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 comes from the federal government through the FTC, SEC and U.S. Postal Service, the majority of enforcement activity occurs at the state level. The method of state MLM regulation varies, with some states enacting specific statutes, while others regulate by way of lottery laws, consumer protection statutes, business opportunity laws, and/or antifraud statutes. The MLM best practices in the legal arena are important but they are not overwhelming.
A handful of states require filing of a notice or a formal MLM registration and disclosure. 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 MLM legal registration checklist gives the guidelines for preparing your company’s state MLM 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.
MLM Legal 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 MLM legal registration?
- Do we have the forms and MLM registration requirements?
- At what point should we / must 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
With careful planning and attention to details, your MLM legal registrations can go smoothly, and you’ll sleep better knowing that you are doing it correctly from the very start.