BUSINESS & COMMERCE CODE
CHAPTER 41. BUSINESS OPPORTUNITIES
SUBCHAPTER A. GENERAL PROVISIONS
§ 41.001. SHORT TITLE. This chapter may be cited as the
Business Opportunity Act.
Added by Acts 1997, 75th Leg., ch. 1008, § 5, eff. Sept. 1, 1997.
§ 41.002. CONSTRUCTION AND APPLICATION. (a) This
chapter shall be liberally construed and applied to:
(1) protect persons against false, misleading, or
deceptive practices in the advertising, offering for sale or lease,
and sale or lease of business opportunities; and
(2) provide efficient and economical procedures to
secure that protection.
(b) In construing this chapter, a court to the extent
possible shall follow the interpretations given by the Federal
Trade Commission and the federal courts to Section 5(a)(1), Federal
Trade Commission Act (15 U.S.C. Section 45(a)(1)), and 16 C.F.R.
Part 436 and their subsequent amendments.
Added by Acts 1997, 75th Leg., ch. 1008, § 5, eff. Sept. 1, 1997.
§ 41.003. DEFINITIONS. In this chapter:
(1) "Business opportunity contract" means an
agreement that obligates or is intended to obligate a purchaser to a
seller.
(2) "Buy-back" means a representation that implies
that the purchaser's payment is protected from loss.
(3) "Designee" means a person who:
(A) is selected by a seller as a source of goods
or services to be used by a purchaser in connection with a business
opportunity; and
(B) gives consideration to the seller in
connection with that selection or the disposition of goods or
services to the purchaser.
(4) "Equipment" includes machines, electrical
devices, video and audio devices, molds, display racks, vending
machines, coin-operated game machines, machines that dispense
products, and display units.
(5) "Initial consideration" means the total amount a
purchaser is obligated to pay under a business opportunity contract
before or at the time the equipment, supplies, products, or
services are delivered or within six months after the date the
purchaser begins operation of the business opportunity plan. The
term means the total sale price if the contract states a specific
total sale price for purchase of the business opportunity plan and
the total sale price is to be paid as a down payment and one or more
additional payments. The term does not include the not-for-profit
sale for not more than $500 of sales demonstration materials,
samples, and equipment.
(6) "Marketing program" means advice or training that
is given to the purchaser by the seller or a person recommended by
the seller pertaining to the sale of products, equipment, supplies,
or services and that includes the preparation or provision of:
(A) promotional literature, brochures,
pamphlets, or advertising materials;
(B) training regarding the promotion, operation,
or management of the business opportunity; or
(C) operational, managerial, technical, or
financial guidelines or assistance.
(7) "Product" includes any tangible personal
property.
(8) "Purchaser" means a person who becomes or is
solicited to become obligated on a business opportunity contract.
(9) "Secured investment" is synonymous with
"buy-back" and has the meaning assigned by Subdivision (2).
(10) "Seller" means a principal or agent who sells or
leases or offers to sell or lease a business opportunity.
(11) "Services" includes any assistance, guidance,
direction, work, labor, or other services provided by the seller to
initiate or maintain a business opportunity.
(12) "Supplies" includes materials used to produce,
grow, breed, or make a product or item.
Added by Acts 1997, 75th Leg., ch. 1008, § 5, eff. Sept. 1, 1997.
§ 41.004. BUSINESS OPPORTUNITY; EXCEPTIONS. (a) In
this chapter, "business opportunity" means a sale or lease for an
initial consideration of more than $500 of products, equipment,
supplies, or services that will be used by or for the purchaser to
begin a business in which the seller represents that:
(1) the purchaser will earn or is likely to earn a
profit in excess of the initial consideration paid by the
purchaser; and
(2) the seller will:
(A) provide locations or assist the purchaser in
finding locations for the use or operation of the products,
equipment, supplies, or services on premises that are not owned or
leased by the purchaser or seller;
(B) provide a sales, production, or marketing
program; or
(C) buy back or is likely to buy back products,
supplies, or equipment purchased or a product made, produced,
fabricated, grown, or bred by the purchaser using in whole or in
part the product, supplies, equipment, or services that the seller
initially sold or leased or offered for sale or lease to the
purchaser.
(b) In this chapter, "business opportunity" does not
include:
(1) the sale or lease of an established and ongoing
business or enterprise that has actively conducted business before
the sale or lease, whether composed of one or more than one
component business or enterprise, if the sale or lease represents
an isolated transaction or series of transactions involving a bona
fide change of ownership or control of the business or enterprise or
liquidation of the business or enterprise;
(2) a contract or agreement in which a retailer of
goods or services sells the inventory of one or more ongoing leased
departments to a purchaser who is granted the right to sell the
goods or services within or adjoining the retail business
establishment as a department or division of the retail business
establishment;
(3) a transaction regulated by the Motor Vehicle Board
of the Texas Department of Transportation, Texas Department of
Licensing and Regulation, Texas Department of Insurance, or Texas
Real Estate Commission if engaged in by a person licensed by one of
those agencies;
(4) a real estate syndication;
(5) a sale or lease to a business enterprise that also
sells or leases equipment, products, and supplies or performs
services:
(A) that are not supplied by the seller; and
(B) that the purchaser does not use with the
equipment, products, supplies, or services of the seller;
(6) the offer or sale of a franchise as described by
the Petroleum Marketing Practices Act (15 U.S.C. Section 2801 et
seq.) and its subsequent amendments;
(7) the offer or sale of a business opportunity if the
seller:
(A) has a net worth of at least $25 million
according to the seller's audited balance sheet as of a date not
earlier than the 13th month before the date of the transaction; or
(B) is at least 80-percent owned by another
person who:
(i) in writing unconditionally guarantees
performance by the person offering the plan; and
(ii) has a net worth of more than $25
million according to the person's most recent audited balance sheet
as of a date not earlier than the 13th month before the date of the
transaction; or
(8) an arrangement defined as a franchise by 16 C.F.R.
Section 436.2(a) and its subsequent amendments if:
(A) the franchisor complies in all material
respects in this state with 16 C.F.R. Part 436 and each order or
other action of the Federal Trade Commission; and
(B) before offering for sale or selling a
franchise in this state, a person files with the secretary of state
a notice containing:
(i) the name of the franchisor;
(ii) the name under which the franchisor
intends to do business; and
(iii) the franchisor's principal business
address.
(c) The secretary of state shall prescribe the form of the
notice described by Subsection (b)(8)(B).
Added by Acts 1997, 75th Leg., ch. 1008, § 5, eff. Sept. 1, 1997.
§ 41.005. BURDEN OF PROOF. A person who claims to be
exempt from this chapter has the burden of proving the exemption.
Added by Acts 1997, 75th Leg., ch. 1008, § 5, eff. Sept. 1, 1997.
§ 41.006. RULES. The secretary of state may adopt rules
to administer and enforce this chapter.
Added by Acts 1997, 75th Leg., ch. 1008, § 5, eff. Sept. 1, 1997.
§ 41.007. FILING FEE. The secretary of state may charge
a reasonable fee to cover the costs incurred as a result of a filing
required by Subchapter B or Section 41.004 or 41.251.
Added by Acts 1997, 75th Leg., ch. 1008, § 5, eff. Sept. 1, 1997.
§ 41.008. RECORDKEEPING. (a) A seller shall maintain
a complete set of books, records, and accounts of business
opportunity sales made by the seller.
(b) A document relating to a business opportunity sold or
leased shall be maintained until the fourth anniversary of the date
of the business opportunity contract.
Added by Acts 1997, 75th Leg., ch. 1008, § 5, eff. Sept. 1, 1997.
§ 41.009. WAIVER. A waiver of this chapter is contrary
to public policy and is unenforceable and void.
Added by Acts 1997, 75th Leg., ch. 1008, § 5, eff. Sept. 1, 1997.
SUBCHAPTER B. REGISTRATION OF BUSINESS OPPORTUNITY
§ 41.051. FILING OF DISCLOSURE STATEMENT AND LIST OF
SELLERS. Before the sale or offer for sale, including advertising,
of a business opportunity, the principal seller shall register the
business opportunity with the secretary of state by filing:
(1) a copy of the disclosure statement required by
Subchapter D; and
(2) a list of the names and resident addresses of the
individuals who sell or will sell the business opportunity for the
principal seller.
Added by Acts 1997, 75th Leg., ch. 1008, § 5, eff. Sept. 1, 1997.
§ 41.052. UPDATING OF INFORMATION ON FILE. (a) A
disclosure statement on file must be updated through a new filing
annually and whenever a material change occurs.
(b) The list of individuals who sell or will sell the
business opportunity for the principal seller must be updated
through a new filing every six months.
Added by Acts 1997, 75th Leg., ch. 1008, § 5, eff. Sept. 1, 1997.
§ 41.053. FILING OF COPY OF BOND OR NOTIFICATION OF
ACCOUNT. A principal seller who is required to provide a bond or
establish a trust account shall contemporaneously file with the
secretary of state a copy of:
(1) the bond; or
(2) the formal notification by the depository that the
trust account is established.
Added by Acts 1997, 75th Leg., ch. 1008, § 5, eff. Sept. 1, 1997.
§ 41.054. USE OF DISCLOSURE DOCUMENT FROM OTHER
REGULATORY AGENCY. Instead of using a disclosure statement
required by this chapter in a transaction with a purchaser or for
purposes of filing with the secretary of state, a seller may use a
copy of a similar document required by the State Securities Board,
Securities and Exchange Commission, or Federal Trade Commission
that contains all the information required to be disclosed by this
chapter.
Added by Acts 1997, 75th Leg., ch. 1008, § 5, eff. Sept. 1, 1997.
SUBCHAPTER C. BOND, TRUST ACCOUNT, OR LETTER OF CREDIT
§ 41.101. BOND, TRUST ACCOUNT, OR LETTER OF CREDIT
REQUIRED. (a) Before a seller makes a representation described
by Section 41.004(a)(1) or otherwise represents that the buyer is
assured of making a profit from a business opportunity, the
principal seller must:
(1) obtain a surety bond by a surety company
authorized to do business in this state;
(2) establish a trust account; or
(3) obtain an irrevocable letter of credit.
(b) The bond, trust account, or irrevocable letter of credit
must:
(1) be in an amount of not less than $25,000; and
(2) be in favor of this state.
Added by Acts 1997, 75th Leg., ch. 1008, § 5, eff. Sept. 1, 1997.
§ 41.102. ACTION AGAINST BOND, TRUST ACCOUNT, OR LETTER
OF CREDIT. (a) A person may bring an action against the bond,
trust account, or irrevocable letter of credit obtained or
established under Section 41.101 to recover actual damages for:
(1) a violation of this chapter; or
(2) the seller's breach of:
(A) the business opportunity contract; or
(B) an obligation arising from a business
opportunity sale.
(b) The aggregate liability of the surety, trustee, or
issuer in actions under Subsection (a) may not exceed the amount of
the bond, trust account, or irrevocable letter of credit.
Added by Acts 1997, 75th Leg., ch. 1008, § 5, eff. Sept. 1, 1997.
SUBCHAPTER D. DISCLOSURE STATEMENT
§ 41.151. DISCLOSURE TO PURCHASER OF BUSINESS
OPPORTUNITY. A seller must provide a purchaser with a written
disclosure statement that meets the requirements of this
subchapter. The seller must provide the statement at least 10
business days before the earlier of:
(1) the date the purchaser signs a business
opportunity contract; or
(2) the date the seller receives any consideration.
Added by Acts 1997, 75th Leg., ch. 1008, § 5, eff. Sept. 1, 1997.
§ 41.152. COVER SHEET OF DISCLOSURE STATEMENT. (a) A
disclosure statement must have a cover sheet that is entitled, in at
least 12-point boldface capital letters, "DISCLOSURES REQUIRED BY
TEXAS LAW." The following statement must appear below the title in
at least 10-point boldface type: "The State of Texas has not
reviewed and does not endorse, approve, recommend, 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."
(b) Only the title and required statement may appear on the
cover sheet.
Added by Acts 1997, 75th Leg., ch. 1008, § 5, eff. Sept. 1, 1997.
§ 41.153. CONTENTS: NAMES AND ADDRESSES. A disclosure
statement must contain:
(1) the name of the seller;
(2) the names under which the seller has done, is
doing, or intends to do business;
(3) the name of any parent or affiliated company that
will engage in business transactions with the purchaser or that
takes responsibility for statements made by the seller; and
(4) the names, addresses, and titles of:
(A) the seller's officers, directors, trustees,
general partners, general managers, and principal executives;
(B) stockholders owning more than 20 percent of
the stock shares of the seller; and
(C) any other persons responsible for the
seller's business activities relating to the sale of business
opportunities.
Added by Acts 1997, 75th Leg., ch. 1008, § 5, eff. Sept. 1, 1997.
§ 41.154. CONTENTS: SALES PERIODS. A disclosure
statement must state the period the seller has:
(1) sold business opportunities; and
(2) sold business opportunities involving the
products, equipment, supplies, or services the seller is offering
to the purchaser.
§ 41.155. CONTENTS: SERVICES DESCRIPTION. A
disclosure statement must contain:
(1) a detailed description of the actual services the
seller undertakes to perform for the purchaser; and
(2) if the seller promises to perform services in
connection with the placement of equipment, products, or supplies
at a location:
(A) the full nature of those services; and
(B) the nature of the agreements to be made with
the owners or managers of that location.
§ 41.156. CONTENTS: FINANCIAL STATEMENT. A disclosure
statement must contain a copy of a financial statement of the seller
that:
(1) was prepared according to generally accepted
accounting principles within the previous 13 months; and
(2) has been updated to reflect material changes in
the seller's financial condition.
Added by Acts 1997, 75th Leg., ch. 1008, § 5, eff. Sept. 1, 1997.
§ 41.157. CONTENTS: TRAINING DESCRIPTION. If the
seller promises training, the disclosure statement must contain a
complete description of the training, the length of the training,
and the cost of the training, including travel and lodging
expenses, that the purchaser will be required to incur.
Added by Acts 1997, 75th Leg., ch. 1008, § 5, eff. Sept. 1, 1997.
§ 41.158. CONTENTS: SECURITY DESCRIPTION. If the
seller is required to secure a bond or establish a trust account,
the disclosure statement must contain the following statement:
(1) "As required by Texas 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
(2) "As required by Texas law, the seller has
established a trust account with ______. 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.".
Added by Acts 1997, 75th Leg., ch. 1008, § 5, eff. Sept. 1, 1997.
§ 41.159. CONTENTS: DELIVERY DATE. If the seller is
required to deliver to the purchaser the product, equipment, or
supplies necessary to begin substantial operation of the business
and states a definite or approximate delivery date for the product,
equipment, or supplies, the disclosure statement must contain the
following statement: "If the seller fails to deliver the product,
equipment, or supplies necessary to begin substantial operation of
the business within 45 days of the delivery date stated in your
contract, you may notify the seller in writing and cancel your
contract."
Added by Acts 1997, 75th Leg., ch. 1008, § 5, eff. Sept. 1, 1997.
§ 41.160. CONTENTS: SALES OR EARNINGS
REPRESENTATION. If the seller makes a statement concerning sales
or earnings that may be made through the business opportunity, the
disclosure statement must contain a statement disclosing:
(1) the total number of purchasers of business
opportunities involving the product, equipment, supplies, or
services being offered who to the seller's knowledge have actually
achieved sales of or received earnings in the amount or range
specified not earlier than the third year before the date of the
disclosure statement; and
(2) the total number of purchasers who purchased
business opportunities involving the product, equipment, supplies,
or services being offered not earlier than the third year before the
date of the disclosure statement.
Added by Acts 1997, 75th Leg., ch. 1008, § 5, eff. Sept. 1, 1997.
§ 41.161. CONTENTS: LEGAL ACTION HISTORY. (a) A
disclosure statement must contain a statement disclosing which, if
any, of the persons described by Section 41.153:
(1) has, at any time during the previous seven fiscal
years:
(A) been convicted of a felony, or pleaded nolo
contendere to a felony charge, involving fraud, embezzlement,
fraudulent conversion, or misappropriation of property; or
(B) been held liable in a civil action resulting
in a final judgment, or settled out of court a civil action,
involving allegations of fraud, embezzlement, fraudulent
conversion, or misappropriation of property, the use of untrue or
misleading representations in an attempt to sell or dispose of
property, or the use of unfair, unlawful, or deceptive business
practices;
(2) is a party to a civil action involving allegations
of fraud, embezzlement, fraudulent conversion, or misappropriation
of property, the use of untrue or misleading representations in an
attempt to sell or dispose of property, or the use of unfair,
unlawful, or deceptive business practices; or
(3) is subject to an injunction or restrictive order
relating to business activity as a result of an action brought by a
public agency or department.
(b) A statement required by Subsection (a) must include:
(1) the identity and location of the court or agency;
(2) the date of conviction, judgment, or decision;
(3) the penalty imposed;
(4) the damages assessed;
(5) the terms of the settlement or order; and
(6) the date, nature, and issuer of each order or
ruling.
Added by Acts 1997, 75th Leg., ch. 1008, § 5, eff. Sept. 1, 1997.
§ 41.162. CONTENTS: BANKRUPTCY. (a) A disclosure
statement must contain a statement disclosing which, if any, of the
persons described by Section 41.153 has, at any time during the
previous seven fiscal years:
(1) filed in bankruptcy;
(2) been adjudged bankrupt;
(3) been reorganized because of insolvency; or
(4) been a principal, director, executive officer, or
partner of any other person that, during or not later than the first
anniversary of the end of the period the person held the position in
relation to the other person, filed in bankruptcy, was adjudged
bankrupt, or was reorganized because of insolvency.
(b) A statement that is required by Subsection (a)(4) must
include:
(1) the name and location of the person that filed in
bankruptcy, was adjudged bankrupt, or was reorganized;
(2) the date of the filing, adjudication, or
reorganization; and
(3) any other material facts relating to the filing,
adjudication, or reorganization.
Added by Acts 1997, 75th Leg., ch. 1008, § 5, eff. Sept. 1, 1997.
§ 41.163. CONTENTS: CONTRACT COPY. A disclosure
statement must contain a copy of the business opportunity contract
that the seller uses as a matter of course and that will be
presented to the purchaser at closing.
Added by Acts 1997, 75th Leg., ch. 1008, § 5, eff. Sept. 1, 1997.
SUBCHAPTER E. BUSINESS OPPORTUNITY CONTRACT
§ 41.201. FORM OF BUSINESS OPPORTUNITY CONTRACT. A
business opportunity contract must be in writing and include, in
10-point type or in handwriting of an equivalent size, the
following:
(1) the terms of payment, including the initial
consideration, down payment, and additional payments required;
(2) a detailed description of the acts or services the
seller undertakes to perform for the purchaser;
(3) the seller's principal business address and the
name and address of the seller's agent in this state authorized to
receive service of process;
(4) the delivery date or, if the contract provides for
staggered delivery times to the purchaser, the approximate delivery
date of the products, equipment, or supplies the seller is to:
(A) deliver to the purchaser's home or business
address; or
(B) place at locations owned or managed by
persons other than the purchaser; and
(5) a complete description of the nature of the
buy-back or security arrangement if the seller has represented
orally or in writing when selling, leasing, soliciting, or offering
a business opportunity that there is a buy-back or that the initial
consideration is secured.
Added by Acts 1997, 75th Leg., ch. 1008, § 5, eff. Sept. 1, 1997.
§ 41.202. DELIVERY OF COPIES OF DOCUMENTS TO
PURCHASER. A copy of the completed business opportunity contract
and any other document the seller requires the purchaser to sign
shall be given to the purchaser at the time the purchaser signs the
contract.
Added by Acts 1997, 75th Leg., ch. 1008, § 5, eff. Sept. 1, 1997.
§ 41.203. EFFECT OF ASSIGNMENT OF BUSINESS OPPORTUNITY
CONTRACT. An assignee of a business opportunity contract or of the
seller's rights under the contract is subject to all equities,
rights, and defenses of the purchaser against the seller.
Added by Acts 1997, 75th Leg., ch. 1008, § 5, eff. Sept. 1, 1997.
SUBCHAPTER F. TERMINATION OF BUSINESS OPPORTUNITY REGISTRATION
§ 41.251. VOLUNTARY TERMINATION OF BUSINESS OPPORTUNITY
REGISTRATION. The principal seller of a registered business
opportunity may voluntarily terminate the business opportunity's
registration with the secretary of state if:
(1) the registered business opportunity will no longer
be offered in this state;
(2) the registered business opportunity has changed to
the extent that it no longer meets the definition of a business
opportunity under Section 41.004(a);
(3) the registered business opportunity has become
exempt under Section 41.004(b); or
(4) the principal seller offering the registered
business opportunity has ceased to exist as a legal entity.
Added by Acts 1997, 75th Leg., ch. 1008, § 5, eff. Sept. 1, 1997.
§ 41.252. INVOLUNTARY TERMINATION OF BUSINESS
OPPORTUNITY REGISTRATION. (a) The secretary of state may
terminate the registration of a business opportunity registered
under Section 41.051 if the seller does not comply with the
requirements governing the updating of filings under Section
41.052.
(b) The secretary of state must give the business
opportunity registrant notice of the delinquency not later than the
31st day before the date of termination of the business opportunity
registration under Subsection (a).
(c) The notice of delinquency must be given by certified
mail addressed to the registered agent or the principal place of
business of the business opportunity registrant noted in the latest
filing made under this chapter.
(d) The secretary of state may adopt rules governing:
(1) the termination of a delinquent registration;
(2) the effective date of the termination; and
(3) the grace period, if any.
Added by Acts 1997, 75th Leg., ch. 1008, § 5, eff. Sept. 1, 1997.
SUBCHAPTER G. ENFORCEMENT
§ 41.301. PROHIBITED ACTS. A seller may not:
(1) employ a representation, device, scheme, or
artifice to deceive a purchaser;
(2) make an untrue statement of a material fact or omit
to state a material fact in connection with the documents and
information required to be furnished to the secretary of state or
purchaser;
(3) represent that the business opportunity provides
or will provide income or earning potential unless the seller:
(A) has documented data to substantiate the
claims of income or earning potential; and
(B) discloses the data to the purchaser
when the representation is made; or
(4) make a claim or representation in advertising or
promotional material or in an oral sales presentation,
solicitation, or discussion between the seller and the purchaser
that is inconsistent with the information required to be disclosed
by this chapter.
Added by Acts 1997, 75th Leg., ch. 1008, § 5, eff. Sept. 1, 1997.
§ 41.302. DECEPTIVE TRADE PRACTICE. A violation of this
chapter is a false, misleading, or deceptive act or practice under
Section 17.46, Business & Commerce Code. A public or private right
or remedy prescribed by Chapter 17, Business & Commerce Code, may be
used to enforce this chapter.
Added by Acts 1997, 75th Leg., ch. 1008, § 5, eff. Sept. 1, 1997.
§ 41.303. REVIEW AND SUIT BY ATTORNEY GENERAL. (a) The
attorney general may review a disclosure statement filed with the
secretary of state under Subchapter B.
(b) If a disclosure statement fails to comply with this
chapter, the attorney general may:
(1) notify the secretary of state and the seller in
writing of the deficiency; and
(2) file suit to enjoin the seller from doing business
until the failure to comply has been corrected.
(c) If the attorney general notifies the secretary of state
under Subsection (b), the secretary of state shall:
(1) attach a copy of the notice from the attorney
general to the front of the disclosure statement; and
(2) on inquiry of the status of the disclosure
statement, disclose that a statement has been filed but that its
correctness has been questioned by the attorney general.
Added by Acts 1997, 75th Leg., ch. 1008, § 5, eff. Sept. 1, 1997.
