Business Opportunity Seller's Bond - Statewide in Iowa

Brief Summary

A business opportunity seller's bond backs your promises to Iowa buyers with a surety company's guarantee. When a buyer, partner or agency asks you for one, it can be issued in the amount and wording they specify, and you pay a premium instead of setting aside the full sum in cash.

Iowa regulates business opportunity sales under Iowa Code chapter 551A. The state registration that once let a seller post a surety bond in place of a $50,000 net worth requirement was replaced in 2004, and today's chapter requires a disclosure document, an irrevocable consent filed with the Iowa Secretary of State, and a 3 business day cancellation right. When a Business Opportunity Seller's bond is requested, the party requiring it sets the amount and terms.

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How to Apply for a Business Opportunity Seller's Bond:

• Get the required bond amount, the obligee name and any required bond wording in writing from the party asking for the bond.
• Provide the seller's legal name and address exactly as they appear on the disclosure document and contracts.
• Provide owner information for the surety's credit review.
• Review the quote, pay the premium and receive the signed bond.
• Deliver the bond to the party that required it, and keep a copy with your 551A disclosure file.

Detailed Information About the Iowa Business Opportunity Seller's Bond:

What changed in 2004

Iowa's business opportunity law used to sit in chapter 523B. Under the 2003 Code, section 523B.2 required sellers to register, pay a $500 filing fee and a $250 annual renewal, and keep a minimum net worth of $50,000, with a surety bond allowed in lieu of the net worth requirement. 2004 Iowa Acts chapter 1104, section 11, struck those registration subsections and replaced them with a disclosure document requirement. The chapter was renumbered as 551A in the 2005 Code. Current chapter 551A contains no state registration and does not set a bond amount.

Who is a business opportunity seller

Iowa Code 551A.1 covers sales where the buyer's initial investment is more than $500 and the seller makes one or more listed representations. These include locating equipment or vending sites on third party premises, finding outlets or accounts, buying back products the buyer makes, promising income greater than the price paid, refunding or repurchasing if the buyer is unhappy, or providing a sales or marketing program. Section 551A.4 exempts certain sales, including franchises that deliver an FTC or NASAA format disclosure on time.

What the law requires today

• A written disclosure document delivered at least 10 business days before the buyer signs or pays anything (551A.3).
• A written contract with the terms listed in 551A.3, including the buyer's cancellation right.
• An irrevocable consent to service of process filed with the Iowa Secretary of State before any business opportunity contract is executed (551A.7).
• A 3 business day right to cancel for any reason (551A.6).

What a bond would back

Under 551A.8 a buyer can seek rescission, a refund of everything paid, actual damages with interest, attorney fees and court costs when a seller violates the chapter. A Business Opportunity Seller's bond is a promise by a surety to pay valid claims of that kind up to the bond amount, with the seller repaying the surety. Because the current statute sets no figure, the amount, the obligee and the bond wording come from whoever is requiring the bond. Get those terms in writing and confirm them with that party before the bond is issued.

Eligibility and Requirements for a Iowa Business Opportunity Seller's Bond:

• Disclosure document delivered at least 10 business days before signing or payment under Iowa Code 551A.3.
• Irrevocable consent to service of process filed with the Iowa Secretary of State before any contract is executed (551A.7).
• Written contract that includes the 3 business day cancellation right (551A.6).
• Bond amount, obligee and wording as specified by the party requiring the bond.

Iowa Business Opportunity Seller's Bond FAQs:

Official and Additional Resources for the Iowa Business Opportunity Seller's Bond: