The growth of the barter
industry has caused an increase in the number of franchises,
licenses and business opportunities being offered by barter related
organizations in an attempt to expand their geographic reach and
brand. Barter industry members and consumers need to be cautious and
perform extensive due diligence to assure the legitimacy of such
offerings.
In the U.S., when barter
companies offer to sell their company name and business
methodologies to a �franchisee� or �licensee,� the transaction is
normally subject to Federal Trade Commission (FTC) regulations which
require a Franchise Disclosure Document (FDD) be provided to every
potential buyer at least 14 days prior to a contract being signed
and money being paid. The detailed and lengthy Financial Disclosure
Document (FDD) is designed to provide a potential buyer sufficient
information so as to make an informed decision. The FDD has been
required in all states since July, 1, 2008.
Under the FTC�s
�Disclosure Requirements and Prohibitions Concerning Franchising and
Business Opportunity Ventures,� Code of Federal Regulations, Title
26, Chapter 1, Subchapter D, Part 36, (better known as the FTC
Franchise Rule), anyone who offers, sells or distributes goods,
commodities or services is considered to be involved in the sale of
a franchise if they:
a)
Have a trademark, trade name, advertising or other commercial
symbol the recipient can use in its business;
b)
Provide significant assistance to their customer (or client)
in that person�s method of operation, and;
c)
Charge a fee for their services. If a business model meets
these three criteria, regardless of whether that business is called
a franchise, that business model falls under the FTC�s Franchise
Rule and must comply with all federal and state franchise laws,
rules and regulations.
The language that is
used to describe the business arrangement, be it license,
distributorship, business opportunity, etc. is irrelevant to U.S.
government regulators. The often attempted spin that �licensing
avoids franchise regulation because it is based in contract law
rather than franchise law� is regularly rejected by government
regulators and results in significant fines being assessed against
the offering company for non-compliance. Non-compliant activity is
deemed as an unfair or deceptive act or practice that is in
violation of Section 5 of the Federal Trade Commission Act.
A �license� for a
specific region or territory in the barter industry is almost always
considered a �franchise in disguise� because it does not abide by
the regulatory franchise filing requirements of the FTC. Individuals
and companies who are considering purchasing a �license, territory
or franchise� from an existing barter organization need to be aware
of the legal obligation the offering company has to provide the
proper Franchise Disclosure Documents (FDD). Paying money to a FTC
non-compliant individual or company for a �franchise in disguise� is
effectively wasting money on a mirage.
Thirty-three countries
worldwide have franchising laws that are similar to the U.S.�s laws.
* The fifteen states
listed below have their own state franchise investment laws that
require franchisors to register the FDD with the state. Thirteen of
these state laws treat the sale of a franchise like the sale of a
security. They typically prohibit the offer or sale of a franchise
within their state until a franchise offering circular has been
filed on the public record with, and registered by, a designated
state agency. (The FTC�s FDD still must be provided to a potential
buyer in the other thirty-five sates that do not have specific state
laws regarding franchising registration.)
California, Hawaii,
Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North
Dakota, Oregon, Rhode Island, South Dakota, Virginia, Washington,
and Wisconsin.
NOTE: THE CONTENT OF
THIS ADVISORY DOES NOT CONSTITUTE LEGAL ADVICE AND SHOULD NOT BE
RELIED UPON AS SUCH.
For more information,
click here.
To file a complaint with
the FTC,
click here.