Category Archives:Legal & Compliance

Shave Years Off Your Learning Curve At The Direct Selling Symposium

Launching a new Direct Selling Company (home party or MLM) and getting it off the ground can be a very complex and difficult process. Especially if you’re doing it on your own. Unlike many things, the world of Direct Sales is not something that you can just YouTube and find easy-to-follow tutorials on how to effectively build and grow a Direct Selling Company. There are many areas that must be considered, such as building your compensation plan (and keeping it legal), training your field, compliance, legal, your sales pitch, how to motivate your sales force, recruiting, retention, logistics, what software are you going to use, how do you keep a balanced budget, communication with your field, customer service, social marketing, and the list goes on and on. The best practices for each of these disciplines is truly unique for the world of direct selling.  Much of what drives the peculiarities is the fact that your products will be demonstrated and sold by an army of independent field sales reps – who will make a decision each day whether or not to work their business and stay with your company.

Because of these complexities, only 20% of all direct selling startups are in business after one year.  The other 80% have failed in their attempt to launch.  However, what we have found is that if the entrepreneurs will take the time early to learn and follow proven best practices and processes for starting and running a direct selling company – that success rate is as high as 80% still in business and growing after one year.

We want more successes and less failures!  We’re sure you do to!  Failures are bad for the industry and leave thousands of independent sales reps’ dreams laying in the wake.  Successes breed confidence and good will in the direct selling industry and help independent sales reps reach their dreams and aspirations.  To increase success rates – YOUR success, we have brought together in one place, at one event, the industry’s leading experts in these different fields to educate you on Best Practices of Starting, Building, and Growing your Direct Selling Business.

The Direct Selling Symposium is a place of education, learning, and mentoring – and includes front-of-the-room instruction as well as individual coaching sessions.  It is NOT a time when services are sold – in fact it is prohibited.  Whether you’re an entrepreneur starting from scratch or leveraging your existing business by diversifying into the direct selling space – attending the Direct Selling Symposium will shave years off your learning curve, and dramatically increase the likelihood of success.  We look forward to seeing you there!100_6124.JPG

Dave Taylor

 

The Importance of Compliance in Direct Selling

Business man pointing to transparent board with text: ComplianceSales tax compliance should be a priority for direct selling businesses. Small compliance errors can lead to big problems if they aren’t quickly found, exposing sellers to risk. The point of direct selling ventures is, after all, to sell. However, the more you sell, the more likely you are to run afoul of some obscure sales tax law as you expand your product catalog and sell into new markets. If state tax agencies find you out of compliance, your business could face significant penalties and interest on delinquent taxes.

So how can you rapidly grow your business without rapidly increasing your risk of exposure during a sales tax audit?

Here are four tips for doing exactly that.

Be vigilant: stay compliant where you sell now.

This may sound easier than it is. Sales tax laws change: something that is exempt in February 2014 (like storage services in Minnesota) could be slated to become taxable in April 2014 and then, at the final hour, be made exempt again. In addition, product taxability rules can be incredibly complex: wheat germ is exempt in California unless it is labeled as a food supplement or the equivalent of a food supplement, in which case it is taxable. And sometimes the order of ingredients on the label is what differentiates a taxable product from an exempt product; it is the first ingredient that distinguishes taxable confections from exempt grocery staples in Maine.

Make sure you audit your current sales tax liability, so that you have a solid foundation of compliance from which to grow.

Be flexible: be ready to charge tax wherever you go.

Direct sellers need to be like professional athletes—poised and ready to take any opportunity that presents itself. That requires flexibility. How soon could you be ready to take advantage of sudden sales opportunities in California or Florida? Sooner than you think, if you have a sales tax management system that will quickly and efficiently apply the proper tax rate to each product in each new jurisdiction.

Be efficient: put your energy where it is needed.

Direct sellers must be able to focus time and energy on keeping current clients happy, expanding into new markets, and/or developing new products. Manual sales tax compliance is a tedious, time-sucking activity. Don’t let it sap the zing from you or your company: embrace a sales tax management solution that automates key compliance tasks, so you can spend time focusing on growth.

Be smart: choose a system for sales tax compliance that will grow with you.

The last thing direct sellers need to worry about is sales and use tax, and yet that is one of the first things auditors will examine when they come knocking. You don’t need to be afraid to open the door. You just need to implement a sales tax management system solution that can scale with you as you grow, easily adding new products, markets, and greater transaction volumes into your compliance process.

In The Importance of Being Earnest, Oscar Wilde wrote, “One must be serious about something, if one wants to have any amusement in life.” Follow his lead, and take sales tax compliance seriously. Implement automated sales tax software as a service today. Learn more at AVALARA.

10 Steps Towards Launch! Part 8 - MLM Legal

The following is part 8 in our 10-part series entitled “10 Steps Towards Launch!” by Terrel Transtrum, President/Founder of ServiceQuest. If you are thinking about starting a new direct selling company, contact us today!

 

The eighth of ten business segments that should compete for your attention is MLM LEGAL.  The world of MLM Law is always evolving, but never dull.  The best MLM attorneys will guide you through the critical issues as outlined below.

 

  • Legal Review of Compensation Plan, Literature and Publications
  • Design an MLM Distributor / Home Party Consultant Agreement
  • Create the Home Party / MLM Distributor Policies and Procedures
  • Determine the Proper Sales Tax Processes and Policies for Your Company
  • Protect Your MLM Company’s Intellectual Property
  • Set up the MLM Compliance Training and MLM Compliance Administration Systems
  • File the MLM State Registrations
  • Select the Entity that is Right for Your New MLM Business
  • Develop an MLM Library of Essential Forms and Documents
  • Gather an Effective MLM Legal Team That You Feel Good working With

 

Here are examples of descriptions that you might write for your MLM Launch Best Practice:

 

  1. Distributor / Consultant Agreement – We have a distributor / consultant agreement (online and/or paper) containing the most recent terms and provisions for complying with state and federal laws and regulations, produced or reviewed and approved by a licensed legal professional.
  2. Compliance – Our compliance system is set up to include online training and certification of new distributors / consultants, compliance research system, compliance administration system, and staff training for handling policy questions.

 

MLM Legal is an important part of the launch puzzle.  With the right planning and recommendations, you will save a great deal of time, money, and worry as you select and work with the best MLM Lawyers.

For more information, contact Terrel Transtrum terrel@launchsmart.com

MLM Legal: Network Marketing and Party Plan

This article is about MLM legal: Network marketing and party plan.  It’s a fact of life that business is regulated. And with the important basics in place, an MLM business can confidently launch. Successful start-ups keep abreast of MLM legal issues and regulatory demands as they navigate the early years in business.

The law can actually be a protective wall for your business, and you should diligently close holes and gaps in the wall as they appear. By its nature, MLM law both protects your company, its distributors and customers, and at the same time it protects consumers by defining and enforcing unsavory and illegal practices.

Taking the right steps at the right time in your new MLM company’s development, you can feel confident that the protections will work in your favor. At the earliest stages of a new party plan business, be sure to set in place the important fundamentals listed below:

  • Distributor Policies & Procedures
  • Distributor Agreement
  • State Registrations
  • Legal Review of Labels, Literature, and Promotional Materials
  • Legal Advice on Product Formulations and Ingredients
  • Legal Review of Your Company’s Compensation Plan

Several law firms specialize in the unique areas of direct selling. Start early to develop a relationship with your legal team. Your attorney can help you to get through the complex issues related to regulatory actions, compliance with start and federal law, and distributor litigation.

When it comes to legal reviews of compensation plans, ingredients, labels, and literature, we strongly encourage the involvement of an MLM legal services team even if you are launching with a limited budget.  Discuss your payment options so that you can take full advantage of the legal resources available to you.

To help you better understand some of the important MLM legal elements, consider the following MLM legal checklist for planning your company’s legal needs:

  • Define MLM Legal Needs
    • Start-up Services
    • Product Packaging & Labeling Review
    • Entity Selection and Formation
    • Literature / Copy Review
    • Starter Kit Review
    • Intellectual Property Protections
  • MLM Legal Filings, Reviews & Registrations
    • General Business, Local, Warehousing, Zoning
    • Importer
    • State Tax ID Number(s)
    • Federal Tax ID Number(s)
    • Non-Prescription Drug Applications
    • Hazardous Product Submittals
    • Surety Bonds
    • Sales Tax & Voluntary Compliance
    • Intellectual Property Filings & Registrations
    • Corporate Registrations
    • Business Opportunity Registrations
    • Anti-Pyramid Registrations
    • Direct Selling Registrations
    • Employment Planning and Compliance
  • Distributor Forms & Agreements
    • Application & Field Rep Agreement
    • Autoship Authorization Provision / Form
    • FTC “Cooling Off” Documentation
    • Compensation Plan Review
    • Policies & Procedures
    • Contracts and Lease Requirements
    • Parcel Delivery Services
    • Customs Brokerage Services
    • Equipment & Facility Leases / Purchases

In this article we cover the following MLM legal planning elements in more detail:

  • Distributor Policies & Procedures
  • Distributor Agreement
  • State Registrations

Distributor Policies & Procedures

Distributor policies & procedures provide the rules for distributors. Some feel that a “cut & paste” approach to policies & procedures is sufficient, particularly if they borrow from well-established companies. Without question, the great companies have invested much by way of legal fees and experience in crafting policies and procedures that support and protect both business and distributors, and much can be learned by evaluating their MLM legal forms.

The start-up company faces three options for creating policies and procedures:

  1. Hire an MLM legal services firm to draft policies & procedures
  2. Write their own, using a “cut & paste” approach
  3. Use forms that have been specially prepared to guide the process

This section will give you the checklist for guiding the design of your company’s network marketing and party plan field policies & procedures.

Policies & Procedures Checklist & Key Considerations

  • Definition of Terms
  • Distributor ID Number
  • Development of Customers
  • Development of Distributors
  • Product and Income Claims
  • Products / Services
  • Multiple Distributorships
  • Trademarks and Copyrights
  • Transfer / Sale / Assignment / Succession
  • Countries of Operation
  • Methods for Enrolling
  • Benefits for Distributors
  • Renewals
  • Advertising and Internet
  • Literature, Sales Aids, Promotional Materials, Internet web pages
  • Media and Media Inquiries
  • Spamming
  • Business Entities
  • Changes
  • Commercial Sales
  • Conflicts of Interest
  • Cross-Sponsoring
  • Excess Inventory
  • Taxes
  • Insurance
  • International Marketing / Sponsoring
  • Bonuses & Commissions
  • Product Guarantees / Returns / Inventory Repurchase
  • Dispute Resolution
  • Ordering
  • Payment & Shipping
  • Inactivity / Cancellation

MLM Distributor Agreement

The pivotal document in the relationship between an MLM company and its field rep is the distributor agreement. Whether your plan calls for a signed original in your files or an electronic signature that supports the web-based enrollment, the terms of the party plan or network marketing agreement are essential to your company’s safety and long-term viability. This essential tool must survive scrutiny in all the states in which your company conducts business; it must withstand the attacks of disgruntled or wayward field reps; and it must still invite individuals who would come and be leaders in your company, without scaring them away.

This section will give you the checklist and basic outline for designing and analyzing your company’s agreement with independent field representatives in a network marketing company or party plan company.

MLM Distributor Agreement Checklist & Key Considerations

  • Application Information
  • Co-Applicant Information
  • Sponsor / Enroller Information
  • Application Clause and triggers / Web-based enrollment considerations
  • Acknowledgment Clause
  • Rights & Obligations of Distributor
  • Independent Contractor Relationship
  • Assignment / Transfer
  • Ability to Amend
  • Continuation of Distributor Agreement
  • Termination
  • Breach of Agreement / Policies
  • Anti-Waiver Clause
  • Integration Clause
  • Enforceability Clause
  • Dispute Resolution

Terrel Transtrum is the founder of ServiceQuest® and co-founder of LaunchSmart™. As a network marketing consultant he also specializes in startup consulting for party plan companies, multilevel marketing, MLM and network marketing. He is an experienced advisor in MLM software, network marketing legal, party plan business, distributor recruiting and retention, operations and fulfillment and MLM legal.

State Registrations: Network Marketing and Party Plan

By Terrel Transtrum, Founder of LaunchSmart™

Every state has adopted laws regulating direct selling (MLM and Party Plan) companies in order to protect citizens from illegal scams, pyramids and business opportunities. Although much enforcement activity has come from the federal government through the FTC, SEC and U.S. Postal Service, the vast majority of enforcement activity has occurred at the state level. The method of state regulation varies, with some states enacting specific statutes, while others regulate by way of lottery, consumer protection statutes, business opportunity laws, and/or antifraud statutes.

A handful of states require filing of a notice or even a more formal registration and disclosure by network marketing companies and party plan companies. At a minimum, the states that require filings generally require the company to appoint the Secretary of State as the agent for service of process.

This article gives guidelines for preparing your company’s network marketing and party plan state registrations. Because laws constantly change, this checklist can only serve as a guideline. You should consider the advice of legal counsel who is familiar with your particular circumstances.

State Registrations Checklist & Key Considerations

  • Does our compensation plan fall within the regulations that require registration?
  • If we register, are we compliant with the state registration requirements?
  • Do we know which states require registration?
  • Do we have the forms and registration requirements?
  • At what point should we register?
  • What are the sales tax registration requirements in each state where we do business?
  • Do our business systems allow us to track and report the following:
    • The number and percentage of current participants who have not received any commissions, bonuses or overrides
    • The median amount of commissions, bonuses and overrides received by all participants, together with the percentage of participants that have received less and those that have received more
    • The average amount of commissions, bonuses and overrides that have been received by all participants
    • For each level and rank within the plan, the number and percentage of current participants that have reached that level or rank, and the average length of time it took to reach that level

Terrel Transtrum is the founder of ServiceQuest® and co-founder of LaunchSmart™. As a network marketing consultant he also specializes in startup consulting for party plan companies, multilevel marketing, MLM and network marketing. He is an experienced advisor in MLM software, network marketing legal, party plan business, distributor recruiting and retention, operations and fulfillment and MLM legal.

(The content of this article is extracted from ServiceQuest® RetentionSmarts™ Modules. For more information on RetentionSmarts™ training and mentoring systems, contact a member of the LaunchSmart Team.)