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.

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