A Closer Look

Then considering making a business opportunity investment, hereare a few key features to look for and some essential questions toask:

Does the program meet your needs? Just because it sounds like itmay make money doesn't make it right for you. Don't spendyour money and then just put the materials up on a shelf.

Be realistic, especially about the business's revenuepotential. Be sure to listen to sales hype with a critical ear.

You should not spend money you cannot afford to lose.

Always ask the seller for a disclosure statement and whether thecompany is registered as a business opportunity seller under anystate law. If not, ask for a full list of recent buyers, thecompany's financial statement, and some basic facts about theseller (headquarters location, number of employees, and so on).

Ask how many buyers there have been in your state and what theirexperience has been.

Ask your state consumer protection authority if there have beenany reported legal problems with the company.

For More Information

The Federal Trade Commission provides an information packageabout the FTC Franchise and Business Opportunity Rule free ofcharge. Write to: Public Reference Branch, Federal TradeCommission, Washington, DC 20580, or call (202) 326-3128.

The American Business Opportunity Institute is a nationalinformation and seminar company specializing in businessopportunity and franchise investment and regulation. Forinformation on the institute's publications, programs andservices, send a self- addressed, stamped business-sized envelopeto American Business Opportunity Institute, 3 Bethesda Metro Ctr.,#700, Bethesda, MD 20814.

Contact Sources

Illinois Securities Department, Secretary of State'sOffice, Lincoln Tower, 520 S. Second, #200, Springfield, IL 62701,(217) 782-2256;

Maryland Office of the Attorney General, SecuritiesDivision, 200 St. Paul Pl., Baltimore, MD 21202, (410)576-7042;

Michigan Office of the Attorney General, P.O. Box 30212,Lansing, MI 48909, (517) 373-1110;

Utah Department of Commerce, Division of ConsumerProtection, 160 E. 300 S., Salt Lake City, UT 84145, (801)530-6601.