subject: Network Marketing Legal, Illegal Or Downright Dangerous? [print this page] When venturing into the world of network marketing, some people may have questions about the legality of these companies. Network marketing is legal, and reputable corporations operate with full disclosure, offer legitimate products and services, and compensate their distributors fairly. The government regulates the industry and offers a variety of resources for people who have questions about the business model or who want to investigate specific companies.
Network marketing is merely a form of franchising and it is regulated as such. Many places have enacted specific legislation pertaining to multilevel marketing corporations that outline legal standards and practices. These laws and regulations have been designed to separate the legal world of network marketing from the shady, illegal world of pyramid schemes.
Multilevel marketing attracts so much attention because there is such a low buy in, and the returns can be quite high. In a world where, as the old saying goes, "you can't get something from nothing," people are quite wary of those who pay less than $1,000 to buy into a business and end up making a six figure salary. The failure rate of entrepreneurs who try their hand at MLM also tends to draw negative attention to the industry. People who believe they can buy in and make millions in less than a year, with very little work become angry and bitter when they fail, causing them to place blame on the company, rather than their own work practices. Governments around the world recognize network marketing as a legal, legitimate business model, and in court case after court case, they place their stamp of approval on the industry.
That's not to say that there are not unscrupulous MLM companies who operate under shady or even illegal business practices. These companies are what gave root to the heavy regulation of the industry. At the end of the day, however, it (usually) the position of the government that responsibility for researching and investigating a network marketing company lies upon the individual investor.
Legal decisions have led to the following standards:
* Products must have a "real world" marketplace
* Products must be sold at a fair price
* The initial investment should not be too high
* Buy ins should not be heavy - that is, the company can't require distributors to load up on inventor from the outset
* There should be some sort of inventory buy-back program so that investors aren't left with large quantities of inventory should they chose to leave the company
* Companies can not emphasize recruitment over the sale of products
* There can be no mandates requiring distributors purchase auxiliary products or accessories
* The company can not misrepresent its sales or earnings
A legally operating network marketing company is up front and open about all of its policies regarding new distributors. It is very important that prospective investors put in due diligence and properly investigate any MLM opportunity before joining.
Legal and reputable companies have been around longer than three years, have excellent training programs, a low buy in, and accessible training. Their business philosophy should boil down to win-win - when the company does well, the distributors are doing well. And if you put in due diligence but still have any nagging questions about whether or not a network marketing company is legal, it might be best to back off the opportunity.
