Beware of Business Opportunity Schemes: What Maryland Business Owners Need to Know

When setting out on a business venture, new business owners can be vulnerable to fraudulent schemes. One prevalent scheme involves the sale of a “business opportunity.” Scammers employ deceptive advertising and high-pressure sales tactics to peddle ostensibly low-risk, lucrative business opportunities and swindle their victims.

Under Maryland law, a “business opportunity” is defined as an arrangement between a seller and a buyer. In this arrangement, the seller solicits a prospective buyer to purchase products, equipment, supplies, or services to enable the prospective buyer to start a business. The prospective buyer is required to make a payment, and the seller represents, directly or indirectly, that it will help the prospective buyer make the business successful. For example, the seller may claim it will help the prospective buyer secure accounts or a prime location. Unfortunately, some of these offerings are fraudulent.

How the State of Maryland Has Taken Action

To combat this, the State of Maryland enacted a law to regulate the sale of business opportunities and fight against these deceptive practices. The Maryland Business Opportunity Sales Act sets forth several requirements for the seller of a business opportunity, including:

• registering the business opportunity with the state,
• providing the prospective buyer with a written disclosure statement at least ten business days before the prospective buyer executes a contract, and
• in some cases, such as when income is guaranteed, posting a surety bond with the state.

 

The Federal Trade Commission, the federal consumer protection agency, also addresses this issue with its Business Opportunity Rule. As a result, sellers of business opportunities operating in Maryland must comply with both state and federal requirements.

Protect Yourself From Fraudulent Business Opportunities

Despite these measures, sellers of fraudulent business opportunities continue to target unsuspecting, first-time business owners. Before committing to a business opportunity, consider consulting with a business attorney to review the disclosure statement and the sales contract to ensure compliance with state and federal standards. As business attorneys, we assist business owners at every stage of ownership, offering guidance in selecting the best entity, drafting customized governing documents, and providing ongoing business counsel.