What is the Utah Business Opportunity Disclosure Act?
Any individual or company that sells or offers to sell business opportunities in the state of Utah must register under Title 13, Chapter 15 of Utah Code, known as the Business Opportunity Disclosure Act (BODA), before commencing business.i The primary function of BODA is to put information into the consumers’ hands before making certain types of transactions or investments. This act is intended to prevent the “deceptive sales practices and consumer harm”ii that have become all too common in Utah by providing information which outline the business history of the seller, the specific details of the opportunity, and what percentage of consumers made their money back on their initial investment, among other disclosures.
Amendments to BODA
In April of 2021, the Division of Consumer Protection (DCP) of the Utah Department of Commerce underwent an audit by the Office of the Legislative Auditor General (OLAG). The audit focused primarily on the disclosure requirements in BODA and how effectively these requirements are being enforced. In their final report, OLAG concluded that “[the] disclosure requirements in the Business Opportunity Disclosure Act... do not appear to be working as intended” and that “the Legislature should consider amending definitions and enforcement procedures in the Business Opportunity Disclosure Act.”iii The audit noted that very few companies are currently registered under BODA, which is highly detrimental to consumers throughout the state. Largely due to the results of this audit, the Business Opportunity Disclosure Act was amended and signed into law by Governor Spencer J. Cox on March 23, 2022.iv
Definition of Business Opportunity
The amendments in the BODA have changed how a business opportunity is defined in the eyes of Utah law. A business opportunity is currently defined as “an arrangement under which a person sells or leases a product, equipment, a supply, or a service upon payment of initial required consideration of at least $500 for the purpose of enabling the buyer or lessee to start a business.”v In addition to this initial requirement, the outdated definition stated that a seller must represent that the opportunity “will [emphasis added] enable the purchaser to derive income from the [business opportunity] that exceeds the price paid for [the opportunity].” Under the amended definition, however, the seller only needs to represent that the business opportunity “will or may [emphasis added] derive income from the business that exceeds the amount the buyer or lessee pays to buy or lease the product, equipment, supply, or service” to be considered a “business opportunity” under BODA.vi
Do I Need to Register My Business Opportunity Under BODA?
This amended definition of “business opportunity” covers any representation made about the buyer’s ability to make a profit from the business opportunity – a sales pitch, contract, or the mere mention of profits in passing could be considered a representation as such. Because all sellers must at some point make reference to the buyer’s earning potential in order to sell the good/service, this realistically means that every individual or company that sells a business opportunity of any kind for an initial consideration of more than $500 must register under BODA.
How Do I Register My Company Under BODA?
According to the Division of Consumer Protection, “The Business Opportunity Disclosure Act (BODA) requires sellers of a business opportunity to annually obtain a proof of disclosure receipt from the division.”vii In order to obtain the proof of disclosure receipt, a seller must file a disclosure statement along with a $200 fee. A proof of disclosure receipt must be renewed annually in accordance with BODA to be considered properly registered. The disclosure statement for the proof of disclosure receipt must contain all the information outlined in Utah Code Ann. §13-15-202, which includes information about the seller, statements detailing total amount the purchaser will pay, a complete description of the service/good, total number of refunds requested for the service, etc. Along with this basic background information, the seller must include the following notice:
“CAUTION - The number of purchasers who have earned through this business opportunity an amount in excess of the amount the purchaser pays for the business opportunity is at least _____ which represents at least _____% of the total number of purchasers of this business opportunity. "viii
A seller must provide this disclosure statement to all prospective buyers at least 10 (ten) business days before the day on which the prospective buyer executes an agreement imposing a legal obligation on the purchaser in connection with the business opportunity or the prospective purchaser makes a payment related to the business opportunity, whichever comes earlier.ix
What Happens if I Don’t Register My Business Opportunity Under BODA?
Penalties for failing to register your business opportunity can be severe. The Division of Consumer Protection can either impose an administrative fine of up to $2,500 for each BODA violation, or they can bring an action in court which can result in costly and lengthy litigation. In addition to DCP action, any purchaser may bring an action in court against a seller who does not comply with BODA requirements. If the court finds a seller has violated BODA, the purchaser is entitled to recission of contract, attorney fees, and an award of actual damages or $2000, whichever is greater.x
When it comes to registering your business opportunity in Utah, an ounce of prevention is truly worth a pound of cure. Our team at Sumsion Business Law can help you through every step of the Business Opportunity Disclosure Act registration process, potentially saving you and your company tens of thousands of dollars in fines and legal fees. Our experienced attorneys would be happy to assist you in helping to make your company an industry leader by complying with new state code.