May 7, 2010
Some Tough Questions About "Business Opportunities"
Some Tough Questions About "Business Opportunities" By Cliff Ennico This week#146;s crop of e-mails all have to do with buying a #147;business opportunity#148;, and the pitfalls of doing so. #147;I was approached at a trade show recently by a man who is a leading computer consultant for large companies. This man told me he had an arrangement with several #145;apprentices#146; who were learning the business under his guidance. The man assigns one or more #145;apprentices#146; to work for his clients. He bills the clients for each hour an #145;apprentice#146; works, and remits all the hourly fees to the #145;apprentice#146; except for $5,000 a month, which this man keeps as a training fee. Is this legal?#148; This arrangement falls squarely into the definition of a #147;business opportunity#148;. Generally, a business opportunity is any kind of investment program in which you are offered a chance to act as a distributor, marketing agent or reseller for a company#146;s products or services. While the most common business opportunities involve vending machines (you buy the machines from the seller, find locations for them, and stock them with the seller#146;s stuff in exchange for a portion of the proceeds), and farm animals (you buy a training kit and supplies, raise the animals in your back yard, and sell the animals back to the seller for slaughter when they#146;re fully grown), any type of #147;distributor#148; or #147;affiliate program#148; arrangement can be a #147;business opportunity#148; if it#146;s not put together carefully. Business opportunities often must register with state government agencies (see next question) and comply with a host of state laws designed to protect consumers against fraudulent investments, and I#146;ll betcha this guy hasn#146;t done any of that. I#146;m particularly troubled by the $5,000-a-month fixed fee, which #147;apprentices#148; must pay regardless of the number of hours they actually work. What happens if this guy doesn#146;t give them enough work to cover the $5,000 fee #150; do the #147;apprentices#148; pay the training fee out of their own pockets? I also think there#146;s a serious chance the #147;apprentices#148; will be considered #147;employees#148; of this man for tax purposes, since he determines where and when they work, and how much they get paid. Next time you see him, show him this column, and tell him he needs to talk to a lawyer, pronto. #147;I am thinking of buying a business opportunity, and have just recently learned that the business opportunity has not registered in my state, as the law requires it to do. The process will take months, though, and I really want to get going. What is my exposure if I go ahead and buy into the business opportunity anyway?#148; Most states require business opportunities to register with a state government agency (usually the same one that regulates offerings of securities in the state) and/or disclose certain information to people, before they are allowed to sell the opportunity to state residents. While these laws impose fines and penalties on a business opportunity that fails to comply, they are often quite vague about the consequences to the person who buys an unregistered business opportunity. Most state laws I#146;m aware of allow an unhappy purchaser to obtain a full refund of his money within a period of time (usually six months or 1 year) after learning that a business opportunity hadn#146;t registered. This #147;rescission right#148; usually disappears, however, if you knew at the time you bought into the business opportunity that it wasn#146;t registered. Since you know this business opportunity isn#146;t registered in your state, you probably will not be able to get your money back if it turns out to be a sham. But be careful: if the business opportunity wants you to solicit other prospective purchasers in your state, you may be legally responsible for registering the business opportunity with your state government, and paying the fees out of your own pocket. You may also be subject to the same fines and penalties as the out-of-state company if they catch you selling an unregistered business opportunity within the state. #147;I am looking into a business opportunity where I buy vending machines and lease them to area businesses. I#146;m a little nervous, though. They want a lot of money up front for their training materials, plus I have to pay cash when buying the machines from them. When I talk to the president, it#146;s always on his personal cell phone. The company address is a P.O. Box, they don#146;t have a Website, and the e-mail address is at America Online. How can I find out more information about this business opportunity?#148; I think you have all the information you need about this one, pal. Walk . . . no, run away as fast as you can. This one has #147;F-R-A-U-D#148; written all over it. If you buy into this, I foresee a basement full of vending machines you can#146;t give away, and a very angry spouse. Cliff Ennico ( cennico@legalcareer.com ) is a syndicated columnist, author and host of the PBS television series 'Money Hunt'. This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com . COPYRIGHT 2004 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC. Permission granted for use on DrLaura.com.

Posted by Staff at 1:44 AM