Running a successful business involves hard work with long hours and substantial risks. People who are in business for themselves, or interested in starting their own business, should beware of any business offer which promises quick riches and short work weeks as a result of buying a business opportunity.
In 1978 the California Legislature, at the urging of this office, acted to regulate business opportunity offerings. It passed the "Seller Assisted Marketing Plan Act," which are commonly referred to as "business opportunities," in order to assist buyers in making an informed decision before investing in a business opportunity. The law, found in the California Civil Code at Section 1812.200 and following, requires Seller Assisted Marketing Plans (SAMPs), which are not otherwise regulated:
- to register with the Attorney General's Office;
- to provide significant disclosure statements to potential buyers before they sign any contracts or pay any money; and
- to provide the buyer specific contractual rights after a purchase has been made.
Generally, a SAMP is any sale or lease or offer to sell or lease any product, equipment, supplies, or services which requires a payment of more than $500 before or during the first six months of the contract (cash payments of more than $50,000 before or at the time of signing are not covered by the statute) when the seller represents that the buyer may be able to earn more than he/she paid or that there is a market for the product, equipment, supplies, or services bought or for products made, produced, fabricated, grown, bred, modified, or developed by the purchaser using, in whole or in part, the product, supplies, equipment, or services which were sold or leased.
There are some exceptions. If in doubt, contact the Attorney General's office. SAMP sellers are required to register with the Attorney General's Office prior to advertising or selling business opportunities in California. The Attorney General's Office then reviews the information for compliance with the SAMP Act before the company can begin selling in California. The SAMP law requires that the seller give most of the required disclosure information to prospective purchasers at least 48 hours before the purchaser signs any contract or pays the seller any money and additional information before the contract is actually signed or any money is paid.
The SAMP Act prohibits sellers from making statements about potential earnings unless data is given about average earnings and prohibits them from charging payment of more than 20% of the price in advance of delivering goods and services.
Business opportunity scams are promoted on TV infomercials, on the Internet, by direct mail, at trade shows, at invitation only seminars, and through small ads that appear in the classified sections of newspapers and magazines. Regardless of the method used to advertise the SAMP, many of the ads promise big earnings, possibly on a part time basis, and promise that no selling or other experience is necessary.
Consumers who are considering entering into a business opportunity should consider the following before making any commitments or providing any up front money:
- Be skeptical about earnings claims that sound too good to be true;
- Exercise caution when it comes to ads that contain little more than glowing promises and 800 numbers to call for references;
- Obtain and review the required disclosure documents before you give the seller any money;
- Talk to others who have purchased the business opportunity, but be wary of people who are paid to be references or "shills;"
- Do not automatically assume those promises of prime locations, speedy repairs and ongoing assistance will be there when you need them; and
- Get information from other consumer organizations or local law enforcement agencies about the company before you give the seller any money.
People who have been approached, been the victim of a fraudulent business opportunity or those who want to learn whether a business opportunity is registered in California, should contact California's Attorney General Office.
If you are interested in registering with the Attorney General's Office, information is provided on Seller Assisted Marketing Plans.