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2005 Texas Business & Commerce Code CHAPTER 41. BUSINESS OPPORTUNITIES
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. Added by Acts 1997, 75th Leg., ch. 1008, § 5, eff. Sept. 1, 1997. § 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. Added by Acts 1997, 75th Leg., ch. 1008, § 5, eff. Sept. 1, 1997. § 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.
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