THE MLM LEGALITY TEST

by: Gerald P. Nehra There are many characteristics, or "red flags," that distinguish an illegal pyramid from a legitimate multi-level income opportunity (often shortened to MLM). They have been written about often in many publications and, by necessity, often contain legal terms and industry jargon. Also, danger signs of a few years ago may have been camouflaged or fixed by the newest drafters of plans, so one needs to be on guard for new and different twists. Is there a simple, easy to apply test one can give to an income opportunity that addresses the pyramid law risk without all the pyramid law legal terminology? There is. What follows addresses that need. It is the single-level test for the multi-level income opportunity. It goes like this: Can one make some money SINGLE-LEVEL, that is, without sponsoring another income opportunity seeker? Note the specific use of the word "can," not the word "would." It is usually a given that the income opportunity prospect is urged to sponsor and that the income opportunity presenter will say or imply that the "real money" is in building a group. But that is usually O.K., SO LONG AS those who choose not to sponsor at all CAN STILL MAKE MONEY. Note also the use of the word "MAKE." It's "MAKE MONEY," not "SPEND MONEY," meaning paying income taxes if the gross income exceeds expenses associated with producing the income. Buying for personal use at distributor prices rather than customer prices, while a savings, does not genera te INCOME upon which one is required to pay taxes. Buying for personal use by itself is not an income opportunity. If the proposed income opportunity consists ONLY of buying for personal use and sponsoring more representatives, with no provision for sales to customers, it is flawed. This simple test needs to be applied to two aspects of an income opportunity. The first aspect is the design. What do the company documents say about how one makes money? How does the compensation plan work? Not all the fine details of every commission, bonus, or reward need be understood; but simply, can one make SOME money without sponsoring? Remember, one does not MAKE money when one buys any product or service for personal use. The application of this test should in no way imply that there is anything wrong or illegal about personal consumption. It is just that it alone cannot be the sole basis for an income opportunity. The second aspect of the application of the test is the plan implementation. Some plans are designed correctly but are flawed in the implementation. Can one make money, even without sponsoring, as the plan is being taught and implemented by the prospective sponsor and the distributors closely associated with him or her? If there is no acknowledgment or support for the non-sponsoring participant in the income opportunity, something is wrong, maybe not in the design, but surely in the implementation. Reputable and legally designed and implemented multi-level income opportunities provide a money making opportunity SINGLE LEVEL to those who choose not to sponsor. Of course, if one sponsors others, then ADDITIONAL money making opportunities exist when those sponsored generate sales. Apply this test to multi-level income opportunities. Look at the plan design, and look at the way the plan is being implemented by the prospective sponsor and associates. If the ONLY WAY to make money is by sponsoring, STAY AWAY, the plan is fatally flawed. Gerald P. Nehra is an MLM Specialist Private Practice Attorney. He is one of only a few attorneys nationwide whose practice is devoted exclusively to direct selling and multi-level marketing issues. His 30 years of legal experience includes nine years at Amway Corporation, where he was Director of the Legal Division. He can be reached at 1710 Beach Street, Muskegon, MI 49441, 231-755-3800, 231-755-4700 FAX. His e-mail address is GNehra@mlmatty.com. You are invited to visit his web site at www.mlmatty.com. --- Get Your Free Copy of Money Makers News