This is a protection for any potential buyer to be informed of any unpaid tax liabilities, penalties or bankruptcies known to the seller. Any qualified entities, shareholders, or beneficiaries entering into a voluntary disclosure agreement must fully disclose all facts. The participants must complete an application form FTB 4925.
This disclosure agreement is commonly signed when two companies or individuals are considering doing business together. It is used to understand the process used in each others business or the selling of one business to a buyer. In this paper, it will be referred to as a protection between a licensee (buyer) as well as the licensor (seller).
There are still those sellers who seek every possible means to escape this regulation. This is controlled at the state level and is considered fraud if caught. If the seller does get away without issuing the FTB 4925, the new buyer should expect major problems ahead.
This is why if you are the buyer you should pay especially close attention to the FTC disclosure statement and demand one, or move one. Every prospective buyer of a business opportunity must receive the FTC disclosure statement at least 10 business days before signing a binding contract.
Another consideration to the seller, the buyer must receive the FTC disclosure statement 10 days prior to paying any money. The 10 business day requirement (either way) is minimal. If you haven’t received an FTC disclosure document, don’t sign anything or pay out any money, even if claims are made that are “refundable.”
These are rules that both parties have discussed prior and have come to an agreement with. The disclosure agreement is a formal statement so there are no unknown items and all sections are now being legally documented. This states how you the buyer will actual participate in the operation of the business.
If there are any questions regarding the history of the company you are planning to purchase, ask. The history of the parent company needs to be detailed. It should include the identity and business experience of any persons affiliated.
Ask the salesperson, seller or representative for the phone contact of the local state agency or FTC office that has advised them of the exempt status. The only reasons for an exemption are those where the total initial payment is less than $500. The other possibility is when payment is made for inventory sold at bona fide wholesale price.
Author: Myles KruegerThis author has published 25 articles so far.