Is Multi-Level Marketing (MLMs) A Legal Business Or A Scam?

Multi Level Marketing

More than a decade ago, multi-level marketing was somewhat good. But today they are just pyramid schemes. Are these MLMs legal? Keep reading to find out.

What is MultiLevel Marketing exactly?

Multi-Level Marketing is a strategy to sell products or services by recruiting a network of distributors. The existing recruiters are given a commission based on the number of new recruits or sales those new recruits make.

Multilevel marketing companies recruit people to sell their products on commission.  The more people they recruit, the more money they will make. They primarily offer employment options targeted at housewives, the elderly, and the unemployed.

How do the companies benefit with this MLM business model?

The direct advertisement cost is saving to the company, not to the distributors who actually sell their product and also make advertising by conducting seminars or webinars. Most commonly the people tend to actually lose their money.

Multi-Level Marketing (MLM) is primarily a sales technique. In MLM, employees serve as both buyers and salespeople, and the company's income is derived from this non-salaried staff.

This is done to help MLM businesses, whether they be based in India or elsewhere, maintain a consistent level of sales while spreading the workload of marketing and distributing the goods and services among a larger group of people.

Why are multilevel marketing companies legal?

Not all MLMs are scams but most of them are scams.

Multilevel marketing (MLM) referred to as chain marketing, or more commonly known as pyramid schemes or network marketing are mostly scams. 

MLMs are not exactly pyramid schemes but today even if it is legitimate, it is difficult to tell the difference and are mostly fraudulent. 

As per the report published by the Federal Trade Commission, 99% of the people who join a Multi-Level Marketing Schemes lose their money. Even in India, accepting money under Multi-Level Marketing schemes is illegal. RBI has made it clear through a press release in 2015; directing the public to lodge a police complaint if they come across such offers.

How do I know if my MLM company is legal?

MLM company is legal only if it does not ask money for participating in the scheme and the commission is given based on sales and not the number of people you recruit under your level.

How does MLM works?

Once you come in contact with the people who are already part of the scheme, they try to sell you the products and also invite you to join the scheme so that you can sell the products and invite more people to do what they are doing. 

You are probably invited to a seminar or webinar where they provide you training and make all sorts of false claims of how their life has improved and how they have earned a lot of money by doing multi-level marketing. 

You are influenced to participate in the multilevel marketing program. They usually tell you that once you make up to certain levels you can earn without doing anything with a steady stream of income. They also take money from you for joining the multilevel marketing program. 

You are excited and you work hard towards the implanted objective thereby benefitting the company. You will be able to pull in some people below your level. But at some point, the chain breaks and you tend to lose your effort, your money, time, and also your dream of becoming a successful entrepreneur. 

It is also illegal and people may file a cheating case on you. Since you directly buy and sell the products, the companies escape by adding clauses to the contract that they got you signed when you joined. 

Also, the products are that are sold are not of that great quality as compared to the legitimate brands but usually, the prices are almost the same and you just become a part of their network that annoys their customers with low-quality products. 

Sometimes, you tend to lose your close relationships due to the mistrust as you are falsely promoting and selling products that are not even worth the prices your customers would pay.

According to a Federal Trade Commission report, 99% of individuals who participate in MLM businesses lose money. The report looked at the business models of 350 MLM companies. 

For the top of the pyramid sellers, it might be a wonderful business strategy, but for the credulous public, it's more of a guarantee of losses than a chance to make money. Because Multi-level marketing fraud is a daily news story we can hear.

The soft targets of such scams are usually women and young college students who are easily influenced by the buzzwords these people use during the seminar and by the false lifestyle they exhibit. 

They sell the dream of going out of the rat race and being CEO of one's own company. They influence you with claims of being an entrepreneur and earning more than what you could be by doing 9 to 5 jobs and other daydreams these people show you. 

Signs that the business opportunity is actually an MLM

1. If you will be making money by inviting more people to be part of the business opportunity who in turn will bring in more people to be part of the business opportunity. If yes, then it is an MLM. Yes, if you would be asking money from the people who want to be part of your network then it is how MLM functions.

2. You are a distributor of the companies products and the people who will be joining under will also be distributors. Then it is an MLM. No businessman would want to train and make competitors for the business he is conducting. And if he fine with competitors as partners, who will want to sell the products within the circle of distributors.

3. The quality of the products you will be selling at market price is not good. MLM companies often push products that are not of good quality and at the price of a similar legitimate brand. So your customers are cursing you for cheating them by selling sub-standard products.

4. If you are promised a very high income within a short period, without any qualifications or without any efforts, or once you employ a certain number of people as a part of the network, then it is an MLM. Which business is successful within a short period. Every business has to grow organically to earn respect and reputation in the market.

5. You are told you can work at the time you choose. You are usually shown a dream that you will be your own boss and working when you want. MLM is usually portrayed as "you could succeed if you work part-time". Every business needs time and dedication. You will be spending most of your time finding customers for your low-quality products.

Multi Level Marketing


Multilevel marketing is actually a legitimate business model. However, a number of fraudulent and illegal MLM businesses also run operations in the nation and use pyramid schemes to dupe consumers into purchasing subpar goods and even steal their customer's money. 

A legal MLM business is one that follows the laws and procedures set forth by the government of the jurisdiction in which it operates and also share all the legal certificates provided by the government to clear the doubt of the people. 

Many multilevel marketing businesses have been shown to be unlawful after numerous people fell prey to their MLM fraud and scams.

However, the MLM business has a weak regulatory structure, which leads to a plethora of dishonest practises and schemes that promise rapid cash but are fruitless.

When any company, upon asking for providing sufficient evidence to prove their authenticity, hesitate to share the details, it can be a red sign that it's a scam and you investing your time and money in it can be a risky.

It's important to know the above-mentioned signs that indicate MLM schemes. With knowledge, you are empowered to make the right decisions. 

Incase of MLM, often a person, who may be your friend or relative, who is a distributor will approach you and try to sell his pitch. 

If you're unsure of the company's authentication, you just have to say no politely without elaborating on the reason and try changing the topic. Discussing the reason for not joining the scheme may open a worthless debate.

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