Securities

AUDIT AND COMPLIANCE

Frequent problems encountered by sellers attempting to become registered as a Business Opportunity include a seller's earnings claims, premature offerings, disclosure of risk factors and future operations costs, and current financial statements. With regard to these "gray areas" of the disclosure requirements, remember the following guidelines:

1. Earnings claims: Any representations made by the seller to the purchaser concerning sales or profits of a business opportunity must include supporting documentation evidencing the bases or assumptions for any actual or projected income, the number or purchasers within a period of three years, and the number or purchasers who within three years of the date of the disclosure document, have actually received earnings in the amount specified.



2. Premature offerings: Sellers are not permitted to initiate any written or verbal solicitations to potential purchasers until all deficiencies are completed and seller has obtained a Secretary of State issued certificate of registration.



3. Risk factors and future anticipated costs: A recurring complaint from business opportunity purchasers is certain costs incurred during the operation a business opportunity where not disclosed when the agreement was executed (i.e. travel agent restrictions, pay telephone licenses and carrier commissions, advanced training, and locator fees). Sellers are reminded that any business opportunity investment is one of considerable risk. Risk factors such as, industry competition, unprotected territories, prior bankruptcy by seller's affiliates, license or permit restrictions, and net worth of company are all risk factors required to be described in detail within the disclosure document.



4. Financial Statement: At a minimum, a seller is required to submit a limited review prepared within 13 months of the first offer made in the State of Illinois. However, the Department will accept a seller's balance sheet during the first year of registration in the State. A current financial statement must be filed annually when a seller applies for renewal. Specific information on the disclosure, which includes financials, can be found at section 5-30 of the Business Opportunity Act of 1995 and Section 135.300 of the attendant rules.

DISCLAIMER
The Secretary of State, Illinois Securities Department or their information providers shall not be liable regardless of the cause or duration, for any errors, inaccuracies, omissions or untimeliness of the information, or for any delay or interruption in the transmission thereof to the user, or for any claims or losses arising therefrom.