Gone are the days where a handshake was as good as a signature. To protect yourself and your financial assets, get everything in writing – especially any business dealings. That also applies to any MLM companies you sign up with.
It makes good business sense to get what’s expected of you (and them) down in black and white. That way, everyone’s on the same page. You need to know what MLM legal requirements there are so that you don’t put your hard work at risk.
Before we delve into the legal requirements that you need to be aware of, let’s take a look at a few warning signs that an MLM company is one you should avoid. The obvious goes without saying. It shouldn’t be a scam where the business is a front (such as a pyramid scheme) where there’s nothing to really sell, and the only thing moving is currency.
Another warning sign is if the purchase price of the product doesn’t reflect what the product is worth. For example, the company offers a bottle of supplements that would sell in a health food store for about $50 a bottle but in order to buy it from the MLM company, you have to pay $200 a bottle.
Be wary of rules in an MLM company where those who join must purchase set amounts of the product every month in order to remain in the company. It’s okay if you want to buy the product, but not if you’re forced to.
Also, watch out for companies that want to pay you strictly based on how many people you can talk into signing with the company. A legitimate company will offer a product or service that consumers can use.
Now, because the laws are different in each state, you’ll want to know the laws pertaining to direct selling companies for your area. Ignorance of the law has the potential to come back behind you and bite you when you least expect it.
If you go into a company as a newcomer, make sure you have a contract or an agreement. If you sponsor others in a downline, you’ll want to have a contract for that as well. This will spell out what’s expected of all the parties involved. You can usually get an attorney to check a contract for a small fee and it would be worth the cost.
The contract should clearly spell out how the compensation plan works, what happens to merchandise if the distributor fails to sell it (do you have to buy it back if you own the MLM or if you’re a distributor will the company buy it back?) and what any fees go toward (such as purchasing a kit, etc.).
Make sure you know what the scam laws are in your state to see if the MLM company you want to join falls under that heading. “I didn’t know” doesn’t hold up in a court of law.
You’ll want to be up to date on the tax laws concerning MLM legal requirements, so that you can make sure that the government gets its share. They’ll get it now or they’ll get it later, but with added penalties and interest.