Business opportunities and pyramid schemes

Want to make some easy money?

Are you looking in the classified advertisement section for a business opportunity? Often you can recognize them by these common first line advertisements:

  • “Own Your Own Business”
  • “Vending Route for Sale”
  • “Pay Phone Route”
  • “Be Your Own Boss”
  • “Make $1,200 Per Week”

These types of ads not only appear in the business opportunity section of the classifieds, but often appear in the retail section as well as the sports section of the newspaper. These investments can be risky. Consumer often lose their life savings when they respond to these ads and invest in the business opportunity offered.

Statute on the Sale of Business Opportunities (KRS 367.801-.819)

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Problems with business opportunities

Consumers who invest in business opportunities, especially those involving vending routes, may experience many problems. Once the investment is made, they may not receive the machines from the vending distributor as promised, or they may find themselves with faulty, poor quality vending machines which are easily broken into and which are located in nonprofitable locations. Investors often have trouble with the “locators” who, for a fee, are suppose to help the investor place the vending machines (or pay phones, etc.) in profitable locations. The locations are often poor profit areas and some machines may even be placed at a business without its authorization. These machines are often removed without the investor being notified. Investors in business opportunities are often misled to believe that the business is highly profitable, when in fact, profits are seldom realized. Also, investors often find that the business opportunity promoter is unresponsive to complaints and may even go out of business before problems are resolved.

What the law says

Kentucky has a law which requires all companies offering business opportunities for sale to register with the Attorney General’s Office if the initial investment is $500 or more. Prior to placing ads in Kentucky’s newspapers, persons offering the business opportunity must contact the Attorney General’s Office so that the office may determine whether or not the company is required to register. If the company is required to register, all ads placed in the newspaper must include the registration number of the company. The registration of the business opportunity by the Attorney General’s Office does not directly or indirectly imply approval by the Attorney General’s Office of the business opportunity or any of the activities of representatives selling such business opportunities. Also, there are exemptions to the law which include franchises and the sale of an ongoing business.

Canceling your contract

If you sign an agreement for a business opportunity, Kentucky law provides for the following:

  • You have thirty business days in which to cancel your contract for any reason. The cancellation notice must be put in writing and delivered or mailed to the company.
  • The company must refund your money within 15 days.
  • You may also cancel the contract if the company or its affiliates mislead you by what they say, do not deliver items as promised in the contract, do not provide locations as represented, fail to deliver goods or merchandising materials, or if they violate the Business Opportunities Law.

Protecting yourself

Before investing in any business opportunity, follow these guidelines:

  • Ask if the business opportunity is registered with the Attorney General’s Office and verify that information with the Attorney General’s Office.
  • Check with the Kentucky Attorney General’s Office and the Better Business Bureau for complaints filed against the company offering the business opportunity. Also check with the state in which the company is located.
  • Find out who the principals are of the company, the president and all officers, and check into their background. Do they operate other similar companies under different names? What is the record of the other companies? Are these individuals involved with legal difficulties?
  • Get information about the manufacturer of the devices (vending machines, pay phones, etc.) and research this company independently of the business opportunity.
  • Ask for references of satisfied investors and check them out to verify earnings claims. (Beware - some of these “references” may be paid by the business opportunity to give positive information.)
  • Be suspicious of high earnings claims. Consult an attorney or financial advisor before withdrawing your life savings to invest in a business opportunity.
  • Before signing an agreement, make sure you understand the terms and are aware of your cancellation rights.
  • Be realistic. If the offer were such a great deal with high profits, wouldn’t everyone be interested?