FIRST REGULAR SESSION

HOUSE BILL NO. 425

89TH GENERAL ASSEMBLY

INTRODUCED BY REPRESENTATIVE GREEN.

Read 1st time January 27, 1997 and 1000 copies ordered printed.

ANNE C. WALKER, Chief Clerk

L1303.01I

AN ACT

Relating to the regulation of business opportunities, with penalty provisions.

Be it enacted by the General Assembly of the state of Missouri, as follows:

Section 1. 1. For the purposes of sections 1 to 8 of this act, "business opportunity" means the sale or lease of any product, equipment, supplies or services which are sold or leased to a purchaser to enable the purchaser to start a business for which the purchaser is required to pay an initial fee or sum of money in excess of one hundred dollars to the seller, and in which the seller represents:

(1) That the seller or a person or entity affiliated with, or referred by, 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 the sellers;

(2) That the seller will 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;

(3) That the seller guarantees in writing that the purchaser will derive income from the business opportunity which exceeds the price paid or rent charged for the business opportunity or that the seller will refund all or part of the price paid or rent charged for the business opportunity or will repurchase any of the products, equipment, supplies or chattels supplied by the seller, if the purchaser is not satisfied with the business opportunity; or

(4) That the seller will provide a sales program or marketing program that will enable the purchaser to derive income from the business opportunity, except that this subdivision shall not apply to the sale of a sales program or marketing program made in conjunction with the licensing of a trademark or service mark that is registered under the laws of any state or of the United States.

2. For purposes of subsection 1 of this section the term "assist the purchaser in finding locations", includes, but is not limited to, supplying the purchaser with names of locator companies, contracting with the purchaser to provide assistance or supply names or collecting a fee on behalf of or for a locator company.

3. For purposes of sections 1 to 8 of this act, "business opportunity" does not include:

(1) The sale of ongoing businesses when the owner of those businesses sells and intends to sell only those business opportunities so long as those business opportunities to be sold are no more than five in number; or

(2) The not for profit sale of sales demonstration equipment, materials or samples for a price that does not exceed five hundred dollars or any sales training course offered by the seller, the cost of which does not exceed five hundred dollars.

4. For purposes of sections 1 to 8 of this act, "purchaser" shall include a lessee and "seller" shall include a lessor.

Section 2. Any person who advertises any business opportunity is subject to the provisions of sections 1 to 8 of this act.

Section 3. 1. At least three working days before the time the purchaser signs a business opportunity contract, or at least three working days before the payment of any consideration by the purchaser to the seller, whichever occurs first, the seller shall provide the prospective purchaser a written document, the cover sheet of which is titled in at least 12-point boldfaced capital letters "DISCLOSURES REQUIRED BY MISSOURI LAW". Under such title shall appear the following statement in at least 10-point type: "The state of Missouri has not reviewed and does not approve, recommend, endorse or sponsor any business opportunity. The information contained in this disclosure has not been verified by the state. If you have any questions about this investment, see an attorney before you sign a contract or agreement". Nothing except the title and the required statement shall appear on the cover sheet. Immediately following the cover sheet, the seller shall provide an index page that briefly lists the contents of the disclosure document as required by this section and any pages on which the prospective purchaser can find each required disclosure. At the top of the index page, the following statement shall appear in at least 10-point type: "The state of Missouri requires sellers of business opportunities to disclose certain information to prospective purchasers. This index is provided to help you locate this information." If the index contains other information not required by this section, the seller shall place a designation beside each of the disclosures required by this section and provide an explanation of the designation at the end of the statement at the top of the index page.

2. The disclosure statement required by subsection 1 of this section shall contain the following information:

(1) The name of the seller; whether the seller is doing business as an individual, partnership, corporation or other business entity; the name under which the seller has done business; and the name of any parent or affiliate company that will engage in business transactions with the purchasers or who takes responsibility for statements made by the seller;

(2) The names, addresses and title of the seller's officers, directors, trustees, general partners, general managers and principal executives and of any other persons charged with the responsibility for the seller's business activities relating to the sale of business opportunities;

(3) The length of time the seller has:

(a) Sold business opportunities; or

(b) Sold business opportunities involving the products, equipment, supplies or services currently being offered to the purchaser;

(4) A full and detailed description of the actual services that the business opportunity seller undertakes to perform for the purchaser;

(5) A copy of current, not older than thirteen months, financial statement of the seller, updated to reflect material changes in the seller's financial condition;

(6) If training is promised by the seller, a complete description of the training, the length of the training and the cost or incidental expenses of that training that the purchaser will be required to incur;

(7) If the seller promises services to be performed in connection with the placement of the equipment, product or supplies at a location, the full nature of those services as well as the nature of the agreements to be made with the owners or managers of the location where the purchaser's equipment, product or supplies will be placed;

(8) If the business opportunity seller is required to secure a bond or establish a trust deposit pursuant to section 5 of this act, either of the following statements:

(a) "As required by Missouri law, the seller has secured a bond issued by ......................, a surety company authorized to do business in this state. Before signing a contract to purchase this business opportunity, you should confirm the bond's status with the surety company."; or

(b) "As required by Missouri law, the seller has established a trust account or guaranteed letter of credit ..........(number of account) with .................... (name and address of bank or savings institution). Before signing a contract to purchase this business opportunity, you should confirm with the bank or savings institution the current status of the trust account of guaranteed letter of credit.";

(9) The following statement: "If the seller fails to deliver the product, equipment or supplies necessary to begin substantial operation of the business within forty-five days of the delivery date stated in your contract, you may notify the seller in writing and cancel your contract.";

(10) If the seller makes any statement concerning sales or earnings or a range of sales or earnings that may be made through this business opportunity, a statement disclosing:

(a) The total number of purchasers of business opportunities involving the product, equipment, supplies or services being offered who have actually achieved sales of, or received earnings in, the amount or range specified, within three years prior to the date of the disclosure statement;

(b) The total number of purchasers of business opportunities involving the product, equipment, supplies or services being offered within three years prior to the date of the disclosure statement;

(c) The total number of purchasers of business opportunities involving the product, equipment, supplies or services being offered within three years before the date of the disclosure statement;

(11) A statement disclosing who, if any, of the persons listed in subdivisions (1) and (2) of this subsection:

(a) Has, at any time during the previous seven fiscal years, been convicted of a felony or pleaded guilty or nolo contendere to a felony charge in this state or any other state or territory of the United States, if the felony involved fraud, including violation of any franchise or business opportunity law or unfair or deceptive practices law, embezzlement, fraudulent conversion, misappropriation of property or restraint of trade;

(b) Has at any time during the previous seven fiscal years, been held liable in a civil action resulting in a final judgment, or has settled out of court any civil action, or is a party to any civil action involving allegations of fraud, including, violation of any franchise or business opportunity law or unfair or deceptive practices law, embezzlement, fraudulent conversion, misappropriation of property or restraint of trade, or any civil action which was brought by a present or former francishee and which involves the franchise relationship; except that, only material individual civil actions need to be listed pursuant to this paragraph, including any group of civil actions which, irrespective of the materiality of any single such action, in the aggregate is material;

(c) Is subject to any currently effective state or federal agency or court injunctive or restrictive order, or is a party to a proceeding currently pending in which such order is sought, relating to, or affecting, business opportunities activities or the business opportunity seller-purchaser relationship or involving fraud, including violation of any franchise or business opportunity law or unfair or deceptive practices law, embezzlement, fraudulent conversion, misappropriation of property or restraint of trade. Such statement shall set forth the identity and location of the court or agency; the date of conviction, judgment or decision; the penalty imposed; the damages assessed; the terms of settlement or the terms of the order; and the date, nature and issuer of each such order or ruling. A business opportunity seller may include a summary opinion of counsel as to any pending litigation, but only if counsel's consent to the use of such opinion is included in the disclosure statement;

(12) A statement disclosing who, if any, of the persons listed in subdivisions (1) and (2) at any time during the previous seven fiscal years has:

(a) Filed in bankruptcy;

(b) Been adjudged bankrupt;

(c) Been reorganized due to insolvency;

(d) Been a principal, director, executive officer or partner of any other person that has filed in bankruptcy or was adjudged bankrupt or reorganized due to insolvency during, or within one year, after the period that such person held such position in relation to such other person. If so, the name and location of the person having so filed, or having been so adjudged or reorganized, the date thereof and any other material facts relating thereto shall be set forth;

(13) A copy of the business opportunity contract which the seller uses as a matter of course and which is to be presented to the purchaser at closing.

3. If any seller of business opportunities prepares a disclosure statement pursuant to 16 C.F.R. section 436.1 et seq., a Trade Regulation Rule of the Federal Trade Commission regarding disclosure requirements and prohibitions concerning franchising and business opportunity ventures, the seller may file such disclosure statement in lieu of the document required pursuant to this section. If the seller is required pursuant to 16 C.F.R. to prepare any other documents to be presented to the prospective purchaser, such document shall, also, be filed with the securities division of the secretary of state's office.

Section 4. 1. Every seller of a business opportunity shall file with the securities division of the secretary of state's office a copy of the disclosure statement required by section 3 of this act before placing an advertisement or making any other representation designed to offer to, sell to, or solicit an offer to buy a business opportunity from a prospective purchaser in this state and shall, at least annually or at any other time if any material change in the required information occurs, update such filing. An advertisement is not placed in the state merely because the publisher circulates, or there is circulated on behalf of the publisher in the state, any bona fide newspaper or other publication of general, regular and paid circulation which has had more than two-thirds of its circulation during the past twelve months outside the state or because a radio or television program originating outside the state is received in the state. If a seller is required by section 5 of this act to provide a bond or establish a trust account or guaranteed letter of credit, the seller shall file at the same time with the securities division of the secretary of state's office a copy of the bond, a copy of the formal notification by the depository that the trust account is established or a copy of the guaranteed letter of credit.

2. Upon the filing of the disclosure statement and the posting of a bond or the establishment of a trust account or a guaranteed letter of credit, if any is required, the securities division of the secretary of state's office shall issue to the business opportunity seller an advertisement identification number.

3. The seller shall disclose, to each person with whom the seller places advertising, the advertisement identification number, which shall be recorded by the person receiving the advertising so that the advertising media may verify the authenticity of the registration.

4. Any seller governed by sections 1 to 8 of this act shall pay the securities division of the secretary of state's office an annual fee of three hundred dollars for the administration and enforcement of sections 1 to 8 of this act. If any material change in the information submitted to the securities division of the secretary of state's office occurs before the date for annual registration, a seller shall submit a fee of fifty dollars for any update filing required by this section.

5. Any moneys collected pursuant to the provisions of sections 1 to 8 of this act shall be deposited in the "Business Opportunities Regulation Fund" which is hereby created to be used to administer the provisions of sections 1 to 8 of this act. Any moneys remaining in the business opportunities regulation fund at the end of any biennium shall be exempt from the provisions of section 33.080, RSMo, and shall not be deposited in the general revenue fund unless the balance in the fund exceeds two times the amount appropriated in the previous fiscal year for the administration of the provisions of sections 1 to 8 of this act.

Section 5. If the business opportunity seller makes any representations as provided in subdivision (3) of subsection 1 of section 1 of this act, the seller shall, either obtain a surety bond issued by a surety company authorized to do business in this state or establish a trust account or a guaranteed letter of credit with a licensed and insured bank or savings institution located in this state. The amount of the bond, trust account or guaranteed letter of credit shall be an amount not less than fifty thousand dollars. The bond or trust account shall be in the favor of the securities division of the secretary of state's office. Any person who is damaged by any violation of sections 1 to 8 of this act, or by the seller's breach of the contract for the business opportunity sale or of any obligation arising therefrom may bring an action against the bond, trust account or guaranteed letter of credit to recover damages suffered; except that, the aggregate liability of the surety or trustee shall be only for actual damages and shall never exceed the amount of the bond, trust account or guaranteed letter of credit.

Section 6. 1. A business opportunity seller shall not:

(1) Misrepresent, by failure to disclose or otherwise, the known required total investment for such business opportunity;

(2) Misrepresent or fail to disclose efforts to sell or establish more franchises or distributorships than it is reasonable to expect the market or market area for the particular business opportunity to sustain;

(3) Misrepresent the quantity or the quality of the products to be sold or distributed through the business opportunity;

(4) Misrepresent the training and management assistance available to the business opportunity purchaser;

(5) Misrepresent the amount of profits, net or gross, which the franchisee can expect from the operation of the business opportunity;

(6) Misrepresent, by failure to disclose or otherwise, the termination, transfer or renewal provision of a business opportunity agreement;

(7) Falsely claim or imply that a primary marketer or trademark of products or services sponsors or participates directly or indirectly in the business opportunity;

(8) Assign a so-called exclusive territory encompassing the same area to more than one business opportunity purchaser;

(9) Provide vending locations for which written authorizations have not been granted by the property owners or lessees;

(10) Provide machines or display of a brand or kind substantially different from and inferior to those promised by the business opportunity seller;

(11) Fail to provide the purchaser a written contract;

(12) Misrepresent the seller's ability or the ability of a person or entity providing services as defined in subdivision (1) of subsection 1 of section 1 of this act to provide locations or assist the purchaser in finding locations expected to have a positive impact on the success of the business opportunity;

(13) Misrepresent a material fact or create a false or misleading impression in the sale of a business opportunity.

2. Any person who violates the provisions of this section is guilty of a class A misdemeanor.

Section 7. 1. If a business opportunity seller uses untrue or misleading statements in the sale of a business opportunity, fails to give the proper disclosures in the manner required by section 3 of this act, or fails to deliver the equipment, supplies or products necessary to begin substantial operation of the business within forty-five days of the delivery date stated in the business opportunity contract, the purchaser may, within one year of the date of the execution of the contract and upon written notice to the seller, rescind the contract and the purchaser shall be entitled to receive from the business opportunity seller all sums paid to the business seller. Upon receipt of such sums, the purchaser shall make available to the seller at the purchaser's address, or at the places at which the purchaser is located at the time notice is given, all products, equipment or supplies received by the purchaser. The purchaser shall not be entitled to unjust enrichment by exercising the remedies provided in this subsection.

2. If a business opportunity seller uses untrue or misleading statements in the sale of a business opportunity, fails to give the proper disclosures, fails to include the contract provisions, fails to post the bond as required by section 5 of this act, or violates any other provision of sections 1 to 8 of this act, the securities division of the secretary of state's office may request the attorney general to seek an injunction to order the seller to cease and desist selling business opportunities until the seller complies with the provisions of sections 1 to 8 of this act.

3. Any purchaser injured by a violation of sections 1 to 8 of this act or by the business opportunity seller's breach of a contract subject to sections 1 to 8 of this act or any obligation arising therefrom, may bring an action for recovery of damages, including reasonable attorney's fees.

4. Upon complaint of any person that a business opportunity seller has violated the provisions of sections 1 to 8 of this act, the circuit court shall have jurisdiction to enjoin the defendant from any further violations.

5. The securities division of the secretary of state's office and the attorney general are the enforcing authorities for the purposes of sections 1 to 8 of this act and they may bring civil actions in circuit court for temporary or permanent injunctive relief and may seek other appropriate civil relief, including, but not limited to, a civil penalty not to exceed five thousand dollars for each violation, restitution and damages for injured purchasers of business opportunities and court costs and reasonable attorney's fees.

6. Any remedy provided in this section may be recovered in an appropriate action or the securities division of the secretary of state's office or the attorney general may terminate any investigation or action upon agreement by the offender to pay a stipulated civil penalty, to make restitution or pay damages to purchasers, or to satisfy any other relief authorized in this section and requested by the securities division or the attorney general.

7. The remedies provided in this section shall be in addition to any other remedies provided by law or in equity.

Section 8. Any person who fails to file with the securities division of the secretary of state and pay the fee as required in section 4 of this act is guilty of a class A misdemeanor.
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