South Carolina is classified as a business opportunity state, and its laws relating to the sale or offering of business opportunities are found under the South Carolina Business Opportunity Sales Act, S.C. Code §§ 39-57-10 et seq. (the “Business Opportunity Law”). The Business Opportunity Law defines “business opportunity” as the sale of products, services, equipment, or supplies to a purchaser for an amount that exceeds $250, for the purpose of enabling the purchaser to start a business, and in which the seller represents to the purchaser one of the four enumerated representations under § 39-57-20.
Most franchises will constitute a business opportunity under § 39-57-20(4) of the Business Opportunity Law, which provides that when a seller represents that it will provide a sales or marketing program to the purchaser, to enable the purchaser to derive income from the business opportunity, which exceeds the price paid for the business opportunity, that offering constitutes a business opportunity. However, if a franchise offering qualifies as a business opportunity only under § 39-57-20(4), and not under any of the other qualifiers in § 39-57-20(1)–(3), then the franchise offering does not constitute a “business opportunity” if it is a sales or marketing program made in conjunction with the licensing of a registered trademark or service mark. Thus, if a franchise offering in South Carolina is made in conjunction with a trademark registered with the United States Patent and Trademark Office (USPTO) or the state of South Carolina, the franchisor is exempt from the requirements of the Business Opportunity Law and does not need to file any additional documentation with the state.
South Carolina franchisors without a registered trademark or service mark, or whose franchise offering otherwise qualifies as a business opportunity under § 39-57-20(1)–(3), are subject to the requirements of the Business Opportunity Law and must register their franchise with the South Carolina Secretary of State before advertising or making representations concerning the offer of sale of their franchise. To validly register under the Business Opportunity Law, a franchisor must file the following with the Secretary of State:
A franchisor is required by § 39-57-40 to obtain a surety bond or establish a trust account only if a franchisor represents either:
If a franchisor makes any of the representations state above, the franchisor must either:
Upon successful registration, a franchisor must file a renewal with the Secretary of State every twenty-four months by filing the same criteria stated above.
Because of the disadvantages posed to franchisors by the Business Opportunity Law, South Carolina franchisors without a registered trademark should try to obtain one. If not federally, South Carolina trademark registration is relatively simple: it requires that a franchisor file (1) an application with the Secretary of State containing the information set forth in § 39-15-1115(A); (2) three specimens of the trademark as actually used; and (3) a registration fee of $15.
Regardless of whether a franchisor is exempt from the Business Opportunity Law by offering franchises in conjunction with a registered trademark, all South Carolina franchisors must nonetheless comply with the requirements of the Federal Trade Commission Amended Franchise Rule, 16 C.F.R. §§ 436.1 et seq. (the “FTC Rule”), which among other things, requires disclosure of a validly issued Franchise Disclosure Document (FDD) before entering into a franchise agreement or accepting payment from a franchisee. disclose a validly issued Franchise Disclosure Document (FDD) prior to entering into a franchise agreement or accepting any payments from a franchisee.
It is critical that franchisors are aware of the substance and effect that the Business Opportunity Law, as well as the FTC Rule, has on business operations and relationships in South Carolina. A franchise attorney is an excellent resource to provide clarity to applicable South Carolina franchise laws and registration provisions and to ensure compliance on an ongoing basis. For South Carolina franchisors without a registered trademark, failing to register a franchise as a business opportunity with the state, or even failing to renew such registration, could result in penalties imposed by the state, liability in civil actions filed by franchisees, and other substantial losses. To help avoid these negative ramifications, contact a seasoned franchise lawyer today and start working on franchising your business.