What is the North Carolina Business Opportunity Sales Act, and Does It Apply to Franchises?
The North Carolina Business Opportunity Sales Act governs business opportunities (or “Bus-Ops”) that sell or lease any products, equipment, supplies, or services for the purpose of enabling the purchaser to start a business. A common example of the type of business opportunity that falls within this definition is a franchise. This is because franchising provides the franchisee with a sales or marketing program as a way to make an income from the business.
The Act also sets forth requirements that each business opportunity must adhere to in order to be in compliance with North Carolina law. For example, you must register your business opportunity with the North Carolina Secretary of State. You must also prepare and submit a disclosure statement, which is commonly known in the franchising world as the “franchise disclosure document” or “FDD.” The FDD provides interested parties with specific disclosures, contractual terms, and other relevant details related to the franchise.
Does the Act Apply to Franchises?
As is the notorious response of most lawyers, the answer is “it depends.” As stated above, the general business model of franchising is centered around selling the franchisee a business model that enables him to make an income. This means the Act should certainly apply to all franchises in North Carolina, right? Well, maybe not. Section 66-94(4) of the Act states that opportunities including a “federally licensed trademark” are specifically excluded from the Act’s reach. More often than not, the franchisor will have registered the franchise’s trademark with the United States Patent and Trademark Office (“USPTO”); thus, most franchises are exempt from registering the franchise as a North Carolina business opportunity. It is important to note that, because it can take 6-9 months for the USPTO to register a filed trademark, any business opportunity that would not otherwise be exempt under the Act must register as a business opportunity until the trademark has successfully been registered.
Violation of the Act
Any violation of the Act, including failing to register your business opportunity, is also a per se violation of North Carolina’s Unfair and Deceptive Trade Practices Act (“UDTPA”), which is set forth in Chapter 75-1.1 of North Carolina’s General Statutes. For example, this means that regardless of any misunderstanding of the Act’s applicability to your business opportunity, a violation of the Act will automatically trigger a violation of UDTPA. Therefore, if you think that your business opportunity may fall within the Act’s definition, it is important that you speak with an attorney who can help ensure you are in compliance with all of the Act’s requirements.
DYE CULIK PC is a North Carolina business and franchise law firm. Our attorneys are experienced in working with businesses and franchises on regulations to make sure you are protected. If you own a business or franchise and have questions about compliance on any issue, give us a call at 980-999-3557 or contact us here.