MLM Company Registration

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.

MLM Company Registration Laws in India

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:

• A scheme through which an organiser builds a pyramid structure that initiates with one person representing the tip of the pyramid, also known as the pyramid scheme, is banned in India. It covers the Monopolies and Restrictive Trade Practices Act, 1969.
• It should not be a money circulation scheme banned under the Prize Chit and Money Circulation Schemes (Banning) Act, 1978. 

Government Guidelines for MLM Companies 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:

• Should be a direct selling entity, having Income Tax, TDS (Tax Deduction at Source), Goods and Service Tax (GST) number and other required licenses as per the law or regulations of the principal place of business of the company.
• Should have a bank account with a nationalised bank.
• The company Memorandum of Association (MOA) should clearly mention the nature of business.
• Pay sales incentive at the decided rate within the agreed period.
• Should display identification numbers and names of their authorised direct sellers on the official websites.
• Must have a consumer grievance cell ensuring redressal of consumer grievances within seven days from the date of making complaints.
• The website should provide space to register consumer complaints hassle-free.

The government guidelines prohibit the following activities by an MLM company:

• Payment of incentive by whatever name unrelated to the respective sales volume.
• Distribution or supply of goods with the knowledge that such products or goods exceed validity period or are inferior as per the manufacturer.
• Direct seller or direct selling entity should not indulge in money circulation schemes or any act banned by the Prize Chits and Money Circulation Scheme (Banning) Act, I978.

Registration of MLM Company in India

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.

Documents Required to be Maintained by MLM Company

An MLM company should maintain the following documents at its head office:

• Certificate issued by Registrar of Companies, MOA, Articles of Association and Management and Operations Memorandum (MOM).
• Copies of Director Identification Number (DIN) of directors, Taxpayer Identification Number (TIN), Permanent Account Number (PAN) and TAN
• Certificate of GST Registration and copies of GST Returns filed with the authority.
• Copies of the IT Returns of the company filed with the authority.
• Tax Deducted at Source (TDS) Statements of direct sellers and the respective challans paid.
• Copy of the latest profit and loss account, balance sheet and reports of the auditors.
• Records of the Know Your Direct Sellers (KYDS) and Know Your Customer (KYC) formats should be available on the company website. 

Disclaimer: The materials provided herein are solely for information purposes. No attorney-client relationship is created when you access or use the site or the materials. The information presented on this site does not constitute legal or professional advice and should not be relied upon for such purposes or used as a substitute for legal advice from an attorney licensed in your state.
 

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