FAQ by Jeffrey Babener

Jeffrey BabenerFrequently Asked Questions – About MLM and Network Marketing  Thought You’d Never Ask Here are answers to some of the most frequently asked questions about the network marketing industry. Q: Can I belong to more than one company? A: Most network marketing companies will allow you to belong to more than one company. However, most companies do restrict their distributors’ activities in promoting other companies’ opportunities and products. The most common policy allows distributors to introduce other opportunities only to individuals that they have already personally sponsored. In addition, most companies won’t let their distributors promote other opportunities or products at any company-sponsored events or activities. NULL

Q: Can my husband and I have two distributorships? A: Actually this is not a legal issue. This is a policy adopted by companies who are concerned that distributors will “stack” and manipulate to achieve better payout in the compensation plan. Although many companies permit more than one distributorship in a household, the majority do not. Q: Can I sponsor in foreign countries? A: Some companies permit this; some don’t. Be sure to talk to your company about this before you devote any time or money to overseas recruitment. The pace of sponsoring in foreign countries is often faster than a company’s ability to lay the proper ground work for such expansion. Each country has its own rules regarding network marketing, door-to-door sales, products of claims, etc. Chances are, your company will ask you not to sponsor distributors in a foreign country until it has laid the proper legal groundwork in that country. Q: Do attorneys general approve marketing programs? A: Although government agencies in some foreign countries may issue advisory opinions, no attorney general office in the United States gives its stamp of approval to an MLM program. Inquirers are always told to review the appropriate laws. In fact, nothing will bring the wrath of an attorney general’s office more than a claim by a distributor or a company that the program has been approved by the attorney general. Q: Can I sign up by fax? A: Some companies do allow distributors to sign up by fax. In an electronic age, more and more courts are recognizing that we must honor the way the commercial world actually works. Facsimile signatures are legal. However, the best approach is to have an original, signed distributor agreement on file at the home office. Q: Who is the true sponsor the first contact, or the name on the distributor application? A: Some distributors think that the first contact who introduced them to the company should be the true sponsor. However, this creates problems for a company, because it is often difficult, if not impossible, to determine who the first contact really was. Therefore, most companies tell distributors that the sponsor listed on the distributor application will be deemed the true sponsor. Q: Why do I have to pay sales tax? A: This is a long complicated story and not without ongoing legal dispute. Unlike mail order firms which are immune from sales and use tax, direct selling companies are viewed by state officials as having “nexus” (sufficient contacts in a state for sales tax purposes). Their reasoning is based on the fact that distributors of direct selling companies actually promote the product and opportunity, and conduct opportunity meetings and training meetings in the states in which they live. Consequently, their sales are not considered to be in the same category as mail order sales. Distributors must either obtain resale tax licenses and take care of the taxes themselves, or the company will collect and remit sales and use tax. Q: If I’m an independent contractor, why are there rules regarding my conduct? A: From a legal standpoint, you are an independent contractor because the company does not tell you when, where, and how to perform your tasks. If it did, you would be an employee. Adopting guidelines on ethical issues, consumer legal safeguards, and general rules for fair competition among distributors does not negate independent contractor status. Independent contractor status generally means that individuals are liable for their own income taxes, unemployment insurance, worker’s compensation, etc. In 1982, the federal government specially recognized independent contractor status of direct sellers, and many states have followed suit with specific legislation. Q: What can I do on the Internet with my network marketing business? A: Here again, you will have to talk to the company. Keep in mind that companies closely guard their trademark names and have a right to regulate their usage in all media, whether it is print or on the Internet. The Internet offers tremendous possibilities for both companies and distributors, and this opportunity is one with which many companies are wrestling. Some companies will provide space at their home page for distributors. Some companies will provide a linking mechanism from distributors’ home pages to the company’s home page. Many companies will not allow a distributor to promote the company’s product or opportunity on the Internet. The main reason for this restriction is two fold. First, if the company’s name appears on distributor home pages, individuals who use search engines would likely to be unable to find the company’s home page because a search would produce thousands of “hits” on the company name. The company’s home page would be lost amid the huge number of hits. The other reason for restrictions by the company is the concern about earnings claims and unauthorized product claims that have been made by distributors in the past and have threatened the business opportunities of both the company and its distributors. Many government agencies hold the company responsible for the statements of its distributors, and at the very least expect the company to regulate such advertising. Q: What can I say about a company’s nutritional and dietary supplements? A: Generally, companies will be very clear about what can be said and what cannot be said, as demonstrated in their official literature. Unauthorized claims can lead to problems not only with state officials, but with the FDA and FTC as well. The Dietary Supplement Act of 1994 dramatically increased the ability of companies and distributors to comment on the benefits of dietary supplements. Under the Act, third- party literature or scientific studies which are generic in nature may be passed out to the public. In addition, companies that have specific backup data may make claims about ingredients in their products when the claims relate specifically to their impact on the structure and function of the human body, as opposed to medical therapeutic claims. For example, under the Act, a company may comment that vitamin C is beneficial to connective tissue. Keep in mind, this is not the same thing as saying that a particular nutrient will treat or cure a connective tissue disease. Q: Is it appropriate to pay commissions on sales aids? A: No. Commissions should only be paid on products or services that are available to be sold or used by consumers. Sales aids do not fall in that category because they are merely tools for distributors. Payment of commissions on sales aids would be criticized as a payment of “head hunting fees” for the mere act of finding other distributors, as opposed to sales to users of the company’s products or services. Q: Are there any trade organizations for the industry? A: There are two major trade organizations this industry. The Direct Selling Association in Washington, D.C. represents a broad spectrum of direct selling companies. Some are strictly direct sale, some are party plan, but almost all the growth in membership in recent years comes from multilevel companies. The Multi-Level Marketing International Association (MLMIA), in Newport Beach, California o
pens its membership to multilevel companies, multilevel distributors, and professionals and suppliers involved in the multilevel marketing industry. Both associations have the same goal, which is to promote the industry, and to assure consumer safeguards for network marketing distributors and consumers. Q: Is the type of compensation plan the key to a company’s success? A: Historically this has not been proven to be true. “Sexy” compensation plans have come and gone, but long-term success has always been a function of product, management, company vision or mission, a quality training program, and the bonding of distributors and consumers with the g

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