MLM or Multi level Marketing is an alternate form of distributing products and services. Instead of using the traditional distribution channel (distributors – retailers- consumers), MLM companies sell their products and services directly to consumers. That’s why it’s also called Direct Selling. When these consumers or customers like these products and services naturally they start sharing it with others.
MLM 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 generate from your entire team. Instead of spending money on advertisement, MLM companies reward their consumers and distributors for their word- of- mouth advertisement efforts.
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 will 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:
- 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.
Ø What is the law for setting up Multi Level Marketing Company India?
There is no separate law for setting up a Multi Level Network Marketing (MLM) in India by now it was proposed in Indian Parliament in 2005 but not yet passed as a law, however there are certain acts of Indian constitutions which we need to consider before setting up Multi Level Marketing Company:
• It should not be a only head count commission Model which falls in Pyramid Scheme which is banned in India, covers MRTP Act alias Money Rotation Trade Practice Banning ACT 1969.
• It should not be only money involved investment return format which falls in PCMC Act alias Prize Chit and Money Circulation banning Act 1978. It should be feasible Product selling Business Model.
What is the best practice to setup a Multi Level Marketing Company?
Essentials of setting up a MLM ENTITY Private Limited or Limited Company are to be setup. In India Multi Level Marketing Company involves limited risk for directors who are setting up a Multi Level Marketing Company Business.
Pertain IDSA (Indian Direct Selling Association) Membership. It’s not a government body but it’s a private setup by Amway India and other big network marketing companies which is trying to govern the whole Direct Selling Companies in India which prevents unethical and illegal MLM companies and Multi Level Network marketing Business practices to operate and destroy the MLM Business route.
Apply for Vat/Service Tax/ Tan No and all necessary license and registration required for manufacturer and product seller. Last but not the least Appoint a Legal Advisor, Consultant and a Chartered Accountant to create rules and regulation forms, manage paper works and other company related legal documents and stationary materials.
Please does not cut copy paste other company’s print materials as it may not be applicable on your product or MLM Business Model? It is also desirable to develop exclusive website content and information related to company written by legal advisor of the company to counter legal laws of the Land.
2. Conditions for Permissible Direct Selling:-
- Should be a Direct Selling Entity, having sales tax/Vat, Income Tax, TDS and other license as may be required as per the law/regulations of its principle place of business.
- Should have bank account with at least one nationalized bank.
- Partnership Deed or Memorandum of Association should clearly state their nature of business. (Those who do not have such specific clauses should get their memorandum of Association or Partnership Deed, as the case may be, amended within 2 months from the date of publication of these Guidelines).
- Pay sales incentive at the agreed rate within the agreed period.
- Shall display names and Identification numbers of their authorized Direct Sellers in the official websites.
- Should have a consumer grievance cell that should ensure redressal of consumer grievances within 7 days from the date of making such complaints.
- Website should provide space for registering consumer complaints hassle free.
- Direct Selling Entity shall appoint/authorise Direct Sellers upon receipt and scrutiny of application in a prescribed format.
- An agreement recording terms of such appointment should be executed between the Direct Selling Entity and Direct Seller.
- No application should be considered unless such applicant is eligible to enter into a contract under the Indian Contract Act.
- Each Direct Seller shall be allotted Unique Identification Numbers before granting license/permission to start direct selling.
- Direct Selling Entity should not give incentive to any persons for joining of Direct Sellers.
- Payment of incentive by whatever name it is called unrelated to their respective sales volume.
- Supply/Distribution of goods with the knowledge that such goods/products are inferior or exceeded its validity period as per the manufacturer.
- 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 TIN, DIN of Directors, TAN, PAN.
- Certificate of Sales Tax, Service Tax, CST Registrations.
- Copies of all Sales Tax Returns filed with the authorities.
- Copies of Service Tax 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.
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