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What is Multi-Level Marketing Company (MLM Company)?
MLM (Multi-level marketing company) is a marketing promotional strategy in which a sales person sells the products or services for particular MLM business and recruits new sales promoters under his/ her downline to further sales of products and services. this is a system of marketing in which a hierarchal pattern is followed where The sales promoters are organized in a pyramid structure. The aim of salesman is just not to sell the product, but also to lure some more people to carry on the chain of selling the product further, and the chain goes on and on. Here the profits of the initial salesperson continuously increase as the chain grows on. This is also known as multi-level marketing, network marketing, matrix marketing, etc.
Why It Is Called Direct Selling
Direct Selling is an alternate form of distributing products and services. Instead of using traditional distribution channel (manufacturer – distributor – wholesaler – retailer – consumer), Direct Selling companies sell their products and services directly to consumers. That is why it is called ‘Direct Selling’.
When these consumers or customers like their products and services, naturally they start sharing it with others. Direct Selling companies pay you when people buy their products and services from your recommendation.
But the awesomeness doesn’t stop there, you are given an option to build a team of distributors (generally consisting of happy consumers recommended by you and those you recommend and those they recommend and so on…). Contrary to common misconception, you are not paid to recruit people, you are paid depending on the total sales volume generated by your entire team. Instead of spending money on traditional advertisements & other marketing methods, Direct Selling companies rewards their consumers turned distributors for their word of mouth advertisement effort.
Unfortunately, most people are unaware of the clear definition of this industry, and frequently confuse it with pyramid schemes recruiting people to earn money.
How to Start MLM Business
To start a new MLM company you need to register the company under the specific Act of your country law and follow the guidelines of the law and also discuss with your Company Secretary for certification and other formalities. Decide the products or services you want to sale and choose the best MLM compensation plan as per your business strategy.
There are various types of MLM plan in MLM business industry like Forced Matrix, Binary Plan, Australian Binary, Stair-Step Plan, Uni-Level Plan, Generation Plan, Board MLM Plan etc.
Why Indian Laws Against MLM Companies
There is a law made for regulating chit fund and money circulations in India which is “The Prize Chits And Money Circulation Schemes (Banning) Act, 1978”. This ACT is Made TO BAN THE PROMOTION OR CONDUCT OF PRIZE CHITS AND MONEY CIRCULATION
According to this law money circulation scheme means any scheme, by whatever name called, for the making of quick or easy money, or for the receipt of any money or valuable thing as the consideration for a promise to pay money, on any event or contingency relative or applicable to the enrolment of members into the scheme, whether or not such money or thing is derived from the entrance money of the members of such scheme or periodical subscriptions
Government guidelines for MLM companies in India
To regulate the sale of goods and services outside of retail establishments otherwise known as “Direct Selling (Multi Level Marketing)” and to provide for protection of consumers who purchase goods and services from direct sellers, following guidelines are issued with the approval of the Competent Authority. These guidelines have come into force from the date of publication in official Gazette and will remain in force till an appropriate legislation is enacted for the said purpose.
Basic MLM Guidelines by the Governments are as follows:
1. Definitions:-
Direct Selling: Means marketing or sales of goods directly to the end user consumer using word of mouth publicity, display and/or demonstrations of the goods/products, and/or distribution of pamphlets.
Explanation: Companies can open pick up points and delivery points for maintaining effective delivery system.
Direct Selling Entity: Means a business entity as recognized by law for the time being in force including but not limited to a Company duly incorporated under the Indian Companies Act, a registered Partnership Firm constituted under the Indian Partnership Act.
Direct Seller: Means a person who is authorized by the Direct Selling Entity to engage into the business of Direct Selling.
Consumer: An individual who buys goods or services for personal use and not for manufacture or resale and shall have the same meaning as provided under the Consumer Protection Act. 1986.
Goods/products: Goods/Products shall have the same meaning as defined in the Sale of Goods Act and section 3(26) of the General Clauses Act, 1897, that is, it shall include every kind of movable property other than actionable claims and money.
Sales Incentive: Sale incentive means share of profit payable to the Direct Seller for effecting sale of goods/products as stipulated in the contract between the Direct Seller and the Direct Selling Entity.
2. Conditions for Permissible Direct Selling:-
(i) Should be a Direct Selling Entity, having GST No., Income Tax, TDS and other license as may be required as per the law/regulations of its principle place of business.
(ii) Should have bank account with at least one nationalised bank.
(iii) Memorandum of Association should clearly state their nature of business.
(iv) Pay sales incentive at the agreed rate within the agreed period.
(v) Shall display names and Identification numbers of their authorized Direct Sellers in the official websites.
(vi) Should have a consumer grievance cell that should ensure redressal of consumer grievances within 7 days from the date of making such complaints.
(vii) Website should provide space for registering consumer complaints hassle free.
3. Appointments/Authorisations:-
(i) Direct Selling Entity shall appoint/authorise Direct Sellers upon receipt and scrutiny of application in a prescribed format.
(ii) An agreement recording terms of such appointment should be executed between the Direct Selling Entity and Direct Seller.
(iii) No application should be considered unless such applicant is eligible to enter into a contract under the Indian Contract Act.
(iv) Each Direct Seller shall be allotted Unique Identification Numbers before granting license/permission to start Direct selling.
(v) Direct Selling Entity should not give incentive to any persons for joining of Direct Sellers.
4. Prohibition:-
(i) Payment of incentive by whatever name it is called unrelated to their respective sales volume.
(ii) Supply/Distribution of goods with the knowledge that such goods/products are inferior or exceeded its validity period as per the manufacturer.
(iii) Direct Selling Entity/Direct Seller will not indulge in money circulation scheme or any act barred by the Prize Chits and Money Circulation Scheme (Banning) Act, I978.
5. General Conditions:-
MRP of the goods should be visibly displayed on the package.
Accounts of individual Direct Sellers shall be maintained properly and should be made available through World Wide Web.
Sales incentive should be distributed to the respective Seller on or before the agreed due dates.
Goods sold by the Direct Selling entity should carry guarantee/warranty of the manufacturer. However consumer should be given opportunity to exchange/return the goods if he finds any manufacturing defect or the product purchased is not useful for the purpose it was meant, within 30 days from the date of purchase, provided any seal/protection on the product is kept unbroken.
6. Information Readiness (Ready Information file):-
Every Direct Selling Company should maintain a file with all relevant documents that include:
- Certificate issued by Registrar of Companies, MOA and MOM.
- Xerox copies of GST, DIN of Directors, TAN, PAN.
- Certificate of GST Registrations.
- Copies of all GST Returns filed with the authorities.
- Copies of IT Returns of company filed with the authorities.
- TDS Statements of Distributors and respective challans paid.
Every Direct Selling Company should maintain KYC/KYDS (Know Your Customer/Know Your Direct Sellers) as a mandatory process. Specific formats are to be provided on their websites to be available for all at any time.
7. Grievance Redressal Mechanism:-
Every Direct Selling Company must have a complaint redressal mechanism to address any problem of their customers/Direct Sellers.
8. Breach of Guidelines:-
The sale activities not following the above guidelines shall not be considered as Direct Selling and would be dealt appropriately under relevant provisions of existing laws.
Conclusion: Indian Government laws are not against the MLM Business since, it is the basis of providing employment opportunities to a large no. of people but since, the government has seen a no of business concerns doing the business of CHIT Fund Companies etc., hence, it keeps an eye over such MLM Business. But if any of the MLM company go by the laws of the State and does his business in a systematic way, there are no restrictions all around.
The author is a company secretary in Practice and legal consultants and with a no. of MLM companies and hence written this article on basis of his experience being earned from such companies and can be contacted at 99145-58709 or on csmohitsaluja.jal@gmail.com.
Author Bio
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Thanks for sharing this information. Can you please tell what all legal measures to take
I am an Indian and I own a Herbal Products Manufacturing Company in Kathmandu Nepal. We manufacture different types of Herbal Medicines , Oil etc. Now I want to start an MLM Company in India to sell my products . What is the legal Process to start and what are the documents required. Please reply.
New mlm company starting on 25 sep 2021 good plans and future
kindly share the process of MLM in India and it’s charge.
I want to sale my share market course with mlm like binary. What is process?
Sir,
I want start a Genuine MLM company with my incense sticks products. Kindly suggest me what types of legal document will be required for this and from where I will be get all the legal documents. Kindly suggest me all details.
Thanks
hi
I have an online education plan if any on MLM intrested pls connect with me Vimalhealthzingo@gmail.com
this plan creat the history on MLM
No teamwork
No ads
No weekly payouts
No incentive
this will run 100% legal
i want to know details
contact 7721864075
I want to discuss about best mlm business plan for my own mlm company as planning to start in near future
Hi
I m a service provider in education field online, started recenltly.
indian student buy online USD through Credit cards.
Is there any Indian govt restriction on amount of revenue in totality flowing out
WILL HIGHLY APPRECIATE IF YOU COULD REPLY BACK
Sir, is it necessary to pay a fixed rate of money to the government as consumers security fund prior to start an MLM company?
sir will u plz guide me that how we can start mlm with the Trust Deed in Uttar Pradesh
I have no idea of Registration and Leagle Terms
can i start mlm company as proprietor in initial and after getting good response can i convert the company in pvt ltd, llp or opc so please suggest me
Products base mlm company..need guidance to start the same.your consultency fees and adress near to kolkata
Hi, I wish to start a MLM company in India. can you please help me, what are the necessary licenses and approvals required for the same
Hi, I wish to start a product based MLM company in India. can you please help me, what are the necessary licenses and approvals required for the same
Dear Sir, we wish to take some advice from you on our newly formed LLP company. Please share your contact
SIR I WANT KNOW THAT WHAT IS THE CLASSIFIED CODE FOR NETWORK MARKETING IN GST
Can Partnership Firm registered with the Registrar of Firms can apply for registration with Ministry for Direct Selling and is eligible for registration.
Sir I want to start an E commerce mlm i hv no comny etc but experience of working in mlm i want to make app where only indian products will be promoted kindly guide me
Whatsap
No. 7060445139
Sir, I want to start a MLM company which can sell product of HINDUSTAN UNILEVER, TATA, P&G. will I have to take permissions for their products selling
Hi Sir/Mdam,,
If I wish to start a product related MLM in India what are the necessary licenses and approvals required.
Kind regards
Prasad D.Naik
Hi, I wish to start a product based MLM company in India. can you please help me, what are the necessary licenses and approvals required for the same.
Best Regards,
Pankaj
Sir Ji I want to know that on which address send the document in Ministry of consumer affairs department offline OR online.
Please provide me the address and phone number of the department to approved a direct selling entity. I’m from Utter Pradesh
Dear Sir,
Does a MLM company can sell any products like colgate, santoor etc. which are already having distribution network of their own.
I want to start an MLM with products procuring from different manufacturers in INDIA, is it legal or i have to take any extra permission from manufacturers.
Can I start digital marketing based business in MLM.
We expressmedia.in providing digital marketing services based in Nagpur.
Hi Sir,
we have plan to start mlm company product base…my doubt………..
is it require own manufacturing unit for mlm company in india please give clarity sir..
Regards
there is no need to established your own manufacture units for mlm company.
Dear Sir,
Does a MLM company can sell any products like colgate, santoor etc. which are already having distribution network of their own.
I want to start an MLM with products procuring from different manufacturers in INDIA, is it legal or i have to take any extra permission from manufacturers.
Dear sir, in network marketing company a person wo want to be direct seller in firm as per guidelines how much dealership (ids) he can get.
I Start MLM in binery plan.so mujhe kon sa docoments ki jarurat prega.
Dear Sir
Can a Limited company which is listed in BSE can do MLM ??
For those who start MLM business, I recommend to choose the best MLM Software.
Cloud MLM Software team will guide you through the process of making your MLM business successful.
Hello sir,,,Mai MLM company start krne ja rha hu, jisme product base work rakhnewala hu,,, joining plan bohat kam rkh rha hu,,to kon kon se documents Mai CA se bnvake lu,,,aur every distributor Ka KYC krna jaruri rahega kya,,,qki software me vaisa kuchh add nhi Kiya hai,,,and distributor Ka payment filahaal byhand hi rkha hai,,,6 mhine baad online kr Lunga,,and income binary, level, reward, personal, nominy Rakhi hai,,,mtlb garibo Ka paisa garibo k liye hi baatna hai,,,to aage jaakar koi problem aa Sakti hai kya.. plz suggest me sir….plz plz plz
Hi, I want to join your MLM plan and want to understand the things,
please contact on email- abhishekmishram1@gmail.com
Mob- 7081768779
pl specify procedure of transfer by non resident to indian resident by way of gift and not by way of sale when:
a. activities of the investee company are under automatic route;
b. sectoral limits under foreign direct investment policy are not breached;
c. sale consideration is in compliance with the pricing guidelines; and
d. such transfer is not subject to Indian Takeover Code;
is it legal? if yes, what form has to be filed under FEMA/RBI Rules? FC TRS is for transfer by way of sale.
Ministry of consumer affairs se company registered hone ke lie kya documents chahiye
I want apply the registration for the MLM company
from where, i want to apply please provide the link and mail id and address
Mlm business k lie company kholna jruri h kya???
Partnership firm or proprietership firm se bhi jam kar skte h kya???
I got a call from a company named ********** before some days. When i went to thw website of that comcompany, i found that the registration ia under process, dont have PAN number, GST number etc. When I asked to thw director about this they told me that all the formalities will be done through 31 august 2018. But I am getting, how a consumable product bases company is doing business without any registration from 1 year.
Kindly help me whether I should join this company or not, or should I report against the company?
Hello Sir,
Wanted to know if an India National could become an independent distributor of a Foreign MLM Company, where all transactions happen online and payments and rewards / commissions distributed directly into the team members account directly ?
Initially members join the Foreign company directly by purchasing a Financial product , say for $100 for a unit and the investor gets weekly / monthly profit from this investment directly into their account.
My question is, if the Indian direct distributor of this foreign firm building a team in the structure of MLM in India, are there any legal implications ?
Appreciate your thoughts / advice.
Thanks,
Bhaskar
Hi,
If I wish to start a product related MLM in India what are the necessary licenses and approvals required.
Kind regards
Tridib Basu
i am start mlm company. but i am start company my product
A company named Vestige Marketing fullfill all the details above mentioned. if anybody interested to enter in the system of Direct Selling can call or whatsapp for more details on 9971748099