One the main goals of the Texas Business Opportunity Act is to protect consumers interested in starting their own businesses from scam artists eager to defraud them out of their money. When ads appear on TV or via email — promising large profits in exchange for a small, initial investment – it’s never wise to assume a valid offer is being made.
Some of the most common business opportunity ads often claim that you’ll need to do very little work before you’ll start receiving your first profits. That’s rarely an honest offer since running a business is often hard work. Now that so many older Americans (and others) have been laid off from their jobs, it’s critical to carefully review each offer and look for “red flags” warning you of possible fraud.
The following information will help explain some of the different ways that the Texas Business Opportunity Act tries to regulate the way that many programs go about seeking investors and operating in this state.
Types of business offers governed by the Texas Business Opportunity Act
- Those that require the buyer to pay at least $500 to begin setting up the business that’s being sold;
- Where the seller claims that you’ll earn back your initial investment (or more) in profits; and
- The seller promises to do one or more of the following acts to close the deal:
a). Provide you with a location – or help you find one (that’s not currently owned by you or the seller) where you can use or operate the goods or services being leased or sold by the seller;
b.) Help you create a marketing, sales and production program (unrelated to a formal franchise business governed by separate laws);
c.) Promises to buy back products, equipment or supplies (or goods made from them) provided to you so you can run the business.
To further protect the public from dishonest business offers, the Attorney General of Texas requires parties making offers that meet the description above to first register with the Secretary of State and provide any applicable bond or trust account required.
Whenever you become interested in investing in any business opportunity that even vaguely appears to be covered by the Texas Business Opportunity Act, it’s always best to review the matter with your Houston business law attorney. Our firm can check to be sure the seller’s company has formally registered with the Texas Secretary of State’s Office and posted all required funds.
As a potential investor, you should also be provided with key information (required by law) about any company – before ever tendering any money.
Legal disclosures companies must provide
When a business offer is made in Texas and is covered by the Texas Business Opportunity Act, the seller must provide specific information to the buyer ten (or more) days before any contract is signed by the parties and before any money is paid to the seller.
Here are some of the disclosures that must be provided.
- Names and addresses of all parties directly affiliated with the seller in the business being marketed;
- A specific listing of all services the seller is promising to perform for the buyer (such as setting up a product marketing program);
- An updated, current financial statement covering the seller’s finances;
- All details covering any training program being offered by the seller;
- How all services will be provided by the seller regarding the products and equipment being sold – and all key terms involved with the leasing agreements covering business locations being provided to the buyer;
- Information pertaining to any of the seller’s bankruptcies (or civil judgments obtained against the seller) during the last seven years.
The importance of distinguishing multi-level marketing offers from pyramid schemes
Make sure the business you’re interested in requires you to do some type of work (such as selling products or services) before paying you any profits. If you are only being urged to solicit additional participants in the business, there’s a strong chance that you’re being “tricked” into building a pyramid scheme that may earn you short-term gains before the entire investment program collapses.
Always obtain legal advice regarding any business that sounds too much like a quick way to earn a lot of money. Attractive shortcuts to huge profits – especially those promoted in many weekend hotel and restaurant seminars – are often sham operations.
Please contact our law firm so we can provide you with the legal advice you’ll need before investing in any new business opportunities.