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December 2011
 

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FRANCHISOR 101: FTC ADOPTS NEW BUSINESS OPPORTUNITY RULE 

 

The FTC's new Business Opportunities Rule was recently adopted and will become effective on March 12, 2012. The New Rule regulates business opportunities that were previously not covered, such as sellers of work-at-home businesses, and does not preempt the various state laws that provide equal or greater protection to business opportunities buyers.

 

While all franchises are considered business opportunities, not all business opportunities are franchises.

 

The major difference is that a business opportunity buyer enjoys a greater degree of flexibility in conducting his business, usually with a lower cost of entrance, but without the benefit of the infrastructure, management systems, training, ongoing support and marketing benefits which are inherent in a franchise relationship. Other differences between franchises and business opportunities are:

 

 

Elements

Franchises

Business Opportunities

 

 

 

Initial Costs

Substantial initial payments to the franchisor are normally required for the right to enter the business.

Minimal or no fee payable for the right to enter the business; initial costs are generally for inventory purchased for resale.

 

 

 

Use of Trademarks

Business operations are identified by the franchisor's trademark and use is restricted by the franchisor.

Trademark use is incidental to the services and products offered by the business.

 

 

 

Support Services

Ongoing training, operations and marketing support are provided by the franchisor.

Ongoing training, operations and marketing support are not provided by the seller.

 

 

 

Continuing Fees

Paid for the duration of the franchise term based upon the revenue of the franchisee.

Ongoing payments are usually for inventory purchased for resale by the business operator.

 

 

 

Consistency of Operations

Demanded and regulated by the franchisor.

Usually not required and incidental to the operation of the business.

 

 

 

Disclosure Requirements

Substantial disclosure is required by federal and state laws. No requirements for disclosures in languages other than English.

A substantially simplified and streamlined one-page

disclosure document in English and other languages, supplemented by state-required disclosures, is required.

 

 

Business opportunity sellers covered by the New Rule must now disclose just the information that is most material to potential purchasers in making a purchasing decision: the seller's identifying information; whether the seller makes an earnings claim, and if so, the substantiation for that claim; whether the seller offers a refund or cancellation policy, and if so, the material terms of that policy; whether the seller or its affiliates and key personnel have been the subject of prior legal actions; and the names and business telephone numbers of prior purchasers to contact. [To see the full text of the Federal Register Notice and the New Rule, click here.]

FRANCHISEE 101: REPORT ON MINORITY OWNERSHIP OF FRANCHISES 

 

The International Franchise Association recently released new research on minority-owned, female-owned and joint female/male-owned franchise businesses. The report was based on the U.S. Census Bureau's 2007 Survey of Business Owners and found that:

  • Minority ownership of franchise businesses increased by 1.2 percentage points, from 19.3 percent in 2002 to 20.5 percent in 2007, an increase of 6.2 percent.
     
  • In 2007, there was a higher minority ownership rate among franchised businesses than non-franchised businesses - 20.5 percent of franchises were owned by minorities, compared to 14.2 percent of non-franchised businesses.
     
  • Female ownership of franchise businesses declined by 4.5 percentage points from 25.0 percent in 2002 to 20.5 percent in 2007 (a decrease of 18 percent) while joint ownership (male/female) increased by 7.3 percentage points from 17.1 percent to 24.4 percent (an increase of 42.7 percent).
     
  • Overall, a greater percent of minority-owned businesses were operated as franchises in 2007 (3.0 percent) than in 2002 (2.7 percent).
     
  • In the food and beverage category, 21.5 percent of franchise businesses were owned by minorities in 2007 compared to 20.2 percent in 2002, 12.5 percent of franchise businesses were owned by females in 2007 compared to 13.2 percent in 2002, and joint ownership (male/female) of franchise businesses was 25.7 percent compared to 20.3 percent in 2002. 

To see the full text of the Report, click here.

WHO'S WHO IN AMERICAN LAW

 

Barry Kurtz was recently selected for addition to the 2011/2012 edition of Sutton Who's Who in American Law [www.suttonwhoswho.com]. Sutton Who's Who is a network of distinguished professionals with notable achievements from around the world.

This communication published by Barry Kurtz, APC is intended as general information and may not be relied upon as legal advice, which can only be given by a lawyer based upon all the relevant facts and circumstances of a particular situation.

Copyright Barry Kurtz, A Professional Corporation 2011
All Rights Reserved.

 
In This Issue
Franchisor 101: FTC Adopts New Business Opportunity Rule
Franchisee 101: Report on Minority Ownership of Franchises
Who's Who in American Law
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Barry Kurtz
Barry Kurtz is a prolific writer on the subject of franchise law. From due diligence to franchise appraisal, his articles are a valuable resource to any franchisee and franchisor.  He has been named a Certified Specialist in Franchise and Distribution Law by the State Bar of California Board of Legal Specialization.



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21650 Oxnard Street, Suite 500
Woodland Hills, CA 91367
818-827-9229
www.barrykurtzpc.com
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