DOB: Guidelines for Business Opportunity Registration in Connecticut

Business Opportunity Registration Guidelines

Establishing a business opportunity or franchise can provide an economic benefit to both sellers and purchaser-investors. From the purchaser's perspective, buying a business opportunity involves an important investment decision. From the seller's point of view, selling a business opportunity promotes business expansion. The Business Opportunity Investment Act (the "Act"), found under Chapter 672c of the Connecticut General Statutes, governs the offer and sale of business opportunities in Connecticut. The Act ensures that business opportunity purchasers receive from sellers full disclosure necessary in order to make informed investment decisions. That objective is accomplished through the registration process. The purpose of these guidelines is to simplify compliance with the Act for sellers and thus benefit both sellers and buyers. Should questions arise, however, the Act should be consulted and independent legal advice should be obtained.

Sellers may obtain a copy of the Act and registration forms on-line. Requests for assistance may be directed via e-mail to naomi.church@ct.gov.

Purchaser-investors may wish to refer to Understanding Business Opportunity Investments, a helpful publication prepared by the department.


What Is A Business Opportunity?

A business opportunity means the sale or lease, or offer for sale or lease of any products, equipment, supplies or services which are sold or offered for sale to a purchaser-investor for the purpose of enabling the purchaser-investor to start a business, and in which the seller represents:

  • That the seller will provide locations or assist the purchaser-investor in finding locations for the use or operation of vending machines, racks, display cases or other similar devices, or currency-operated amusement machines or devices, or any other devices.

  • The seller will purchase any or all products made, produced, fabricated, grown, bred or modified by the purchaser-investor using in whole or in part, the supplies, services or chattels sold to the purchaser-investor.

  • The seller guarantees, either conditionally or unconditionally, that the purchaser-investor will derive income from the business opportunity; or that the seller will refund all or part of the price paid for the business opportunity, or repurchase any of the products, equipment, supplies or chattels supplied by the seller, if the purchaser-investor is unsatisfied with the business opportunity.

  • The seller will provide a sales program or marketing program to the purchaser-investor.

A Business Opportunity Does Not Include:

  • The sale of a marketing program made in conjunction with the licensing of a registered trademark or service mark, provided that such trademark or service mark has been effectively registered under federal law. Those business opportunities and franchises with a trademark or service mark effectively registered with the United States Patent and Trademark Office, may claim an exclusion from registration by filing a copy of the registration certificate (issued by the U.S. Patent Office) with this department. If the business opportunity seller or franchisor is not the holder of the federally registered trademark, the seller should include a copy of the assignment or license agreement from the trademark holder giving the seller rights to the registered mark and the ability to sublicense use of the mark to purchaser-investors.  (See a list of trademarks and service marks filed with the department).  You may e-mail your exclusionary claim and supporting documents to naomi.church@ct.gov (telephone:  860-240-8261).

  • A "Not for Profit Sale." A sale in which the seller recovers only the actual costs of producing and shipping goods or materials sold. A sale shall not qualify as a not for profit sale if the price to the purchaser-investor includes any commissions, rebates, fees or overrides.

  • Any business opportunity for which the initial payment made by the purchaser-investor per business opportunity does not exceed $200.00, and in which no representations are made that the seller guarantees, either conditionally or unconditionally, that the purchaser-investor will derive income from the business opportunity.

  • Any business opportunity sold in this state exclusively to a purchaser-investor whose net worth is not less that one million dollars exclusive of principal residence, home furnishings, and personal automobiles

The burden of proving any of these exclusions and exemptions is upon the person claiming it.

Who Must Register?

Any person who seeks to advertise, sell, contract for offers to sell or promote any business opportunity in Connecticut or from Connecticut must register before any offer to sell or sales of the business opportunity are made.

How To Register

Prior to an offer or sale of a business opportunity a seller must file:

  1. A $400.00 registration fee, with the check payable to Treasurer, State of Connecticut.

  2. An Application (Form CT-BOIA-1) and a Consent to Service of Process (Form CT-CBOIA-2) appointing the "Banking Commissioner" as agent for service of process.

  3. A disclosure document containing the disclosures required by Section 36b-63 of the Act. The seller may substitute the uniform franchise offering circular (UFOC) for this disclosure document as long as the disclosure document contains the cover sheet required by Section 36b-63(a) of the Act; 2) any information required by Section 36b-63 that is not contained in the UFOC is included in an addendum to the UFOC; and 3) the seller files a cross-reference sheet showing where the disclosures required by Section 36b-63 are located in the UFOC. Download the UFOC from the website of the North American Securities Administrators Association, Inc. (NASAA).  The seller may also use a disclosure document prepared in accordance with the Federal Trade Commission's rule entitled "Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures", 16 CFR 436 (FTC Disclosure Document). The Connecticut cover sheet should be placed immediately after the FTC cover sheet.

  4. Financial statements that comply with Section 36b-62(b)(4)(H) of the Act.

  5. Contracts or agreements, as required by Sections 36b-62(b)(4)(D) and Section 36b-66 of the Act.

  6. Copies of brochures, advertisements, sales materials or promotional materials.

  7. If applicable, provide a bond or proof of trust account (see Section 36b-64 of the Act for more information).

  8. If applicable and the Commissioner in his discretion permits registration of a business opportunity after sales have been made, submit a post-sale registration fee (see Section 36b-62(g) of the Act).

How To Prepare A Disclosure Document

The Disclosure Document must address the following items.  In preparing the Disclosure Document respond to each item in the order listed below. Keep in mind that you are preparing a document for a purchaser-investor who may know little or nothing about the business opportunity you are selling. If an item does not apply, you must specifically say so in your response.

The Cover Sheet (Section 36b-63(a))

  1. The cover sheet must bear the title "DISCLOSURES REQUIRED BY CONNECTICUT LAW" in boldface capital letters. Use at least ten-point type.
  2. The Connecticut legend goes underneath the title and reads as follows: "The State of Connecticut does not approve, recommend, endorse or sponsor any business opportunity. The information contained in this disclosure has not been verified by the state. If you have any questions about this investment, see an attorney before you sign a contract or agreement."
  3. The name of the seller
  4. The date of the Disclosure Document

If a disclosure document is prepared in accordance with the Federal Trade Commission's rule on disclosure requirements and prohibitions, place the Connecticut cover sheet immediately after the cover sheet required by the FTC rule.

Table of Contents (Section 36b-63(c)(25))

The Table of Contents should immediately follow the Connecticut Cover Sheet.

Name and Address of Seller (Section 36b-63(c)(1)(A))

  1. Provide the seller's official name, address and principal place of business.
  2. Provide the official name, address and principal place of business of any affiliated firm or predecessor of the seller.

Form of Business (Section 36b-63(c)(1)(A))

Disclose whether the seller does business as an individual, partnership, limited liability company, limited liability partnership or corporation. If the seller is an entity, disclose where and when it was organized.

Business Name (Section 36b-63(c)(1)(B))

Provide the name under which the seller is doing or intends to do business.

Trademarks and Service Marks (Section 36b-63(c)(1)(C))

  1. Describe any trademarks or service marks which identify the products, supplies, equipment or services the purchaser-investor will offer, sell or distribute.
  2. Describe any trademarks or service marks under which the purchaser-investor will operate.

Business Experience of Principals:  Five Year Look Back Period (Section 36b-63(c)(2))

For the seller's executive officers, directors, trustees, general partners, general managers and any other person charged with responsibility for the seller's activities (e.g., chief operating officer;  financial, marketing, training and service officers), provide their principal occupation, nature and type of business, employer names, current business addresses and titles for the past five years.

Business Experience of the Seller, its Affiliates and Predecessors (Section 36b-63(c)(3))

  1. Describe the business experience of the seller, its affiliates and predecessors
  2. Disclose how long the seller, its affiliates and predecessors have (1) conducted a business of the type the purchaser-investor will operate; (2) offered or sold a business opportunity for that business; and (3) offered or sold business opportunities in any other line of business (describe that other line of business).

Disciplinary Sanctions:  10 Fiscal Year Look Back Period (Section 36b-63(c)(4))

Who is Covered by this Item:

  1. The seller’s current directors, executive officers, trustees, general partners, general managers, and any other persons charged with responsibility for the seller’s business activities (including, without limitation, the seller's chief operating officer and the financial, marketing, training and service officers);
  2. The seller's predecessors; and
  3. The seller's affiliates.  An “affiliate” is an individual or entity that:  (1) Directly or indirectly controls, is controlled by, or is under common control with, the seller; (2) directly or indirectly owns, controls or holds with power to vote ten per cent or more of the outstanding voting securities of the seller; or (3) has, in common with a seller, one or more partners, officers, directors, trustees, branch managers or other persons occupying a similar status or performing similar functions.

Events that Must be Disclosed:

  1. During the previous ten fiscal years, the individual or entity has been convicted of a felony or pleaded nolo contendere to a felony charge if the felony involved fraud, including but not limited to, a violation of any business opportunity law, franchise law, securities law or unfair or deceptive practices law, embezzlement, fraudulent conversion, misappropriation of property or restraint of trade;
  2. During the previous ten fiscal years, the individual or entity has been held liable in a civil action resulting in a final judgment, has settled a civil action out of court, is a party to any civil action, or is or was a principal, director, executive officer or partner of any other person that was held liable, settled or is a party where the civil action (1) alleged fraud (including but not limited to, a violation of any business opportunity law, franchise law, securities law or unfair or deceptive practices law, embezzlement, fraudulent conversion, misappropriation of property, or restraint of trade), or (2) was brought by a present or former purchaser-investor and which involves or involved the business opportunity relationship;
  3. The individual or entity is subject to any currently effective state or federal agency or court injunctive or restrictive order, is a party to a currently pending proceeding seeking such an order, or is or was a principal, director, executive officer or partner of any other person that is subject to such an order or that is a party to any such currently pending proceeding relating to or affecting business opportunity activities or the seller-purchaser-investor relationship, or involving fraud, including, without limitation, a violation of any business opportunity law, franchise law, securities law or unfair or deceptive practices law, embezzlement, fraudulent conversion, misappropriation of property or restraint of trade.

You must identify the court or agency (including its location); include the date of conviction, judgment, or decision; and provide information on the penalty imposed, the damages assessed,  the terms of settlement or the terms of the order and the date, nature, and issuer of each order or ruling.  You may include a summary opinion of counsel regarding pending litigation only if counsel’s consent to use that opinion is included in the disclosure document.

Insolvency and Bankruptcy:  10 Fiscal Year Look Back Period (Section 36b-63(c)(5))

Who is Covered by this Item:

  1. The seller’s current directors, executive officers, trustees, general partners, general managers, and any other persons charged with responsibility for the seller’s business activities (including, without limitation, the seller's chief operating officer and the financial, marketing, training and service officers);
  2. The seller's predecessors; and
  3. The seller's affiliates.  An “affiliate” is an individual or entity that:  (1) Directly or indirectly controls, is controlled by, or is under common control with, the seller; (2) directly or indirectly owns, controls or holds with power to vote ten per cent or more of the outstanding voting securities of the seller; or (3) has, in common with a seller, one or more partners, officers, directors, trustees, branch managers or other persons occupying a similar status or performing similar functions.

Disclose whether any of the above individuals or entities, during the past ten fiscal years:  (1) Filed for bankruptcy; (2) was adjudged bankrupt; (3) was reorganized due to insolvency; or (4) was a principal, director, executive officer or partner of any other person that, during or within one year after the individual or entity held the position, filed for bankruptcy, was adjudged bankrupt or was reorganized due to insolvency. Include the name and location of the individual or entity that filed for bankruptcy, was adjudged bankrupt or that was reorganized due to insolvency; the date; and any other material facts.

Describe the Business Opportunity (Section 36b-63(c)(6))

Describe:
 

  1. The business opportunity the seller is offering.
  2. The actual services the seller will perform for the purchaser-investor.
  3. The equipment the seller will supply to the purchaser-investor.
  4. The actual services the purchaser-investor will perform.

Purchaser-Investor's Total Outlay (Section 36b-63(c)(7))

  1. Disclose the total funds the seller requires the purchaser-investor to pay any specifically named person or any other person known to the seller who receives any consideration incidental to the transaction.
  2. Disclose the total funds the seller or its affiliates wholly or partly collects on behalf of any party to obtain or commence business opportunity operations. Examples include initial fees, deposits, down payments, prepaid rent, equipment and inventory purchases. Indicate if fees or deposits are returnable and, if so, under what circumstances.

Purchaser-Investor Recurring Expenses (Section 36b-63(c)(8))

Describe any recurring funds the purchaser-investor must pay anyone to carry on the business. Examples:  Royalties, leases, advertising fees, training fees, sign rental fees, equipment or inventory purchases.

Purchaser-Investor Business Commitments (Section 36b-63(c)(9))

Name every individual or entity (including the seller and its affiliates) with whom the seller directly or indirectly requires or advises the purchaser-investor to do business.

Purchaser-Investor Specific Expenses (Section 36b-63(c)(10))

  1. Describe the real estate, services, supplies, products, inventory, signs, fixtures, or equipment the seller requires the purchaser-investor to buy, lease or rent.
  2. If the purchase, lease or rental must be made from a specific individual or entity, including the seller, provide the individual's or entity's name and address.

Supplier Generated Revenue to Seller (Section 36b-63(c)(11))

  1. Disclose whether the seller (or its affiliates) will receive revenue or other consideration from suppliers to purchaser-investors in return for goods or services that the seller requires or advises the purchaser-investors to obtain from those suppliers
  2. Disclose the actual amount (if readily available) of such revenue or other consideration
  3. Disclose how the revenue or other consideration will be calculated

Seller Assisted Financing (Section 36b-63(c)(12))

  1. Disclose whether the seller (or its affiliates) will offer financing to prospective purchaser-investors.  If so, describe the material terms and conditions of the financing arrangement.
  2. If the seller will receive payment from another person who either offers financing to a prospective purchaser or arranges financing for a prospective purchaser, describe the terms by which the seller will receive payment.

Operational Restrictions (Section 36b-63(c)(13))

Disclose whether the purchaser-investor will be limited in terms of 1) the goods or services the purchaser-investor may sell; 2) the customers to whom the purchaser-investor may sell goods or services; or 3) the geographical area where the purchaser-investor may offer or sell the goods or services.  In addition, disclose whether the seller will grant territorial protection to the purchaser-investor.  Describe the limitations or territorial protection.

Purchaser-Investor Participation in Operations (Section 36b-63(c)(14))

Disclose whether the purchaser-investor (or, if the purchaser-investor is an entity, any person affiliated with the purchaser-investor) must personally participate in the direct operation of the business. If so, indicate to what extent.

Business Opportunity Agreement (Section 36b-63(c)(15))

Disclose the following items pertaining to the business opportunity agreement or any other related agreements:

1. What is the term or duration of the agreement? Will the agreement be affected by any other agreements (e.g. leases, subleases)?  If so, explain.
2. Under what terms may the purchaser-investor renew or extend the agreement?
3. Under what conditions may the seller refuse to renew or extend the agreement?
4. Under what terms may the purchaser-investor terminate the agreement?
5. Under what terms may the seller terminate the agreement?
6.
What are the purchaser's obligations (including lease or sublease obligations) once the seller terminates the agreement?
7. What are the purchaser's obligations (including lease or sublease obligations) after the purchaser terminates the agreement and after the business opportunity expires?
8. Describe the purchaser-investor's interest once the business opportunity terminates or there is a refusal to renew or extend the arrangement (whether by the seller or by the purchaser-investor).
9. Under what conditions may the seller repurchase the business opportunity (e.g.., by right of first refusal; at the seller's option)?  If the seller has the option to repurchase the business opportunity, 1) will there be an independent appraisal? 2) will the repurchase price be determined by a predetermined formula? and 3) will there be a recognition of good will or other intangibles in the repurchase price?
10. Under what conditions may the purchaser sell or assign all or any interest in the business opportunity or its assets?  What consideration, if any, will be paid to the seller for the sale or assignment?
11. Under what conditions may the seller sell or assign its interest in the agreement, in whole or in part?
12. Under what conditions may the purchaser-investor modify the agreement?
13. Under what conditions may the seller modify the agreement?
14. What rights do the purchaser's heirs or personal representatives have if the purchaser dies or becomes incapacitated?
15. Describe any covenant not to compete.

Seller's Business Opportunity Track Record (Section 36b-63(c)(16))

Within the calendar year immediately preceding, and as of a date 30 days prior to the filing of this application, provide the following:

  1. The total number of business opportunities operating.
  2. The total number of company-owned outlets operating.
  3. The number of business opportunities voluntarily terminated or not renewed by purchaser-investors within or at the conclusion of the term of the agreement.
  4. The number of business opportunities the seller acquired by purchase during and upon the conclusion of the term of the agreement.
  5. The number of business opportunities the seller otherwise reacquired during and upon the conclusion of the term of the agreement.
  6. The number of business opportunities the seller refused to renew.
  7. The number of business opportunities the seller canceled or terminated during and upon the conclusion of the term of the agreement.
  8. With respect to the business opportunities identified in items (3) through (7) above, provide a categorical listing of the reasons for the acquisitions, terminations and refusals to renew. Disclose the number of business opportunities falling into each category.  Examples of categories :   Failure to comply with quality control standards, failure to make sufficient sales, other breaches of contract.

Separately disclose:  the names, addresses, and telephone numbers of (1) the ten business opportunity outlets nearest the prospective purchaser’s intended location (2) all purchaser-investors of the seller, or (3) all purchaser-investors in the state in which the prospective purchaser lives or where the proposed business opportunity will be located, provided there are more than ten purchaser-investors.  If the number of purchaser-investors to be disclosed exceeds fifty, the listing may be made in a separate document and delivered to the prospective purchaser-investor with the disclosure document as long as the disclosure document references the separate document.

Site Selection (Section 36b-63(c)(17))

Disclose the full nature of site selection services, if any, that the seller will provide.

For each business opportunity agreement entered into within the calendar year immediately preceding, and as of the date 30 days prior to the filing of this application, provide the following (you may use a distribution chart with meaningful classifications with respect to ranges of time):

  1. How much time has elapsed between the signing of the business opportunity agreement and the site selection; and
  2. If the seller provides operating business opportunity outlets, disclose how much time has elapsed between the signing of each agreement and the start of the purchaser-investor's business.

Initial Training Offered to the Purchaser-Investor (Section 36b-63(c)(18))

If initial training is offered to the purchaser-investor, describe the nature and type of training, the minimum amount of training provided and how much the purchaser-investor will pay for the training.

Public Figures (Section 36b-63(c)(19))

If a public figure's name is used in connection with a recommendation to buy a business opportunity (or as part of the business opportunity name) or if the public figure is involved with the seller's management, disclose:

  1. The nature and extent of the public figure's obligations to the seller ( e.g.., promotional assistance the public figure will provide to the seller and the purchaser);
  2. The public figure's total investment in the business opportunity; and
  3. The amount of any fee(s) the purchaser will have to pay for the public figure's involvement or assistance.

Seller's Sales or Earnings Estimates and Projections (Section 36b-63(c)(20))

If the seller plans to use estimated or projected business opportunity sales or earnings, the seller must include the following statement in 12 point upper and lower case boldface type: "Caution: These figures are only estimates of what we think you may earn. There is no assurance you will do as well. If you rely upon our figures, you must accept the risk of not doing as well."

The seller must also:

  1. Disclose the estimates or projections.
  2. Explain the bases and assumptions underlying the estimates or projections and include any supporting data.

The cautionary legend, and the supporting bases, assumptions and data must be located in immediate conjunction with the sales or earnings representations made.

Historical Information Relating to Sales or Earnings Claims (Section 36b-63(c)(21))

If the seller makes any statement concerning sales or earnings (or range of sales or earnings), it must provide the purchaser with certain historical information accompanied by the following legend in not less than 12 point upper and lower case boldface type:  "Caution:  Some business opportunities have (sold)(earned) this amount.  There is no assurance you will do as well.  If you rely upon our figures, you must accept the risk of not doing as well."

Specifically, the seller must disclose, for the 3 year period preceding the date of the disclosure document:  1) the total number of business opportunity purchasers; and 2) the total number of purchasers who actually received earnings in the amount or range specified and how long it took them to receive earnings in that amount or range.

Bond or Trust Deposit Information (if applicable) (Section 36b-63(c)(22))

Refer to Section 36b-64 of the Connecticut Business Opportunity Investment Act to determine if a bond or trust account is applicable.

If Section 36b-64 applies, make one of the following applicable disclosures:

“As required by Connecticut law, the seller has secured a bond issued by .... (Name and address of surety company) a surety company authorized to do business in this state.  Before signing a contract to purchase this business opportunity, you should check with the surety company to determine the bond’s current status,” or

“As required by Connecticut law, the seller has established a trust account ... (Number of account) with .... (Name and address of bank or other financial institution) Before signing a contract to purchase this business opportunity, you should check with the bank or other depository institution to determine the current status of the trust account”

Contract Cancellation (Section 36b-63(c)(23))

The Disclosure Document must contain the following statement:  “If the seller fails to deliver the products, equipment or supplies or fails to render the services necessary to begin substantial operation of the business within forty-five days of the delivery date stated in your contract, you may notify the seller in writing and demand that the contract be cancelled.”

Financial Statements (Section 36b-63(c)(24))

Include in your disclosure document the financial statement required by Section 36b-62(b)(4)(H) of the Connecticut Business Opportunity Investment Act.

Sellers Sales Representatives (Section 36b-63(c)(26))

Name each person who will represent the seller in offering or selling business opportunities in this state.   Also provide:

  1. The representative's business address and telephone number.
  2. The representative's present employer.
  3. The representative's employment or occupational history for the past ten years, including the names of employers, positions held and starting and termination dates for each position.  

Sales Representative Disciplinary Events that Must be Disclosed :

  1. During the previous ten fiscal years, the representative has been convicted of a felony or pleaded nolo contendere to a felony charge if the felony involved fraud, including but not limited to, a violation of any business opportunity law, franchise law, securities law or unfair or deceptive practices law, embezzlement, fraudulent conversion, misappropriation of property or restraint of trade;
  2. During the previous ten fiscal years, the representative has been held liable in a civil action resulting in a final judgment, has settled a civil action out of court or is a party to any civil action that (1) alleged fraud (including but not limited to, a violation of any business opportunity law, franchise law, securities law or unfair or deceptive practices law, embezzlement, fraudulent conversion, misappropriation of property, or restraint of trade), or (2) was brought by a present or former purchaser-investor and which involves or involved the business opportunity relationship;
  3. The representative is subject to any currently effective state or federal court or agency injunctive or restrictive order, or is a party to a currently pending proceeding seeking such an order, relating to or affecting business opportunity activities or the seller-purchaser-investor relationship, or involving fraud, including, without limitation, a violation of any business opportunity law, franchise law, securities law or unfair or deceptive practices law, embezzlement, fraudulent conversion, misappropriation of property or restraint of trade.

You must identify the court or administrative agency (including its location); include the date of the conviction, judgment, order or decision; and provide information on the penalty imposed, the damages assessed and  the terms of the settlement or the terms of the order.

Risk Factors (Section 36b-63(c)(27))

The risk factors section of the disclosure document must summarize in concise captioned paragraphs any factors that make the business opportunity investment highly risky or speculative.

Risk factors vary from business opportunity to business opportunity, and no business opportunity investment is "risk-free."

Here are some non-exclusive examples of risk factors:

  1. Absence of profitable operations within the previous three years;
  2. Erratic financial position of the seller;
  3. The particular nature of the business in which the seller is engaged or proposes to engage;
  4. Adverse background information regarding executive officers and directors of the seller, including prior business failures, criminal convictions or personal adjudications of bankruptcy;
  5. The seller's management lacks experience (or has limited experience) with respect to the particular business;
  6. The identity and relationship to the seller of any customers, the loss of any one of whom would have a material adverse effect on the seller (disclose the customers' names and describe their relationship to the seller).

For additional information, contact the Securities and Business Investments Division, 260 Constitution Plaza, Hartford, Connecticut 06103-1800, telephone (860) 240-8230 or toll-free 800-831-7225.

Visit the Connecticut Licensing Info Center for information on all licensing and permitting activities across Connecticut State government.