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MLM (Multi-Level Marketing) company is a promotional marketing strategy in which a salesperson sells the services or products for a specific MLM business and recruits new sales promoters to further sales of services or products. The company salesman aims not only to sell the product but also to get more people to carry on and continue the chain of selling the product further.
The profits of the initial salesperson continuously grow as the chain grows. It is also known as network marketing, multi-level marketing, matrix marketing, etc. A manufacturer or a trading company with some unique and exclusive services or products to market and willing to tap worldwide customers without setting up expensive showrooms or shops can start an MLM company.
There is no separate law in India that governs the registration or setting up of a Multi-Level Marketing Company. It was proposed before the Parliament in 2005 but has not yet become a law. However, certain acts need to be considered before setting up an MLM Company. The following business and schemes are illegal multi-level marketing in India and cannot be carried out by an MLM company in India:
The government has issued guidelines to regulate the sale of services and goods outside of retail establishments, also known as ‘Direct Selling (Multi-Level Marketing)’ and protect consumers who purchase services or goods from direct sellers.
The MLM companies need to fulfil the following conditions for permissible direct selling under the government guidelines:
The government guidelines prohibit the following activities by an MLM company:
The MLM company should be a separate legal person registered as an LLP under the Limited Liability Partnership Act, 2008 or as a company under the Companies Act, 2013. The objects in the MOA of the MLM company should specify the business model as direct selling, deploying direct, single-level or multi-level marketing compensation plans.
An MLM company should comply with all the applicable statutory formalities of the Central and State Governments, including taxation laws, Shops and Establishments Act, trade licenses, Legal Metrology Act, custom duty law, Consumer Protection Act and sector-specific laws.
An MLM company should apply for the IDSA (Indian Direct Selling Association) membership. The IDSA is not a government body but a private body set up by Amway India. The IDSA is trying to govern all the problems of the direct selling companies in India and stop illegal and unethical MLM companies and multi-level network marketing business practices that destroy the MLM business route.
An MLM company should apply for service tax, VAT (Value Added Tax), TAN (Tax Deduction Account Number), and all necessary licenses and registrations required to manufacture and sell its products. It should submit the list of products it wants to promote and the compensation plan during the registration.
An MLM company should maintain the following documents at its head office:
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