What is MLM business?
There are a lot of perks to starting your own MLM company in India, as it provides several business opportunities to people. Direct sales organizations employ multilevel marketing (MLM) or Network Marketing, a financial tactic, to incentivize current distributors to find new distributors.
The goal of the approach is to encourage the greatest possible number of product partners and exponentially grow the sales force. When consumers use your referral to purchase direct-selling company goods and services, you get paid by the company. It is an organization that functions as a network but has all of the characteristics of a regular corporation.
Benefits of MLM business
MLM Business has significant tax advantages for home business entrepreneurs. It offers many approaches to making side businesses financially profitable. It is also impossible to ignore that the Indian direct selling market, which was estimated to be worth INR 16,000 crores in January 2022 and is projected to grow to INR 64,500 crores in 2025.
Unambiguously, there are more opportunities and exposure to different challenges at different levels of Network Marketing business. Once you complete all the legal obligations of registering your network marketing, there is no stopping your business from touching new heights under 'AatmaNirbhar Bharat'.
Under the previous and new guidelines issued by the Department of Consumer Affairs and the Ministry of Consumer Affairs, Food & Public Distribution, Direct Selling Guidelines, 2016 and The Consumer Protection Direct Selling Rules, 2021, Direct-selling Entities or MLM Business or Network Marketing Companies to safeguard the interests of consumers and prevent fraudulent activities and operate as per the law.
Salient Points and Guidelines under Direct Selling Guidelines, 2016, and The Consumer Protection (Direct Selling) Rules, 2021
- Within 90 days after the publication of the guidelines, all Direct Selling businesses must submit an undertaking to the Ministry of Consumer Affairs. For the time being, businesses must provide information about their incorporation as well as a certification that they comply with these provisions. When notified, later companies will be expected to supply further information.
- There should be a proper, well-maintained, and revised MLM Company website in India. The contact and about us information should be readily accessible and provides complete information about the company's background.
- It is against the law to persuade distributors to purchase plenty of commodities from those direct-selling companies to qualify for a high commission or other incentives, which was a common practice beforehand. It also applies to MLM companies that pressure their direct salespeople to purchase more products or services than they can reasonably expect to use or resell.
- Government-approved documentation with a physically verifiable office is mandatory, thus enabling face-to-face communication between all parties involved in direct marketing. The same goes wi
th record keeping and management of other parties involved in any transactions related to their MLM business, including copies of verified proof of address, proof of identity, and PAN.
- Company management with criminal (or imprisonment) records in the last 5 years are disregarded and debarred from these direct selling business opportunities.
- To avoid inaccurate, careless, popularised, and misleading depictions of the MLM industry, prospective direct sellers are required to attend orientation courses with fair and accurate information about all aspects of direct selling operations, including recourse for compensation, their rights, and their responsibilities.
- Now MLM businesses are liable for Direct Seller’s Actions even if the latter has miscalculated the role and responsibilities during direct selling processes.
- Network marketing firms will no longer be able to entice new members only based on monetary perks and benefits if it isn't connected to sales of goods and services. This also applies to conditional fees like renewal fees, the cost of sales demonstration equipment, and other fees related to participation.
- Under Section 10 of the Indian Contract Act of 1872, Multi-level Marketing companies are required to give all of their Direct Sellers written contracts that outline their buy-back, repurchase, cooling-off, warranty, and refund policies.
- Every direct selling business must give its new distributors a 'cooling-off period' during which they can return goods, cease their membership, and receive a refund.
- Every direct-selling business must have a reasonable policy to buy back unsold products if the new direct sellers weren't able to sell those purchased goods.
- There should a proper and systematic grievance redressal mechanism to prevent negativity around the industry and reduce consumer dissatisfaction. Within 45 days of such complaints should be addressed.
- Network Marketing Companies now won't be allowed to get away without disclosing their remunerations.
- No operations are allowed without legal registration, which is necessary to avoid bad actors from disappearing into the thin air after collecting money from the promises they made about their products and services.
- Comprehensive information-filled orientation session: The majority of unfavourable perceptions regarding this sector are the result of inaccurate, careless, overexposed, and misleading depictions. No ‘false promise’ or ‘deceptive approach’ to avoid instant success.
- Periodically informing its direct selling demographics about sales, purchases, details of earnings, commissions, bonuses, and other relevant data, including VAT, if it surpasses the VAT threshold.
- Should be governed by the laws that determine how companies conduct their operations in India, including those that deal with sales tax/VAT, income tax, TDS, and any other licenses necessary to operate lawfully, while having an account with at least one nationalized bank.
- If the direct selling partner has not made any sales within two years of the beginning of the contract or since the last transaction, the principal direct seller may cancel the agreement.
- Should be disclosed through self-declaring information that they will forbid in self-declaring information.
- To "safeguard the interest of consumers," the rules provide duties and obligations for both direct-selling corporations and their direct sellers.
- The current direct-selling businesses will have 90 days to see that they abide by the regulations.
- The Consumer Protection (e-Commerce) Rules, 2020 must be followed by direct sellers as well as direct selling firms using e-commerce platforms for sales.
- State governments are ordered to establish proper mechanisms to supervise and regulate the operations of direct sellers and direct selling organizations in India.
- Every MLM business should employ a nodal officer who will be responsible for ensuring that the laws governing these activities adhere strictly.
- No pressure on consumers to make a purchase by direct selling businesses or their direct sellers based on a claim that the price can be reduced or recovered by sending potential customers to the direct sellers for comparable purchases.
- The Multi-level Marketing company must be registered under some act like the Companies Act, 2013, or if it is a partnership firm, then The Partnership Act, 1932, or if it is under the Limited liability partnerships (LLPs), then Limited Liability Partnership Act, 2008.
- On the package, the MRP for the product should be visible. If the customer wants to replace or return the goods, they should be approved within 30 days of the purchase date on the grounds of a manufacturing defect or if they are not useful for their intended use, provided that any seals or other forms of protection on the product are maintained intact.
How is the Government helping MLM businesses to succeed in India?
The Indian Government knows very well how disfavored and disreputable MLM businesses are worldwide. Direct Marketing is estimated to surpass Rs 64,500 cr by 2025 based on the report of FICCI-KPMG.
Instead of prohibiting them, the Ministry of Consumer Affairs, Food & Public Distribution and the Department of Consumer Affairs is creating a proper and regulated framework so that anyone thinking about founding a direct marketing business or working as a direct seller is aware of the advantages and disadvantages of doing so.
Everyone involved in the MLM sector, whether directly or indirectly, will eventually benefit from it.