1. What is a "business opportunity"?

  • A business opportunity ("bus-op") is the sale or lease of any products, equipment, supplies or services for the purpose of enabling the purchaser to start a business.
  • The seller must also represent one of the following four things:
    • That the seller will provide locations or assist the purchaser in finding locations for the use or operation of vending machines, racks, display cases or other similar devices or currency-operated amusement machines or devices, on premises neither owned nor leased by the purchaser or seller; or
    • That the seller may, in the ordinary course of business, purchase any or all products made, produced, fabricated, grown, bred or modified by the purchaser using in whole or in part the supplies, services or chattels sold to the purchaser; or
    • The seller guarantees that the purchaser will derive income from the bus-op which exceeds the price paid for the bus-op; or that the seller will refund all or part of the price paid for the bus-op, or repurchase any of the products, equipment, supplies or chattels supplied by the seller, if the purchaser is unsatisfied with the bus-op and pays to the seller an initial, required consideration which exceeds two hundred dollars ($200); or
    • That the seller will provide a sales program or marketing program which will enable the purchaser to derive income from the bus-op which exceeds the price paid for the bus-op.(This does not apply to the sale of a marketing program made in conjunction with the licensing of a federally registered trademark or a federally registered service mark, or when the purchaser pays less than $200.)
  • Note that a bus-op is not the sale of an on-going business when the owner of the business sells and intends to sell only that one bus-op.
    • Example: Tom owns vending machines located in several convenience stores. He maintains and services those machines. Tom's contracts with the convenience stores expire and he decides to get out of the business.Tom sells his vending machine business, including the machines, to Bill and represents to Bill that he will assist Bill in finding additional convenience stores for the placement of the vending machines. Tom does not sell to anyone other than Bill. In this case, there is no bus-op, because there is only one sale.If Tom sold half of his machines to Bill and the other half to Sam with the same representations, there would have been two bus-op's and the statute would apply.
  • A bus-op also does not include the not-for-profit sale of sales demonstration equipment, materials, or samples, for a total price of $200 or less.

2. Are there any transactions that are exempt from the law?

  • Yes. Article 19 does not apply to the sale or lease of any products, equipment, supplies or services where all of the following conditions are met:
    • The seller has not received net income from bus-op sales within NC during either of its previous two fiscal years, and does not intend to receive net income from such sales during its current fiscal year.
    • The primary commercial activity of the seller or its affiliate is substantially different from the sale of the bus-op, and the gross revenues received by the seller from all bus-op sales during the current and each of the two previous fiscal years do not exceed 10% of the total gross revenues from all operations for the same period of the seller and any other affiliated entity contractually obligated to compensate the purchaser for the purchaser's business activities arising from the sale of the bus-op. The sale results in an improvement to realty owned or leased by the purchaser which enables the purchaser to receive goods on consignment from the seller or its affiliate. An "improvement to realty" occurs when a building or other structure is constructed or when significant improvements to an existing building or structure are made.
    • The seller either has a net worth on a consolidated basis, according to its most recent audited financial statement, of not less than $5 million or has obtained a surety bond from a surety company authorized to do business in this State in an amount equal to or greater than the gross revenues received from the sale or lease of products, equipment, supplies or services in this State during the preceding 12-month period which enabled the purchaser to start a business.
  • Article 19 also does not apply to a bus-op where both of the following conditions are met:
    • The seller has a net worth on a consolidated bases, according to its most recent audited financial statement, of not less than $5 million, and
    • The primary commercial activity of the seller is motor carrier transportation and the seller is subject to the jurisdiction of the Interstate Commerce Commission or any other federal agency that regulates motor carrier transportation.

3. If a seller is exempt, is he required to comply with any provisions of Article

  • He must file with the Secretary of State two copies of a document signed under oath by the seller or by someone authorized to sign on his behalf containing the following information:
    • The seller's name and whether the seller is doing business as an individual, partnership or corporation.
    • The principal business address of the seller.
    • A brief description of the products, equipment, supplies or services being sold or leased by the seller.
    • A statement which explains the manner in which each of the requirements of the above-referenced exemptions are met.

G.S. § 66-94.1(c)

4. Is the seller required to obtain a bond or trust account?

  • The seller must obtain a either a surety bond issued by a surety company authorized to do business in NC or have established a trust account with a licensed and insured bank or savings institution located in NC in an amount not less than $50,000 only if the bus-op seller makes any of the following representations:
    • That the purchaser will derive income from the bus-op which exceeds the price paid for the bus-op; or
    • That the seller will refund all or part of the price paid for the bus-op, or will repurchase any of the products, equipment, supplies or chattels supplied by the seller, if the purchaser is unsatisfied with the bus-op and pays to the seller an initial, required consideration which exceeds two hundred dollars ($200).
  • The bond or trust account must be in favor of the state of North Carolina and is for the benefit of any person who is damaged by any violation of Article 19, or by the seller's breach of the contract for the bus-op or of any obligation arising therefrom.
    • Any person so injured may bring an action against the bond or trust account (the Secretary of State cannot bring this action) to recover damages suffered.
  • The seller must file two copies of the bond or formal notification by the depository that the trust account is established with the Secretary of State.
    • This must be filed at the same time as the seller files copies of the disclosure statement, the Uniform Franchise Offering Circular (UFOC) or the Federal Trade Commission Basic Disclosure Document (discussed below).

5. What types of disclosures must the seller make?

  • The seller must provide the prospective purchaser a written disclosure statement meeting the requirements of G.S. § 66-95 at the earlier of:
    • & At least 48 hours prior to the time the purchaser signs a bus-op contract, or
    • At least 48 hours prior to the receipt of any consideration by the seller.
  • In addition, the seller must file two copies of the disclosure statement, along with a fee of $250.00 with the Secretary of State.
    • This must be filed prior to placing any advertisement or making any other representations to prospective customers in NC.
    • & This filing must be updated as any material information in the required information occurs, but not less than annually.
  • As an alternative to filing the disclosure statement required by G.S. § 66-95, the seller may file the Uniform Franchise Offering Circular (UFOC) or the Federal Trade Commission Basic Disclosure Document.
    • If these documents are filed, they must be accompanied by a separate sheet setting forth the caption and statement and any other information required by G.S. § 66-95.
  • All bus-op contracts must be in writing and contain the information contained in G.S. § 66-99.
    • A copy of the contract must be given to the purchaser at the time he signs the contract.

6. What documents must be filed with the Secretary of State?

  • 2 copies of surety bond or formal notification of the establishment of a trust account
    • The bond or trust notification should be reviewed to determine compliance with G.S. § 66-96
    • Must be filed contemporaneously with the disclosure statement
  • 2 copies of disclosure statement or appropriate alternative document.
    • These documents should be reviewed to determine that all the information required by G.S. § 66-95 is contained within them, including the required coversheet.
  • An irrevocable consent to service of process appointing the Secretary of State attorney for the acceptance of lawful process.