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Be Alert to Bogus Business Opportunities

The past six years have been a rough and tumble economic ride for most Americans. While the economic outlook is slowly improving, many people are still looking for ways to generate more income to ease their financial burdens.

Unfortunately many questionable companies and businesspeople are also looking for ways to make money- by scamming unsuspecting consumers. You've probably seen the advertisements claiming how easy it is to earn extra cash. Stuffing envelopes, assembling crafts at home, learning medical coding- the list is long and ever-changing.

Do yourself a favor! Before signing a legal contract or sending money to purchase some type of business opportunity, learn about the Business Opportunity Rule. The Federal Trade Commission enforces this rule which helps protect consumers from dubious and risky business opportunities.

So what exactly does the Business Opportunity Rule do? There are three main components to the Rule. They are:
  • First. Sellers who are covered by the Rule are required to give consumers a one-page document which outlines the important facts about the opportunity.
  • Second. Sellers who are covered by the rule and make claims about how much money you will make are required to give you a separate paper with specific and detailed information about how the money will be earned.
  • Third. The Rule states that certain business practices are clearly against the law.

Important Facts about the Disclosure Document

Under the Business Opportunity Rule, the disclosure document which sellers are required to provide you must contain five specific pieces of information. Once you have this document, you should go over it thoroughly, fact-check all the data given, and make sure all the information contained in it is true and correct.

The disclosure document must:
  • Specifically name the seller.
  • Inform you of any lawsuits or other legal actions involving either the seller or any other key personnel.
  • Tell you if the seller has a refund or cancellation policy and if so, what are the exact terms and conditions?
  • State whether the seller is making an earnings claim. If yes, the seller must provide you with a separate document called an Earnings Claim Statement.
  • Provide you with a list of references.
The Business Opportunity Rule also states that the seller must give you the disclosure document at least seven days before you have to sign a contract or pay any money for anything. This time frame allows you to research all the information which the seller provides you, including the references.

Experience has shown that many so-called "sellers" give the names of friends and insiders as references and the glowing reviews which these people give you are entirely bogus. Try to contact people who are not on the list, if possible. If the seller tells you facts which are different from those contained in the disclosure document, beware. This could be a sign that something is amiss.

Lastly, the disclosure document must be in the language that the seller used to offer you the business opportunity. The seller must also inform you that if you do agree to purchase a business opportunity, your contact information will be given to prospective buyers in the future.

What is an Earnings Claim Statement?

The Business Opportunity Rule protects consumers in several different ways. One of the most important aspects contained in this Rule is the Earnings Claim Statement. Whenever a seller makes a claim about how much money can be earned with a specific business opportunity, he or she must provide the potential buyer with a separate document outlining the details of this supposed income. The document must have the following title across the top: "EARNINGS STATEMENT REQUIRED BY LAW".

The Earnings Claim Statement must include the following information:
  • The actual name of the person making the earnings claim and the date it was given to you.
  • The specific facts of the claim.
  • The true start and end dates in which the claimed earnings were achieved.
  • The actual number (and percentage) of people who successfully earned the claimed amounts or performed even better.
  • Specific information about the people who achieved the claimed earnings and how they differ from you and your situation (for example, if they live in another part of the country).
  • An additional statement confirming that you may receive written proof of the seller's claims if you ask for it.
This last bit of information is very important. Since the Rule allows you to ask for and receive written proof of the seller's claims, you should definitely take advantage of this. Once you receive the statement, study the information carefully and be certain that the numbers truly "add up". If there are any discrepancies, it is probably wise to walk away from this business opportunity.

The Earnings Claim Statement must also be written in the original language in which the business offer was made to you.

What Business Practices are Against the Law

There are certain business practices which are specifically against the law. The Business Opportunity Rule states that:
  • Sellers cannot claim that they are offering you a job. Legally, what they are offering is a business opportunity.
  • It is illegal for sellers to misstate the type of investment you are making. They may not claim they will assist you in lining up locations, accounts, outlets, or customers or tell you that you will have an exclusive territory if it is not true.
  • Business opportunity sellers may not claim or say anything that is contrary to the information contained in the Disclosure Document or Earnings Claim Statement.

How to Protect Yourself from Bogus Business Opportunity Sellers

Even with the Business Opportunity Rule in place for your protection, there are additional safeguards you can use to lessen the chances of becoming the victim of a professional scam artist. Before signing on the dotted line, take the time to thoroughly investigate the seller and do the following:
  • Absolutely insist on getting written proof of any earnings claims.
  • Carefully study the Disclosure document, the Earnings Claim statement, and the entire proposed contract.
  • Listen to sales pitches with a clear mind and ear. Remember, they are trying to sell you something.
  • If a seller doesn't give you the information which they are required by law to provide, run (do not walk) away.
  • Take advantage of professional advice. Ask an accountant, attorney, or business advisor to go over all your paperwork before you sign.
  • Investigate the seller. Contact your State Attorney General's Office, the Better Business Bureau, and your local consumer protection agency. Use internet searches by entering the seller's name (or the company's) and add "complaints", "scams", or "lawsuits". Always be wary!

What to Do if You Suspect Fraud

If you suspect that a business opportunity seller may be an actual scam artist, you may report your suspicions to:
  • The Better Business Bureau (your local office and also where the seller is based).
  • Your state (or county) consumer protection agency.
  • Your state Attorney General's Office (and the state where the seller is based).
  • The Federal Trade Commission (FTC). Go online to www.ftc.gov or call toll free 1-877-382-4357.