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Business Opportunities

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Registered Business Opportunities
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Statutes & Rules
Business Opportunity Disclosure Act, Utah Code Ann. §13-15
Business Opportunity Disclosure Act Rules, UT Admin Code R152-15
What is a Business Opportunity?
A common way for an entrepreneur to begin a small business or provide themselves with an alternate source of income is to acquire or purchase a prepackaged franchise or business opportunity.  Typical business opportunities involve vending machines, amusement games, pay phones or gift and novelty items sold from display racks.  Ideally, the vending machine, phone, display rack or other item is located in a high traffic area which helps attract customers.

Bogus Business Opportunities are in abundance
Business opportunity scams are not new.  In spite of the "too good to be true" red flag that should be a warning to potential purchasers, there is never a lack of victims who fall for the aggressive marketing of over promoted or relatively worthless business deals.

Studies show that business opportunity scams are most often promoted at trade shows and through small ads that appear in the classified sections of newspapers and magazines.  The Internet has added another popular forum for these types of promotions.  Most of the ads:

  • Promise big earnings, possibly on a part-time basis.
  • Promise ideal work conditions, such as work from work and make lots of money with little effort.
  • Contain references to vending machines, display racks or some other proven concept.
  • Promise that no selling or experience is necessary.
  • Urge the reader to call an "800" number for more information.

The Division of Consumer Protection administers the Business Opportunity Disclosure Act.  This statute requires sellers of business opportunities who aren’t required to comply with the Federal Trade Commission Rules regarding franchises to provide a single disclosure statement or prospectus to any prospective purchaser at least 10 days prior to the earlier of signing of the purchase agreement or payment.  The seller is required to file this disclosure statement with the division before commencing business in Utah.  If the seller fails to do either, then the seller will be subject to statutory fines and penalties.  If the seller failed to timely provide the disclosure statement to the purchaser, the purchaser has the right to rescind and to collect a judgment for attorney fees plus an amount equal to $2,000 or actual damages, which ever is greater.

How to Protect Yourself
There are risks inherent in any new business venture.  However, there are some things a potential investor should consider before purchasing any business opportunity:

  • Be skeptical about earnings claims.  The “promise” of many business opportunities is the claim that a few hours a week of work will bring earnings of $50,000 . . .$100,000. . . or more a year.  These promises rarely ever come true.
  • Be cautious of ads that use “800” numbers.  An "800" number is often a tip-off to a scam operating out of high-pressure telephone boiler room.  Just because an ad appears in the local paper does not assure that the company is reliable.
  • Obtain and review the required disclosure documents before putting up any money.  Business opportunity promoters are required to provide a potential investor with a detailed disclosure document 10 days before you sign any agreement.  If this document is not available, beware.  When you obtain the disclosure documents, review the section dealing with:  risks, the business experience of the company, any administrative, civil or legal action taken against the company, fees and the conditions under which fees will be returned.
  • Talk to investors.  You should always talk to others who are already involved with the opportunity.  But even then, don’t let our guard down.  Unscrupulous promoters have been known to provide "shills" to talk up the virtues of their scam.  The disclosure documents require names, addresses and phone numbers of investors in your area.  Use these names as a place to start to find other opportunity participants.
  • Do your own research.  Make sure you fully understand how the business opportunity will work and what the customer demand for the product or service there likely is.  Don’t rely on the promoter’s claim that consumers are out there just waiting for you.  Often, claims of net incomes from opportunities are either wildly inflated or are outright lies.
  • Be wary of promises about the availability, prime locations, quick repairs or ongoing support.  Remember, a bogus promoter will make any claim needed to get your money.  Be cautious when you sign up with a company tht is supposed to identify prime sites for vending machines, pay phones, display racks or other business opportunities.  The most common reason for these opportunities to fail is not from you, but rather from the promoter failing to live up to the commitments and promises that were made to you.
  • Take your time in deciding whether to purchase the opportunity.  The promoter will likely use high pressure tactics to get you to buy.  However, if the opportunity is legitimate, it will be still be around when you are ready to decide.

Federal Trade Commission
For more information regarding work at home schemes and other business opportunities, visit the Federal Trade Commission at http://www.ftc.gov/bcp/menus/consumer/invest/workhome.shtm.

For further information, see "Work at Home Schemes."

 

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consumerprotection@utah.gov  |  160 East 300 South   Salt Lake City, Utah 84111  |  Phone: 801-530-6601  |  Toll-Free: 1-800-721-SAFE  |  Fax: 801-530-6001