Multilevel Marketing: How to Avoid Building the Pyramid – Justia Verdict

Toncsi/Shutterstock.com The most popular multilevel marketing (“MLM”) companies and brands have attained near-cultural icon status: Amway, Herbalife, Mary Kay, and Shaklee. Many Americans are familiar with these brands, as well as some of the lesser-known variations that might have been introduced by an overzealous acquaintance, through an infomercial, or via the Internet. The popularity of the multilevel marketing method is no fluke; direct sales can be a profitable business model. However, caution is warranted for prospective market entrants, for there is a network of state and federal laws and regulations that must be navigated in order to ensure that a given multilevel-marketing operation is not deemed to be an illegal pyramid scheme. Pyramid Denial There is a fine line between a legitimate MLM business and an illegal pyramid scheme. To illustrate, both offer participants the opportunity to earn commissions, and both often require new members to make an initial investment. Among other factors, the fundamental differences between the two business methods come down to the amount of the initial investment that is required by the participant, the means by which the constituent products or services are sold, and the basis on which commissions are earned.