Corporate Law: Law regulates some business transactions

The Missouri Legislature recently passed a law known as the Missouri Business Opportunity Act. The act, codified in sections 407.200 through 407.2021, regulates the sale or lease of certain products, equipment, supplies and services. It will be important both to those offering and purchasing a business opportunity. If you are considering a business opportunity, you should be familiar with the new law.

For the purposes of the act, a "business opportunity" is defined as the sale or lease of any product, equipment, supplies or services that are sold or leased to allow the buyer to start a business. To be classified as a business opportunity, however, the purchaser must be required to pay an initial fee in excess of $500, and the seller must make one or more of the following representations: the seller will assist or provide locations for use of vending or amusement machines; the seller will refund all or a major portion of the payment if the buyer is unsuccessful or dissatisfied with the business opportunity; the seller guarantees in writing that the buyer will earn income in excess of the price paid or rent charged; or that the business is risk-free or sure to make money.

The definition of a business opportunity under the act is broad enough to include seller and buyers that might not realize the new law applies to their transaction. The provisions relating to the leasing of equipment may surprise some sellers.

The law states that the sale of ongoing businesses, so long as the seller does not intend to sell more than five such businesses, shall not be deemed a business opportunity under the act. Nor is the sale of demonstration equipment, materials or samples for not more than $500 by a non-profit business regulated by the act.

The statute provides penalties if the seller misrepresents the total investment required, or fails to disclose an intent to establish or sell more franchises than can be supported by an area. The seller must also not misrepresent the quality or quantity of products to be sold, or the training that will be available to the purchaser.

The act states that the seller may not misrepresent the profits the franchise may expect, or falsely claim or imply that a sponsor participates in the opportunity. Exclusive territories must actually be exclusive if so represented, and a written contract is required in the sale of a business opportunity.

The law provides other details and circumstances that must be reviewed to see if an offering falls under the Business Opportunity Act. A seller who violates the act may be required to refund to the buyer all sums received in the transaction, and the agreement may be rescinded. An injured party may sue for damages, including a reasonable attorney's fee.

If you are considering sale or leasing of any product, equipment supply or service in excess of $500, you should determine whether you are required to comply with Missouri's new Business Opportunity Act.

(Stephen F. Aton is a Springfield attorney practicing in the areas of corporate law and taxation and estate planning.)