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.)

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