Guiding You Through the Legal Maze^sm

                The Illinois Business Opportunity Law of 1995 [815 ILCS 602] (the "Illinois Law") became effective on January 1, 1996. The definition of a "business opportunity" under the Illinois Law includes 6 different types of business opportunities:

            "Business opportunity" means a contract or agreement, between a seller and purchaser, expressed or implied, orally or in writing, wherein it is agreed that the seller or a person recommended by the seller shall provide to the purchaser any product, equipment, supplies or services enabling the purchaser to start a business when the purchaser is required to make a payment to the seller or a person recommended by the seller of more than $500 and the seller represents directly or indirectly, orally or in writing, that:

 

    1.     The seller or a person recommended by the seller will provide or assist the purchaser in finding locations for the use or operation of vending machines, racks, display cases or other similar devices, on premises neither owned nor leased by the purchaser or seller;

 

    2.     The seller or a person recommended by the seller will provide or assist the purchaser in finding outlets or accounts for the purchaser's products or services;

 

    3.     The seller or a person specified by the seller will purchase any or all products made, produced, fabricated, grown, bred or modified by the purchaser;

 

    4.     The seller guarantees that the purchaser will derive income from the business which exceeds the price paid to the seller;

 

    5.     The seller will refund all or part of the price paid to the seller, or repurchase any of the products, equipment or supplies provided by the seller or a person recommended by the seller, if the purchaser is dissatisfied with the business; or

 

    6.     The seller will provide a marketing plan, provided that the Illinois Law shall not apply to the sale of a marketing plan made in conjunction with the licensing of a registered trademark or service mark.

 

Excluded Businesses.

The definition of a "business opportunity" does not include:

    1.     Any offer or sale of an ongoing business operated by the seller and to be sold in its entirety;

 

    2.     Any offer or sale of a business opportunity to an ongoing business where the seller will provide products, equipment, supplies or services which are substantially similar to the products, equipment, supplies or services sold by the purchaser in connection with the purchaser's ongoing business;

 

    3.     Any offer or sale of a business opportunity which is a franchise as defined by the Illinois Franchise Disclosure Act of 1987;

 

    4.     Any offer or sale of a business opportunity which is registered pursuant to the Illinois Securities Law of 1953;

 

    5.     Any offer or sale of a business opportunity which involves a marketing plan made in conjunction with the licensing of a federally registered trademark or federally registered service mark provided that the seller had a minimum net worth of $1,000,000 as determined on the basis of the seller's most recent audited financial statement prepared within 13 months of the first offer in Illinois. Net worth may be determined on a consolidated basis where the seller is at least 80% owned by one person and that person expressly guarantees the obligations of the seller with regard to the offer or sale of any business opportunity claimed to be excluded under this item;

 

    6.     Any offer or sale of a business opportunity by an executor, administrator, sheriff, marshal, receiver, trustee in bankruptcy, guardian or conservator or a judicial offer or sale, of a business opportunity; or

 

7.     Cash payments made by a purchaser not exceeding $500 and the payment is made for the not-for-profit sale of sales demonstration equipment, material or samples, or the payment is made for product inventory sold to the purchaser at a bona fide wholesale price.

 

Exempted Business Opportunities.

The following business opportunities are exempted from the Illinois Law:

1.     Any offer or sale of a business opportunity for which the immediate cash payment made by the purchaser for the business opportunity is at least $25,000, if the immediate cash payment does not exceed 20% of the purchaser's net worth as determined exclusive of principal residence, furnishings therein, and automobiles; provided, however, the Illinois Secretary of State may by rule or regulation withdraw or further condition the availability of this exemption.

 

2.     Any offer or sale of a business opportunity for which the purchaser is not required to make an initial payment to the seller or a person recommended by the seller exceeding $500.

 

3.     Any offer or sale of a business opportunity where the seller has a net worth of not less than $1,000,000 as determined on the basis of the seller's most recent audited financial statement, prepared within 13 months of the first offer in Illinois. Net worth may be determined on a consolidated basis where the seller is at least 80% owned by one person and that person expressly guarantees the obligations of the seller with regard to the offer or sale of any business opportunity claimed to be exempt. The Illinois Secretary of State may by rule or regulation withdraw or further condition the availability of this exemption.

 

4.     Any offer or sale of a business opportunity where the purchaser has a net worth of not less than $250,000. Net worth shall be determined exclusive of principal residence, furnishings therein, and automobiles. The Illinois Secretary of State may by rule or regulation withdraw or further condition the availability of this exemption.

 

5.     Any offer or sale of a business opportunity where the purchaser is a bank, savings and loan association, trust company, insurance company, credit union, or investment company as defined by the federal Investment Company Act of 1940, pension or profit sharing trust, or other financial institution or institutional buyer, or a dealer registered under the Illinois Securities Law of 1953, where the purchaser is acting for itself or in a fiduciary capacity.

 

6.     Any offer or sale of a business opportunity which is defined as a franchise under the Franchise Disclosure Act of 1987, provided that the seller delivers to each purchaser at the earlier of the first personal meeting, or 10 business days prior to the earlier of the execution by a purchaser of any contract or agreement imposing a binding legal obligation on the purchaser or the payment by a purchaser of any consideration in connection with the offer or sale of the business opportunity, one of the following disclosure documents;

 

(a)     The Franchise Offering Circular provided for under the Franchise Disclosure Act of 1987 which the Illinois Secretary of State may adopt by rule or regulation; or

 

(b)     A disclosure document prepared pursuant to the FTC Franchise Rule.

 

7.     Any offer or sale of a business opportunity for which the cash payment required to be made by a purchaser for any business opportunity does not exceed $500 and the payment is made for the not-for-profit sale of sales demonstration equipment, material, or samples or the payment is made for product inventory sold to the purchaser at a bona fide wholesale price.

 

8.     Any offer or sale of a business opportunity which the Illinois Secretary of State exempts by order or a class of business opportunities which the Illinois Secretary of State exempts by rule or regulation upon the finding that such exemption would not be contrary to public interest and that registration would not be necessary or appropriate for the protection of purchasers.

 

Registration of a Disclosure Document.

                Before making an offer in Illinois or accepting an offer to purchase in Illinois or the purchaser is domiciled in Illinois and the business opportunity is or will be operated in Illinois, the business opportunity seller must register its disclosure document with the Illinois Secretary of State. One of three forms of disclosure documents is acceptable:

                1. A Franchise Offering Circular;

                2. An FTC Disclosure Statement; or

                3. An Illinois Business Opportunity Disclosure document.

In addition, the business opportunity seller must also file an Illinois Cover Sheet, Consent to Service of Process and pay a filing fee of $300. A registration is effective after 10 business days after a complete filing. The registration is in effect for one year and may be renewed annually upon filing of a current disclosure document and payment of a $300 renewal fee.

Information Required in an Illinois Disclosure Document.

                Assuming the seller is not filing an FOC or FTC Disclosure Statement, the Illinois Disclosure Document must contain the following information:

                The Disclosure Document must have an Illinois cover sheet which is entitled, in at least 10-point bold type, "DISCLOSURE REQUIRED BY THE STATE OF ILLINOIS." Under the title, the following statement in at least 10-point bold type must appear: "THE REGISTRATION OF THIS BUSINESS OPPORTUNITY DOES NOT CONSTITUTE APPROVAL, RECOMMENDATION OR ENFORCEMENT BY THE STATE OF ILLINOIS. THE INFORMATION CONTAINED IN THIS DISCLOSURE DOCUMENT HAS NOT BEEN VERIFIED BY THIS STATE. IF YOU HAVE ANY QUESTIONS OR CONCERNS ABOUT THIS INVESTMENT, SEEK PROFESSIONAL ADVICE BEFORE YOU SIGN A CONTRACT OR MAKE ANY PAYMENT. YOU ARE TO BE PROVIDED 10 BUSINESS DAYS TO REVIEW THIS DOCUMENT BEFORE SIGNING ANY CONTRACT OR AGREEMENT OR MAKING ANY PAYMENT TO THE SELLER OR THE SELLER'S REPRESENTATIVE." The seller's name and principal business address, along with the date of the Disclosure Document must also be provided on the cover sheet. No other information can appear on the cover sheet.

                The Disclosure Document must contain the following information.

            1.     The names and residential addresses of those salespersons who will engage in the offer or sale of the business opportunity in Illinois.

            2.     The name of the seller, whether the seller is doing business as an individual, partnership or corporation; the names under which the seller has conducted, is conducting or intends to conduct business; and the name of any parent or affiliated company that will engage in business transactions with purchasers or which will take responsibility for statements made by the seller.

            3.     The names, addresses and titles of the seller's officers, directors, trustees, general managers, principal executives, agents, and any other persons charged with responsibility for the seller's business activities relating to the sale of the business opportunity.

            4.     Prior business experience of the seller relating to business opportunities including:

(a)     The name, address, and a description of any business opportunity previously offered by the seller;

(b)     The length of time the seller has offered each such business opportunity; and

(c)     The length of time the seller has conducted the business opportunity currently being offered to the purchaser.

5.     With respect to persons identified in Item 3:

(a)     A description of the persons' business experience for the 10-year period preceding the filing date of the Disclosure Document. The description of business experience must list principal occupations and employers; and

(b)     A listing of the persons' educational and professional backgrounds including, the names of schools attended and degrees received, and any other information that will demonstrate sufficient knowledge and experience to perform the services proposed.

 

6.     Whether the seller or any person identified in Item 3:

(a)     Has been convicted of any felony, or pleaded nolo contendere to a felony charge, or has been the subject of any criminal, civil or administrative proceedings alleging the violation of any business opportunity law, securities law, commodities law, franchise law, fraud or deceit, embezzlement, fraudulent conversion, restraint of trade, unfair or deceptive practices, misappropriation of property or comparable allegations;

(b)     Has filed in bankruptcy, been adjudged bankrupt, been reorganized due to insolvency, or was an owner, principal officer or general partner or any other person that has so filed or was so adjudged or reorganized during or within the last 7 years.

 

7.     The name of the person identified in Item 6, nature of and parties to the action or proceeding, court or other forum, date of the institution of the action, docket references to the action, current status of the action or proceeding, terms and conditions or any order or decree, the penalties or damages assessed and terms of settlement.

8.     The initial payment required, or when the exact amount cannot be determined, a detailed estimate of the amount of the initial payment to be made to the seller.

9.     A detailed description of the actual services the seller agrees to perform for the purchaser.

10.   A detailed description of any training the seller agrees to provide for the purchaser.

 

11.   A detailed description of services the seller agrees to perform in connection with the placement of equipment, products or supplies at a location, as well as any agreement necessary in order to locate or operate equipment, products or supplies on a premises neither owned nor leased by the purchaser or seller.

12.  A detailed description of any license or permit that will be necessary in order for the purchaser to engage in or operate the business opportunity.

13.  The business opportunity seller that is required to secure a bond must state in the Disclosure Document "As required by the State of Illinois, the seller has secured a bond issued by (insert name and address of surety company), a surety company, authorized to do business in this State. Before signing a contract or agreement to purchase this business opportunity, you should check with the surety company to determine the bond's current status."

14.  Any representations made by the seller to the purchaser concerning sales or earnings that may be made from this business opportunity, including, but not limited to:

(a)    The bases or assumptions for any actual, average, projected or forecasted sales, profits, income or earnings;

(b)     The total number of purchasers who, within a period of 3 years of the date of the Disclosure Document, purchased a business opportunity involving the product, equipment, supplies or services being offered to the purchaser; and

(c)     The total number of purchasers who, within 3 years of the date of the Disclosure Document, purchased a business opportunity involving the product, equipment, supplies or services being offered to the purchaser who, to the seller's knowledge, have actually received earnings in the amount or range specified.

15.    Any seller who makes a guarantee to a purchaser must give a detailed description of the elements of the guarantee. The description must include the duration, terms, scope, conditions and limitations of the guarantee.

16.   A statement of:

(a)     The total number of business opportunities that are the same or similar in nature to those that have been sold or organized by the seller;

(b)     The names and addresses of purchasers who have requested a refund or rescission from the seller within the last 12 months and the number of those who have received the refund or rescission; and

(c)     The total number of business opportunities the seller intends to sell in Illinois within the next 12 months.

 

17.     A statement describing any contractual restrictions, prohibitions or limitations on the purchaser's conduct. The seller must attach a copy of all business opportunity and other contracts or agreements proposed for use or in use in Illinois including all lease agreements, option agreements, and purchase agreements.

18.     The rights and obligations of the seller and the purchaser regarding termination of the business opportunity contract or agreement.

19.     A statement accurately describing the grounds upon which the purchaser may initiate legal action to terminate the business opportunity contract or agreement.

20.     A copy of the most recent audited financial statement of the seller, prepared within 13 months of the first offer in Illinois, together with a statement of any material changes in the financial condition of the seller from that date. The Illinois Secretary of State may allow the seller to submit a limited review.

21.     A list of the states in which the business opportunity is registered.

22.     A list of the states in which the Disclosure Document is on file.

23.     A list of the states which have denied, suspended or revoked the registration of this business opportunity.

24.     A section entitled "Risk Factors" containing a series of short concise statements summarizing the principal factors which make the business opportunity a high risk or one of a speculative nature. Each statement must include a cross-reference to the page on which further information regarding that risk factor can be found in the Disclosure Document.

25.     Any additional information as the Illinois Secretary of State may require by rule, regulation, or order.

 

Special Provisions in the Business Opportunity Agreement (Purchaser Order).

                It is unlawful for any person to offer or sell any business opportunity required to be registered unless the business opportunity contract or agreement is in writing and a copy of the contract or agreement is given to the purchaser at the time the purchaser signs the contract or agreement. Contracts or agreements must set forth in at least 10-point type or equivalent size, if handwritten, the following:

1.         The terms and conditions of any and all payments due to the seller;

2.         The seller's principal business address and the name and address of the seller's agent in Illinois authorized to receive service of process;

3.     The business form of the seller, whether corporate, partnership, or otherwise;

4.     The delivery date or, when the contract provides for a periodic delivery of items to the purchaser, the approximate delivery date of the product, equipment, or supplies the seller is to deliver to the purchaser to enable the purchaser to start his or her business; and

5.     Whether the product, equipment, or supplies are to be delivered to the purchaser's home or business address or are to be caused to be placed by the seller at locations owned or managed by persons other than the purchaser.

 

 

Minimum Net Worth or Bond Requirements.

                In connection with the offer or sale of a business opportunity, a seller who guarantees that the purchaser will derive income or will refund the purchase price must have at all times a minimum net worth of $25,000 as determined in accordance with generally accepted accounting principles. In lieu of the minimum net worth requirement, the Illinois Secretary of State may, by rule, regulation, or order, require a business opportunity seller to obtain a surety bond issued by a surety company authorized to do business in Illinois. The surety bond must be not less than $25,000 and be in favor of Illinois for the benefit of any purchaser. The Illinois Secretary of State may by rule, regulation, or order, increase the amount of the bond for the protection of purchasers and may require the seller to file reports of all sales in Illinois to determine the appropriate amount of bond. Where the seller is required to obtain a surety bond, the seller must maintain a surety bond for the duration of the guarantee or representation giving rise to the surety bond requirement. Upon expiration of the period of the guarantee, the seller may allow the surety bond to lapse provided that the seller gives notice to the Illinois Secretary of State and to all Illinois business opportunity purchasers at least 30 days before the lapse of the bond.

Penalties for Violation of the Law.

                Whenever it appears to the Illinois Secretary of State that any person has engaged in or is about to engage in any act or practice constituting a violation of any provision of this Law or any rule, regulation, or order under this Law, the Illinois Secretary of State may:

1.         Issue an order directing the person to cease and desist from continuing the act or practices. Any person named in a cease and desist order issued by the Illinois Secretary of State may, within 15 days after receipt of the order, file a written request for a hearing with the Illinois Secretary of State. If the Illinois Secretary of State does not receive a written request for a hearing within the time specified, the cease and desist order will be permanent and the person named in the order will be deemed to have waived all rights to a hearing.

 

2.         Bring an action in the circuit court of any county to enjoin the acts or practices and to enforce compliance with the Law or any rule, regulation, or order under the Law. Upon a proper showing a permanent or temporary injunction, restraining order, or writ of mandamus will be granted and a receiver or conservator may be appointed for the defendant or the defendant's assets or the court may order rescission, which will include restitution plus the legal interest rate, for any sales of business opportunities determined to be unlawful under this Law or any rule, regulation, or order under this Law. The court shall not require the Illinois Secretary of State to post a bond.

 

3.         The Illinois Secretary of State may refer such evidence as may be available concerning violations of this Law or any rule, regulation, or order under this Law to the Attorney General or the appropriate State's Attorney, who may, with or without such a reference, institute the appropriate proceedings under this Section.

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