It’s no secret that the MLM industry is full of shady companies. Their sole purpose is exploiting the MLM business model to fill their pockets with profit. Hundreds of thousands of people have been lured for extraordinary gains and promises and left empty pockets in the end. So, how can a legit MLM company build credibility in such a scenario? The quick answer is to fill in all the MLM compliance.
The key to projecting yourself as a trustworthy MLM company is to understand and follow the MLM regulations in daily practices. So, what are these MLM Compliance, and how does it help grow your business and achieve sustained growth?
Let’s find out all the answers!
Importance of MLM Compliance
MLM compliance is critical for network marketing companies. Why? For starters, it provides legitimacy to the business and builds customer trust. Let’s explore the importance of MLM companies in more detail;
- Following MLM companies save you from legal troubles and fines.
- It helps companies with reputation management. Non-compliance with MLM regulations could tarnish a company’s reputation.
- Legal compliance ensures sustainability over the long term.
- It also provides consumer protection from predatory and deceptive pyramid practices.
- Legal compliance also helps MLM companies quickly expand their operations overseas.
MLM Regulations Overview
In this segment, we will explore the MLM regulations that the MLM company must adhere to;
The Federal Trade Commission is the primary regulatory body in the US that dictates MLM compliance. All MLM companies operating in the US must follow the guidelines approved by the FTC. Likewise, MLM companies must abide by federal securities law in case they offer any investment offer. In that case, the MLM companies must follow regulations set by the Securities and Exchange Commission.
Next is the state-specific regulation. Depending upon the state where the MLM company operates, it has to follow specific regulations. The State Attorney General dictates MLM laws and provides specific guidelines to assess the legitimacy of the business. It also enforces consumer protection laws to safeguard consumers from deceptive practices.
Like federal and state laws, if an MLM company wishes to expand its operation overseas, it must abide by international laws. For example, MLM companies have to adhere to specific MLM laws of a particular country. Moreover, in most cases, MLM companies also have to follow guidelines issued by the Direct Selling Association to maintain good business standards and implement fair practices.
Consequences of Non-Compliance
All this MLM compliance talk poses a question – What will be the consequences of Non-Compliance? Well, they can be severe. We have already discussed that the network marketing industry is full of shady characters. If your MLM business doesn’t abide by MLM compliance, it will put a question mark on its legality.
Let’s understand the consequences for the MLM company;
Non-compliance will certainly attract penalties. If the FTC or state Attorney General finds out your MLM company doesn’t follow regulations, it can impose legal action on you. Likewise, you could also face hefty fines, cease and desist orders or criminal charges for deceiving consumers.
Non-compliance with MLM regulations could put a big dent in your company’s reputation. It’s because non-compliance will attract accusations like pyramid schemes and deceptive schemes. It will erode your reputation and bring negative publicity. Consequently, your distributors will lose trust in your company and may leave it for good.
Loss of Business
Negative publicity will be highly detrimental to the overall business. The loss of credibility due to non-compliance will push distributors away from the company and prevent new members from joining it. And, if customers see your business as untrustworthy, they won’t purchase your product. All this will lead to severe losses in business, which could, in all possibilities, mean the end of your company.
Legal and Regulatory Compliance
In order to succeed in the MLM sector, it’s critical to follow the legal and regulatory companies. It cements your reputation as a trustworthy business. It further showcases that the company follows best MLM practices and operates within the boundaries of law.
Here’s what legal and regulatory companies mean for the MLM company;
- Follow the FTC and state guidelines.
- If an MLM company includes investment offers, it has to follow securities guidelines.
- MLM companies need to abide by consumer protection laws.
- For international business, MLM companies have to follow DSA guidelines.
- MLM companies are needed to provide income disclosure statements periodically.
- MLM companies need to follow tax compliance.
- MLM businesses have to follow data protection laws and privacy regulations.
Anti-Pyramid Scheme and its Features
Pyramid schemes are in abundance in the network marketing space. But, unfortunately, they are elaborate hoaxes devised to dupe you off your money. So it’s essential that you know to differentiate between pyramid and legit MLM schemes. The anti-pyramid scheme is a legitimate MLM business model with distinctive features that set it apart from pyramid schemes.
Let’s explore its features;
- A credible MLM business’s first and most important feature is that it follows all the legal compliances.
- An MLM business that primarily focuses on product selling is usually a legitimate company.
- The anti-pyramid scheme motivates distributors for retail sales rather than recruitment alone.
- A legitimate MLM scheme doesn’t involve a hefty entry cost.
- Anti-pyramid scene doesn’t involve inventory loading. It means distributors aren’t forced to purchase an excessive amount of inventory.
- Legally compliant MLM business includes a sales-based compensation plan.
MLM compliance is essential to succeed in the network marketing business. For MLM companies, it’s prudent to be aware of the central and state legal regulations before entering the market. It will save them from unnecessary fines and legal actions. Besides, it will also help MLM companies cement their reputation in the market, build trust among customers, and project themselves as a reputable business entity. For consumers, it’s essential to thoroughly research MLM offers, see if they follow regulations, and provide valuable products to save themselves from fraudulent pyramid schemes.