Direct Selling or MLM Company in India in year 2020
If you are interested to start a new Direct Selling Entity or Company you should have read this post carefully. In today's scenario starting a new direct selling business (Previously said MLM Companies) is not an easy task and requires a lot of care and attention of the businessman. We strongly suggest to take proper legal advise in this business else you might end behind the bars for the offenses which were not even willful at your end.
First of all you need to understand what is Direct Selling Entity- “Direct Selling Entity”, means an entity, not being engaged in a pyramid scheme, which sells or offers to sell goods or services through a direct seller. Provided that “Direct Selling Entity” does not include any entity or business notified otherwise by the Government for the said purpose from time to time.
Clearly a Pyramid Scheme is not supported in the industry.
What is pyramid scheme? this might be your next question, now the answer is- “Pyramid Scheme” means a multi layered network of subscribers to a scheme formed by subscribers enrolling one or more subscribers in order to receive any benefit, directly or indirectly, as a result of enrollment, action or performance of additional subscribers to the scheme. The subscribers enrolling further subscriber(s) occupy higher position and the enrolled subscriber(s) lower position, thus, with successive enrollments, they form multi-layered network of subscribers.
Provided that the above definition of a “Pyramid Scheme” shall not apply to a multi layered network of subscribers to a scheme formed by a Direct Selling Entity, which consists of subscribers enrolling one or more subscribers in order to receive any benefit, directly or indirectly, where the benefit is as a result of sale of goods or services by subscribers and the scheme/financial arrangement.
Now, if you are interested to start New Direct Selling Company first step will be Incorporation of a New Company, make sure that MOA (Memorandum of Association) of the company should clearly states the object of the company as Direct Selling Company otherwise it might create problems in future. After getting your company incorporated within 90 days an undertaking should have been filed to the Ministry of Consumer Affairs stating that the company is in compliance with the guidelines and shall also provide details of its incorporation.
To avoid being declared as a pyramid scheme, Company should follow the below mentioned conditions seriously, in other language a company which follows below conditions will be a legally valid Direct Selling Company-
- It has no provision that a Direct Seller will receive remuneration or incentives for the recruitment / enrolment of new participants.
- It does not require a participant to purchase goods or services:
i. for an amount that exceeds an amount for which such goods or services can be expected to be sold or resold to consumers;
ii. for a quantity of goods or services that exceeds an amount that can be expected to be consumed by, or sold or resold to consumers;
- It does not require a participant to pay any entry/registration fee, cost of sales demonstration equipment and materials or other fees
- It provides a participant with a written contract describing the “material terms” of participation
- It allows or provides for a participant a reasonable cooling-off period to participate or cancel participation in the scheme and receive a refund of any consideration given to participate in the operations
- It allows or provides for a buy-back or repurchase policy for “currently marketable” goods or services sold to the participant at the request of the participant at reasonable terms
- It establishes a grievance redressal mechanism for consumers.
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