Have you heard of the Franchise Rule or the Business Opportunity Rule?

Many of us dream of financial independence and might consider investing in a business opportunity. A promise of no risk and big profits is often indicative of a scheme that could be fraudulent. The Federal Trade Commission (FTC) has two trade regulations to help protect against deceptive business opportunity schemes, the Franchise Rule, and the Business Opportunity Rule.

The FTC’s Franchise Rule, when first adopted, mandated certain disclosures by those persons selling franchises and specific non-franchise businesses. In 2007, the FTC adopted language to apply the Rule even more broadly and divided the rule into two parts, the business offers for a franchise and for non-franchise.

Franchise Rule disclosures require that a covered franchisor gives prospective franchisees a disclosure statement that contains sufficient information including, but not limited to, a balance sheet, recurring fees, and other operations data, such as income and profit.

The Business Opportunity Rule, separated and finalized in 2012, has similar disclosure requirements and applies to any commercial arrangement in which a seller solicits and requires a prospective purchaser to make a payment in exchange for new business and in which the seller assists with location setup, accounts, customers, or possibly purchasing goods the buyer manufactures.

Both rules require the seller not to inflate data to induce the sale and state when data are estimated. As with the Franchise Rule, representations about earnings must be supported with reliable documented data. The Business Opportunity Rule disclosures are generally simpler than complicated franchise arrangements. For more information about the current version of each rule and the disclosures required, go to the FTC website, ftc.gov, and search the FTC’s website under each rule for the law and other tips.