Legal Issues for Network Marketing Sales People. You've heard the opportunity presentation, you like the product, and now you want to sell it. You wonder: are there any special laws that you need to be aware of? In fact there are. First, be certain that the opportunity that you have been presented with is not an illegal pyramid scheme. In recent years, pyramid operators have disguised their illegal operations to appear to be legitimate multi-level marketing businesses. The key issue is that the products and services sold by legitimate multilevel marketing companies are in fact used or consumed, and compensation is based upon those sales for consumption by the end-user.
In a pyramid scheme, the product or service - if any - is not used or consumed by anyone. Money is made from the mere act of recruiting new participants into the scheme. Federal and state laws prohibit companies from compensating their salespeople based solely on recruiting activities.
Laws that apply to the Sale
There are a number of laws that pertain to the actual sale of products or services. First, your local municipal or county government may have a law in place that sets out the boundaries for operating a business out of your home. Check to see what the requirements are before you begin selling. Even if you decide that your business is not at risk or the law does not apply, it is a good idea to know what the rules are. You may also want to check with your homeowner's association to see if it has any rules pertaining to home based businesses many do. The best piece of advice is to maintain good relationships with your neighbors as they are the ones most likely to report on your business activities.
The federal door-to-door sales rule and similar state laws
These laws require you as a salesperson to inform your customer of certain legal rights. What is a "door-to-door" sale? It encompasses considerably more than going from house to house and knocking on doors to make product sales. These laws apply to any sale of goods or services costing $25 or more that occurs anywhere other than the company's place of business. So, door-to-door sales also include in-home parties, flea markets, fairs, and other show environments.
What right must you explain to your customer? You must furnish the buyer with a fully completed receipt or copy of the contract when it is signed: the contract must show the date of the transaction; contain the name and address of the company; and it must contain a notification (boldfaced and a minimum of 10 point type) of the buyer's right to cancel the sale.
You must provide the buyer with duplicate notices of cancellation. (This is so that in the event of cancellation, the buyer is able to retain a complete copy of the contract or receipt.) Ensure that the date of the sale is on the receipt and that the date of the third business day following the date of the transaction, by which the buyer may give notice of cancellation, is filled in. Finally, you must inform each buyer orally, at the time he signs the contract or purchases the goods or services, of his right to cancel the sale. As far as the state laws go, state regulators are usually satisfied if the sale complies with the federal rule.
Your company has probably taken care of preparing the necessary sales receipt. Just remember that you should mention the cancellation right to every customer.
Laws that Pertain to the Opportunity
When a customer decides that they might be interested in becoming a salesperson, he or she will have questions about how the business works and, most importantly, about how much money they might be able to make. There are laws that limit what you can say. Georgia, Louisiana, Maryland, Massachusetts, Puerto Rico and Wyoming all have laws on the books that limit what can be said about potential earnings. In Georgia and Louisiana you must be able to produce evidence that what you say about potential earnings is true. Maryland's law says that what you say must be true for a substantial number of other salespeople. In Puerto Rico what you say must be true for a reasonable number of other salespeople. In Massachusetts and Wyoming all statements about potential earnings are illegal. The rest of the country follows Federal Trade Commission guidance. The federal rule applies mostly to the company, and requires it to provide you with a disclosure document detailing the earnings of salespeople that backs up anything you might say or that the company may advertise in print.
Taxes
This may sound funny, but don't forget that you in fact owe taxes on any income you earn in network marketing. The company that you sell for does not withhold taxes for you. Make no mistake though, the tax man cometh. For the self employed, this means quarterly. The problem with quarterly taxes is it requires a lot of discipline and attention to detail. You must set aside the taxes due from your income so that you are prepared to pay the entire amount in one quarterly payment and you must prepare the forms and submit the payment.
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