MLM Network Marketing is also known as network marketing is a pyramid structure of marketing strategy for selling products via person-to-person sales. The employees get paid as a commission for each sale done by them. The pyramid structure of Multi Level Marketing companies reduces the burden of selling and buying because the distributor itself acts as a buyer to maintain the business. Direct Selling businesses use MLM software or websites to manage the sales and purchases of the company.
Network Marketing companies focus on people to buy their products as a customer and then later work as a distributor. But, MLM frauds and scams are increasing among people in India as most people do not know about the legality of MLM in India. Therefore, we are going to discuss MLM, the legality of MLM, and how to identify the illegal purpose of any Multi Level Marketing company in brief.
Definition of Multi-level Marketing
Multi-level Marketing is a business strategy of promoting and selling products via salespeople also called the distributors. The salesperson sells a product of MLM Network Marketing business and adds new members to the company under their downline to increase sales. Therefore, in this way, MLM supports the hybrid or pyramid structure that encourages the distributors not only to sell products but also to increase the level of their downline. Moreover, the distributors get compensated for the sales done by him as well as the sales are done by his downline. Hence, the upline member benefits through Online MLM business and it is aware of other members to grow their downline to earn profit.
The strategy is first Multi-level marketing companies will treat you as a happy customer and then will ask you to join as a distributor. Being a distributor you get an opportunity to earn retail commission per sale and also by sponsoring a new member under you. After the recruiting of members in the downline, you build up a team and earn profit by the sales generated by them. Simply put, MLM businesses grow with the direct selling process of mouth-to-mouth advertising. Direct Selling companies give rewards to their distributors for their priceless efforts by the compensation money saved from advertising and promotion of products.
Direct selling companies are growing faster with the increasing network of their distributors. MLM companies use MLM compensation business software to easily manage the business and the compensation of each distributor. But on the other hand, the frauds related to MLM companies are increasing and are trapping innocent customers. However, it is necessary to know about the MLM Network Marketing industry, the frauds of MLM companies, and how to prevent yourself from these frauds to safely work in the right MLM company. Let’s start with the legality of multi-level marketing in India.
Legality of Multi Level Marketing in India
Multi-level marketing is legal in India. Yes, you have heard right that MLM Network Marketing is legal and many Multi Level Marketing companies are successfully running their business legally. Some of these companies are Amyway, Avon, Tupperware, Herbalife, Mary kay. These companies use trustworthy softwares developed by Multi-level marketing software companies. Awapal is the best MLM software development company that develops the direct selling software and also live demo of MLM software is available.
However, there are many illegal companies that use fraud strategies and schemes to trap customers under false promises and believe that they will get unlimited profit in return. But in actuality, nothing happened and instead, customers and investors have to suffer from huge losses.
To prevent these types of fraud, the Indian government has identified some fraud strategies in order to protect innocent people. Following are the network marketing schemes that are not legal in India.
Pyramid Schemes
Pyramid schemes contain recruiting a brand new member at the following decrease stage of the pyramid to make investments cash to the preliminary recruiter. To get hold of returns in this investment, the brand new participants are required to recruit extra buyers beneath them, forming a pyramid thereof. Pyramid schemes had been labeled as unlawful with the aid of using the Reserve Bank of India.
Money Circulation Schemes
Money move schemes are taken into consideration unlawful beneath the Prize Chits and Money Circulation Schemes (Banning) Act, 1978. The Act states that any scheme which assures brief and smooth making a living thru cash chain or if a person needs cash from any other as a way to make investments it into a ‘cash move scheme' way any scheme for making brief or smooth cash or for receiving any cash or precious aspect as attention for a promise to pay cash, and such scheme is unlawful in India.
Ponzi Schemes
A Ponzi scheme is a fraudulent making an investment rip-off promising excessive charges of going back with little danger to buyers. The Ponzi scheme generates returns for early buyers with the aid of obtaining new buyers. This is much like a pyramid scheme with inside the experience that each is primarily based totally on the usage of new buyers' finances to pay the sooner backers.
Chit Funds
A chit fund has been described beneath neath the Chit Funds Act, 1982(1) as “a transaction whether or not known as chit, chit fund, chitty, Kuri or with the aid of using another call with the aid of using or beneath neath which someone enters into a settlement with a specific variety of folks that each one of them shall subscribe a sure sum of cash (or a sure amount of grain instead) with the aid of using manner of periodical installments over a precise period.
Identify the difference between Legal and Illegal MLM
MLM schemes change every day. Some MLMs are legally running their business like Avon whereas some are associating with MLM frauds and robbing the money from consumers. Therefore, it is difficult to consider which MLM is real and which is fake network marketing. Hence, the list below is some ways to identify the difference between legal and illegal MLM in India.
Legal Direct Selling Schemes
- Legal MLM doesn’t make any fake promises and run on the actual sale of products
- No money is required to join network marketing
- Get compensated for the actual sales made by the recruited members
- A scientific explanation of compensation and business is given to the distributors before joining
- No quick and easy make money scheme is run by legal MLM companies
- Certified quality products are given to the customers
- Legal companies don’t force their customers to buy products
- Legal MLM companies trained their distributors with plans and strategies to sell products
Illegal MLM Network Marketing Schemes
- Fake promises and give expectations of high return of investments
- Money is required to pay to the recruiter to join the MLM company
- Compensation is receiving only for sponsoring new members
- A scientific explanation is only given about the high return of investment rather than about the business
- Quick and easy make money scheme is run by fraud MLM companies
- No certified quality products are given to the customers
- Illegal companies force their customers to buy products by making false statements
- No such training is given to the distributors under illegal MLM
Summary
In the above mentioned, we have discussed whether the MLM is legal or not in India. Further, we have learned about the illegal schemes of MLM like pyramids and money circulation schemes. We have also learned that legal MLM companies do not make any fake promises and provide compensation on the basis of actual sales. Moreover, legal MLM companies take time to grow. Therefore, be careful and consider every aspect of the MLM company before joining.