What is Direct Selling / Network Marketing / Multi Level Marketing- Legal or Illegal?

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It is a relatively new marketing method / business concept/ distribution channel.

• Direct Selling companies sell their products &/or services direct to the consumers, removing the traditional distribution channels in between.
• Normally Direct Selling companies focus more on word-of-mouth advertisements by its consumers than traditional advertisements. (Most Direct Selling companies don’t do traditional advertisements at all).



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A person can be:
• Consumer: Who only uses the products and services from the Direct Selling company.
• Distributor: Who is a consumer, but also sells the products and services directly to people and earns retail commission for that.
• Network Marketer: Who is also a distributor and must sell products and services directly. But also recruits and trains other distributors to sell the products/services and build their own businesses. Now this person not only earns retail commissions, but also commissions for the sales volume generated by their entire Network.Now this facility allows people to leverage other people’s effort and earn residual income

Summery: To explain it in simplest manner – As a Direct Seller/ Network Marketer; you are being paid for sharing (and hence selling) products/ services you like. Also, as you are investing your time and effort in training other distributors joining your team and helping them to get started, you are being paid a percentage from the sales volume generated by them. 

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Difference Between Illegal Pyramid Scheme / Money Circulation / Ponzi Scheme/ Prize Chit and Direct Selling/ Multi Level Marketing / Network Marketing

Now every time any legitimate Direct Selling company or its distributors, land up in trouble, you can bait that someone not understanding the above difference is the root cause of it. And unfortunately, not only most common people don’t understand the difference, but also many legal advisers and Govt. regulators don’t understand it either.

THE PRIZE CHITS AND MONEY CIRCULATION SCHEMES (BANNING) ACT, 1978

Act in India, most regulators refer to while investigating any Direct Selling or MLM companies.  

Source: http://www.dif.mp.gov.in/Prize_Chits_Money_Circulation_Sch_Banning_Act_1978.pdf  

Conventional Chit is Defined as:

“Conventional chit” means a transaction whether called chit, chit fund, kuri or by any other name by or under which a person responsible for the conduct of the chit enters into an agreement with a specified number of persons that every one of them shall subscribe a certain sum of money (or certain quantity of grain instead) by way of periodical installments for a definite period and that each such subscriber shall, in his turn, as determined by lot or by auction or by tender or in such other manner as may be provided for in the chit agreement, be entitled to a prize amount. Explanation.-In this clause “prize amount” shall mean the amount, by whatever name called, arrived at by deducting from out of the total amount paid or payable at each installment by all the subscribers.

Money Circulation Scheme is Defined as: 

“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 enrollment 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.

Prize Chit is Defined as: 

“prize chit” includes any transaction or arrangement by whatever name called under which a person collects whether as a promoter, foreman, agent or in any other capacity, monies in one lump sum or in installments by way of contributions or subscriptions or by sale of units, certificates or other instruments or in any other manner or as membership fees or admission fees or service charges to or in respect of any savings, mutual benefit, thrift, or any other scheme or arrangement by whatever name called, and utilizes the monies so collected or any part thereof or the income accruing from investment.

Finally Govt. Bans Such Illegal Schemes

Banning of prize chit and money circulation schemes or enrollment as members or participation therein. No person shall promote or conduct any prize chit or money circulation scheme, or enroll as a member to any such chit or scheme, or participate in it otherwise, or receive or remit any money in pursuance of such chit or scheme. 

"Direct Selling / MLM / Network Marketing company is not illegal prize chit or money circulation schemes"

Direct Selling Doesn’t Offer Quick and Easy Money:

Ask (or investigate) any top earner of Direct Selling industry, you won’t find a single one who are earning huge money overnight and very easily. If you find someone claiming otherwise, that person is a fraudster.

• It takes time to learn different skills and develop the mindset to succeed in this business.
• One needs to stay atleast 3-5 years in this business, before expecting huge residual income.
• One needs to talk to many people about the products/services & the business opportunity to find considerable number of consumers and distributors that can generate great income from them.
• Training and keeping your team focused is important.

The advantages over other professions are: 

• Lowest startup cost.
• Step by step proven system that can be followed to succeed in this industry.
• Great support system from company and uplines (people who have you in their Networks).
• Working properly for 7-10/week and for 3-5 years, one can generate a 6 or 7 figure residual income ( the income which doesn’t stop even when you stop working). That’s very unlikely in other professions.

But in no way, it’s quick and easy money.

Direct Selling Companies Pay Only for Products/Services Sales not For Recruiting

All legitimate Direct Selling companies sell meaningful products and services.

And they pay their distributors for selling their products and services, not for recruiting new distributors.

If your group doesn’t produce required sales volume in certain month, you won’t be paid a single penny. Simple!

Direct Selling Companies Aren’t Investment Schemes

No legitimate Direct Selling company claims that

“Join us with xyz amount and sit at home sipping your coffee. You’ll double your amount within n years” .

Because it’s not an investment scheme or lottery ticket. To earn money in Direct Selling one has to actively participate in this business. To get retail commission, a distributor has to continue selling products and services to consumers. And to build a business with residual income producing capability, a distributor has to create a well trained Network of active distributors.

So work hard, build business, and enjoy the benefit – just like any other business model.

In India there are many rumors about Network Marketing but do you know this is the 21st century's fastest growing business.

let we go with important facts here about Network Marketing guideline issued by Indian Government (Shri Ram Vilas Paswan, Minister of Consumer Affairs, Food and Public Distribution) on December'2016,

Government guidelines for MLM companies in India

To be Continue...!!

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