Friday, June 09, 2006, 9:43 AM

FTC Extends Comment Period For Business Opportunity Rule

On June 1, 2006, the FTC announced that it was extending the period to submit comments in response to the Notice of Proposed Rulemaking in connection with the Business Opportunity Rule. The previous deadline was June 16, 2006. The new deadline is July 17, 2006 and rebuttal comments must be submitted by August 7, 2006.

The proposed Business Opportunity Rule, if promulgated, may require many manufacturers, suppliers, and distributors to comply with certain pre-sale disclosure requirements even if those companies were previously exempt from the FTC's Franchise Rule. As explained in my previous post and recent Womble Carlyle Client Alert, the proposed Rule broadly defines "business opportunity" to include any commercial arrangement in which:

(1) the seller solicits a prospective purchaser to enter into a new business;
(2) the prospective purchaser makes payments or provides other consideration to the seller, directly or indirectly; and
(3) the seller, expressly or by implication makes an earnings claim or provides business assistance.

The definition of entering into a "new business" and providing "business assistance" are similarly broad and may cover ordinary distributorship and dealership arrangements. Unlike the Franchise Rule, there is no minimum purchase requirement and no exception for purchases of reasonable amounts of inventory at bona fide wholesale prices for resale. In short, the scope of coverage of the proposed Business Opportunity Rule is much broader than that of the Franchise Rule. Many manufacturers, suppliers, and distributors who were exempt from the Franchise Rule will have to comply with the more limited disclosure requirements of the Business Opportunity Rule if promulgated.

To download a copy of the proposed Business Opportunity Rule, click here.

To read my previous post about this rule, click here.

To read a client alert about the broad scope and requirements of the proposed Business Opportunity Rule, click here.

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