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Securities & Investment Regulation
OTHER PFR AGENCIES
Business Opportunity Law
Many people find the thought of owning their own business appealing. They may be interested in establishing a new career, or supplementing their existing income, or they may be searching for a livelihood in the wake of a job loss or other emergency. In any case, the idea of being able to purchase services or products to help start the business, rather than starting alone completely from scratch, can also be very appealing. There are some important considerations to keep in mind before doing this, however. One of these considerations, discussed here, is whether the State's business opportunity laws apply, and what this means for you, the consumer.
Maine's business opportunity statute is primarily a consumer protection law, intended to help protect purchasers, or potential purchasers, of business opportunities. When this law applies, it requires the seller of the opportunity to:
What does this law cover?
If you are considering any transaction where you would be purchasing services or goods to enable you to start a business, this law might apply. Not everything advertised as a "business opportunity" is necessarily one in this legal sense, however. As a starting point, consider the following questions, which are intended to help determine whether Maine's business opportunity law applies.
If you answered "Yes" to 1, 2, and 3, then this law probably covers the opportunity you are considering. You should first determine whether in fact the seller has registered with the Office of Securities. We will be happy to provide that information to you. Sometimes this cannot be determined for certain without review of the documents.
You should get a copy of the seller's legally required disclosure document, and carefully review it. Remember, the purpose of this document is to provide you with some important information to help you make a decision. You still must evaluate this information; the decision concerning whether to purchase the business opportunity is yours to make.
What information does this law require the seller to provide to you?Sellers of business opportunities are required to give their purchasers a document disclosing certain important information. If you are considering the purchase of a business opportunity, the seller must give you this document whichever of these is the earliest:
The following is a summary of the basic categories of information which this document must cover:
Other things to keep in mind when considering the purchase of a business opportunity:
Use the disclosure information to EDUCATE AND PROTECT YOURSELF. Remember, this information is there to give you important information -- it does not substitute for evaluating the opportunity. If you do not understand something, or it is unclear, INVESTIGATE the matter further. Of course, you should be suspicious if the seller is evasive about any answers that you need. On the other hand, you should also be wary of any verbal assurances that are not reflected in the documents themselves, especially the contract. Sometimes, unscrupulous sellers will say just about anything to make the sale. If it is not in the documentation, you will have a very hard time making any such assurances "stick," after you have purchased the opportunity. Any contracts are especially important. BE SURE YOU UNDERSTAND WHAT YOU ARE SIGNING. Consider getting professional advice.
DO THE MATH. Many people get taken in by their own enthusiasm, and have bought business opportunities which hardly give them a chance of breaking even, much less making a profit. Most of these people really believed that they could succeed through their sincerity and hard work, but they never stepped back and thought carefully about what it would take.
Consider the following real example:
A business opportunity that cost more than $15,000, in which the seller made extravagant claims about the wonderful business of selling candy bars and such for, say, 79 cents each, from display cases placed in small businesses. They promised to provide expert help in locating these cases. As it turned out, that help wasn't as expert as promised. But, even if it was, the purchaser would have had to sell thousands and thousands of candy bars before he could even hope to make his original investment back! Don't forgot to factor in your ongoing expenses, such as the inventory you will need to purchase from time to time.
Be objectiveThe sad truth about many business opportunity disasters is that the victims sincerely wanted to be successful through their own hard work. They simply wanted an extra "leg up" by purchasing an opportunity to put their sincerity and hard work into action. Some of these people became victims of outright fraud, meaning they didn't receive the goods or the expert help that was promised. Others became victims of the "fine print": they received what was promised, but they weren't actually promised much!
In conclusion, it is critically important to:
UNDERSTAND all the documents,
EVALUATE the true nature of the business opportunity,
DO THE MATH to see if you have much chance of just getting your initial investment back even if "successful," and BE OBJECTIVE.
Don't be blinded by your own enthusiasm. Remember, if you are truly dealing with someone offering a legitimate business opportunity or franchise, they want you to have accurate information and make an informed decision. This is for their protection as much as yours.
BE VERY SUSPICIOUS IF THEIR MAIN GOAL SEEMS TO BE TO MAKE A SALE TO YOU. Serious business people make their decisions carefully. ALL TOO OFTEN, THE UNSCRUPULOUS PROMOTERS OF BUSINESS OPPORTUNITIES ARE CORRECT WHEN THEY CLAIM THEY MADE A FORTUNE FROM THE OPPORTUNITY. THEY MADE THEIR FORTUNE SELLING THE BUSINESS OPPORTUNITY ITSELF! DO YOUR HOMEWORK FIRST. DO NOT SUCCUMB TO HIGH PRESSURE SALES. For more information about the regulation of business opportunities, contact the Maine Office of Securities.
Last Updated: July 10, 2012
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