In 2016, Government released Direct selling guidelines which you have to follow every time you launch a new MLM company or joins one.
In this Blog, we will go through many cases, conditions and If’s and what forced government to make these guidelines for direct selling activites.
- Which governmental departments were involved while making these guidelines for direct selling industry.
- Is it mandatory for any direct selling company to read this? What to do before 90 days?
- Why these guidelines were introduced?
- What is direct selling ?
- Pyramid Scheme SCAM or LEGAL ? Must read.
- What is Remuneration System?
- Conditions for conduct of direct selling business.
1. Which governmental departments were involved while making these guidelines for direct selling industry.
An Inter- Ministerial Committee was constituted by Government of India to look into direct selling industry.
This committee had representatives from:
- Ministry of Finance
- The department of Industrial Policy and Promotion
- Department of Legal Affairs
- Department of Information Technology
- Ministry of Corporate Affairs
- State Government of Delhi, Andra pradesh and Kerala.
2. Is it mandatory for any direct selling company to read this? What to do before 90 days?
It is super necessary for all the direct selling companies to read this.
Whenever you start your business in direct selling industry make sure :
- You have to submit an undertaking to the Department of Consumer Affairs within 90 days, stating it is in compliance with these guidelines and shall also provide details of its incorporation.
3. Why these guidelines were introduced?
These are issued as guiding principles for State Government to consider regulating the business of direct selling and Multi level Marketing
( MLM ).
This will strengthen the existing regulatory mechanism on direct selling and MLM for preventing fraud and protecting the legitimate rights and interest of consumers.
4. What is direct selling ?
It means marketing, distribution and sale of goods or providing of services as a part of network of direct selling other than under a pyramid scheme.
5. Pyramid Scheme SCAM or LEGAL ?
First of all we should know what is Pyramid scheme so we never unfortunately form Pyramid in our network structure.
A multi layered network of subscribers to a scheme formed by subscribers enrolling one or more subscribers in order to receive any benefit, directly or indirectly, as a result of enrolment , action or performance of additional subscribers to the scheme.
Read the following points :
- It has no provision that a direct seller will receive remuneration or incentives for the recruitment / enrolment of new participants.
- Entity does not require a participant to purchase goods or services :
- for an amount that exceeds an amount for which such goods or services can be expected to be sold or resold to consumers.
- for a quantity of goods or services that exceeds an amount that can be expected to be consumed by or sold or resold to consumers.
- It doesn’t require a participant to pay any entry/ registration fee, cost of sales demonstration equipment and materials or other fees relating to participation.
- It provides a participant with a written contract describing the material terms of participation.
- Entity allows a participant a reasonable cooling off period to participate or cancel participation in the scheme and receive a refund of any consideration given to participate in the operations.
- It allows or provides for a buy back or repurchase policy for currently marketable goods or services sold to the participants at the request of the participants at reasonable terms.
Money Circulation Scheme is defined same as mentioned in Prize Chits and Money Circulation Schemes ( Banning ) Act, 1978.
6. What is Remuneration System?
Remuneration System is explained thoroughly in below image
7. Conditions for conduct of direct selling business.
If you are going to start a direct selling company, you must go through all these conditions mentioned.
- It shall issue proper identity document to its direct sellers.
- It shall be the owner , holder, licensee of a trademark, service mark or any other identification mark which identifies the entity with the goods to be sold or supplied or services to be rendered.
- All the headings are must read and mandatory to implement.
- It shall maintain proper records either manual or electronic of their business dealings with complete details of their goods, services, terms or contract , price, income plan, details of direct sellers.
- It shall monitor the value of purchases of all its direct sellers on a monthly basis and once the purchase value crosses the VAT threshold, it must intimate the direct seller to pay the VAT.
A Direct selling entity shall not :
And below the completion of guidelines for direct selling entity.
These were the necessary conditions which everybody have to keep in mind before starting a direct selling company or be a part of direct selling industry.