The MLM Legality Test
     There are many characteristics, or "red flags," that distinguish an illegal pyramid from a legitimate multi-level income opportunity (often called as MLM). They have been written about often in many publications and, by necessity, often contain legal terms and industry jargon. Also, danger signs of a few years ago may have been camouflaged or fixed by the newest drafters of plans, so one needs to be on guard for new and different twists. As Growth and Investment plans today. Is there a simple, easy to apply test one can give to an income opportunity that addresses the pyramid law risk without all the pyramid law legal terminology? There is. What follows addresses that need. It is the single-level test for the multi-level income opportunity. It goes like this: Can one make some money SINGLE-LEVEL, that is, without sponsoring another income opportunity seeker? Note the specific use of the word "can," not the word "would." It is usually a given that the income opportunity prospect is urged to sponsor and that the income opportunity presenter will say or imply that the "real money" is in building a group. But that is usually O.K., SO LONG AS those who choose not to sponsor at all CAN STILL MAKE MONEY. Note also the use of the word "MAKE." It's "MAKE MONEY," not "SPEND MONEY," meaning paying income taxes if the gross income exceeds expenses associated with producing the income. Buying for personal use at distributor prices rather than customer prices, while a savings, does not generate INCOME upon which one is required to pay taxes. Buying for personal use by itself is not an income opportunity. If the proposed income opportunity consists ONLY of buying for personal use and sponsoring more representatives, with no provision for sales to customers, it is flawed. This simple test needs to be applied to two aspects of an income opportunity. The first aspect is the design. What do the company documents say about how one makes money? How does the compensation plan work? Not all the fine details of every commission, bonus, or reward need be understood; but simply, can one make SOME money without sponsoring? Remember, one does not MAKE money when one buys any product or service for personal use. The application of this test should in no way imply that there is anything wrong or illegal about personal consumption. It is just that it alone cannot be the sole basis for an income opportunity. The second aspect of the application of the test is the plan implementation. Some plans are designed correctly but are flawed in the implementation. Can one make money, even without sponsoring, as the plan is being taught and implemented by the prospective sponsor and the distributors closely associated with him or her? If there is no acknowledgment or support for the non-sponsoring participant in the income opportunity, something is wrong, maybe not in the design, but surely in the implementation. Reputable and legally designed and implemented multi-level income opportunities provide a money making opportunity SINGLE LEVEL to those who choose not to sponsor. Of course, if one sponsors others, then ADDITIONAL money making opportunities exist when those sponsored generate sales. Apply this test to multi-level income opportunities. Look at the plan design, and look at the way the plan is being implemented by the prospective sponsor and associates. If the ONLY WAY to make money is by sponsoring, STAY AWAY, the plan is fatally flawed.

LEGAL NEWS
     Mr.V.Sreenivasa Prasad Honorable Minister of State in the Union Ministry of Consumer Affairs, Food and Public Distribution, while answering a question on MLM or Network Marketing Business in LoK Sabha on December, 20, 2002. Stated that the matter had been examinated in detail in consultation with the ministries concered and said the need for the separate legislation was not felt in view of the fact that there are adequate provisions available in the sale of goods Act, 1950 (for regulating the sale of goods) and the consumer protection Act, 1986 (to promote and protect the rights of consumers)

     MLM OR NETWORK MARKETING IS A CONCEPT IN WHICH A COMPANY AND ITS PRODUCTS ARE INTRODUCED TO THE WIDE RANGE OF CONSUMERS THROUGH THE CUSTOMER AND THOSE CONSUMERS AFTER BUYING PRODUCTS FROM THE REFERRED COMPANY BECOMES CUSTOMERS AND STARTS INTRODUCING FURTHER CUSTOMERS AND SO ON ALL THE REFERRING CUSTOMER EARN INCOME ON PURCHASE OF PRODUCTS FROM THE REFERRED COMPANY BY THEIR REFERRED CUSTOMERS AND THEIR REFERRAL BASED ON A DECLARED PLAN.
BASED ON THE ABOVE CRITERIALS TO BE CONSIDERED BEFORE JOINING A MLM :
1. MLM CONCEPT SHOULD BE A REGISTERED COMPANY.
2. MLM CONCERN SHOULD BE A REGISTERED WITH CENTRAL AND LOCAL TAX AUTHORITIES.
3. MLM CONCERN SHOULD HAVE A REGISTERED OFFICE EITHER FOR A PERIOD OF MORE THAN A YEAR.
4. NEW MLM CONCERN WHILE STARTING SHOULD DECLARE THEIR CAPITAL AND INVESTMENT TO THE PEOPLE.
5. MLM CONCERN SHOULD SELL A VALID PRODUCT.
6. MLM CONCERN SHOULD RECEIVE ONLY VALID CONSIDERATION OR PRICE FOR THE PRODUCT SOLD.
7. MLM CONCERN SHOULD RAISE INVOICES FOR EVERY SALE AND SHOULD HAVE PAID TAXES AND THE CONCERNED AUTHORITIES ON THOSE INVOICES.
8. IF ONLY COMMISSIONS ARE GIVEN IT SHOULD BE GIVEN ONLY ON THE SALE OF THE GOODS AND NOT ON ANY OTHER PAYMENTS COLLECTED BY ANY NAME.
9. COMMISSIONS ARE TO BE PAID ONLY ON THE PROFITS EARNED ON THE SALE OF THE GOODS AND NOT ON ANY OTHER PAYMENTS COLLECTED BY ANY NAME.
10. COMMISSION SHOULD NOT BE PAID BY CASH.


     Supreme Court and Minister of State, Union Ministry of consumer affair Food & Public Distribution on certifying the legal validity of Network Marketing in India.
Mr.V.Sreenivasan Prasad, Minister of State in the Union Ministry of Consumer Affairs, Food and Public Distribution, answered a question in Lok Sabha on December 20th 2002 on Network Marketing or MLM.
Admitting that the Government had received proposals from the network marketing Industry requesting the enactment of a separate legislation to cover direct selling/multi-level marketing / Network Marketing , the Minister said the main intention of the representation was that members of the Industry were being targeted due to vagueness of the Prize Chits and Money Circulation (Banning) Act 1978 in distinguishing between prize chits funds genuine involved in direct marketing.
He went on clarify the position by starting that the matter had been examined in detail in consultation with Ministries concerned, The need for a separate legislation was not felt in view of the fact that there are adequate provisions available in the Sale of Goods Act 1930 (for regulating the sale of goods). and the consumer protection Act, 1986 (to promote and protect the rights of consumers). he said The provisions of the Prize Chits and Money Circulation Scheme (Banning), 1978 seek to ban the promotion or conduct of Prize Chits and Money Circulation Schemes. The provisions of the Act had come up for scrutiny before the Supreme Court of India which ruled that the Networking marketing Plan and direct sale of goods and services by the direct selling companies do not fall within the mischief of the Prize Chits and Money Circulation Scheme (Banning), 1978 Act, the Minister added.