This common misconception leads networkers* to repeatedly encounter the objection that their business is at least unsavory, if not illegal. In order to objectify this recurrent and especially emotional argument, we present here the six essential distinguishing characteristics of illegal distribution systems. Please contact us if you are approached about “business opportunities” that have these characteristics. If these characteristics apply to commercial offers, then, from the current point of view of legislation, they are illegal and therefore not legal. Because the term network marketing is not a protected term and clearly delineates the company`s activity, fatal misunderstandings can arise and the boundaries between legal and illegal offers become blurred. The so-called gift circles also belong to the illegal snowball or pyramid systems: if a company does not offer participants any real value for investments, but advancement in the hierarchy (pyramid) is the only way to generate profits. The characteristics described here characterize companies that operate in Germany in the grey area of the jurisdiction – if not illegally – and differ from reputable network marketing companies. As Germany`s leading law firm for network marketing, we advise in all relevant areas of network marketing law. We represent companies at all levels of MLM, including partners/consultants in all possible legal matters.
MLM can be a way to make money quickly, but it can also cause you legal and financial problems quickly. MLM is legal. The Ponzi scheme is illegal. The two forms are sometimes difficult to distinguish from each other. The distinguishing features are as follows: “In Germany, MLMs (multi-level marketing or structural distribution) are legal if they do not violate point 14 of the Annex to § 3 Abs. 3 UWG, i.e. if they do not give the impression that remuneration can be obtained solely or mainly by introducing other participants into the system. In Switzerland and Germany, MLMs are legal if they do not have to rely on the recruitment of people as their main form of income. (from Wiki): The points listed here indicate illegal conduct of business and must be observed. As an intermediary, you can also be held personally liable and prosecuted if you report a crime.
Therefore, always make sure that you are on the legal side with your partners: if they rely on recruitment, they are considered a “snowball system” and therefore illegal. However, this would have to be proven in court. These are mostly illegal variants of the so-called network marketing or multi-level marketing (MLM) 😛 ersonen, who work in the field of MLM and work as independent consultants on behalf of the respective company; They often commit to buying a number of products first in order to resell them. In addition, they can attract other customers, who in turn sell these products. Thus, you not only earn by selling your own products, but you also receive a commission through the sales of the referred partners. Often, the promised profit can only be achieved by as many partners as possible recruited and commissions promised. The more participants are above you in the hierarchy, the more difficult it becomes to attract more partners and achieve the expected profits, because the market is saturated at some point. If the focus is no longer on selling a product or service, but on recruiting new partners or participants, then it is called an illegal snowball or pyramid system. These are prohibited in Germany in accordance with § 16 Abs. 2 Gesetz gegen den unlauteren Wettbewerb (UWG).
Even the attempt to create an illegal Ponzi scheme fulfills this fact. MLM or network marketing are special forms of direct selling. These forms of distribution have existed for a long time; From a legal point of view, there is no special legislation governing them, but there is abundant case law in the most varied sub-areas of law. European case law and, in particular, German case law are generally restrictive on this subject. For example, pyramid schemes should be excluded for reasons of competition, downstream structures may generally vary, etc. A downline, once fully operational, can be used to distribute a variety of goods and services. In addition, multi-level commercialization law covers a variety of issues in different areas of law. These include general civil law (GTC/contract law), commercial law (in particular commercial agency law), competition law (as well as pharmaceutical advertising law, cosmetics law or food law, depending on the subject) as well as questions of company law and international law. Multi-level marketing is legal as long as it complies with disclosure laws and, as mentioned above, offers customers a real product for their money. But people trying to make money easily or break into the world of sales or commercial real estate should be careful. The Better Business Bureau warns against any opportunity that promises high revenue with little time or effort, requires you to purchase a large amount of inventory to begin with, and offers no guarantee that unsold products can be repurchased, and requires payment in cash, wire transfer or money order for the initial investment. We advise and represent German companies/entrepreneurs as well as international companies that already have an MLM sales organization in Europe and want to optimize their opportunities, as well as companies that want legal support to approach the market.
What can you do to protect yourself? The transition from legal distribution to illegal pyramid schemes is smooth and depends not only on design, but also on its implementation. Be real suspicious if: Multi-level marketing (MLM) is a special form of distribution, also known as network marketing (NM). Beginners invest in a starter package. Depending on the sector, this may be the products to be sold or, in the case of services or in the financial sector, product and sales training. In addition to selling the products, customers are then recruited to sell the products in turn. If the customer also accepts and purchases the starter package, the recruiter has a partner. He then earns not only from his own sales, but also from the sales of the partner. Unlike pyramid schemes, it is actually the distribution of valuable products or services. That`s why MLM is legal. Meta-tags: network marketing company, referral marketing, illegal network marketing, legal network marketing The Ponzi scheme (or pyramid scheme) is actually an illegal form of MLM and pyramid-shaped (hence the term “pyramid scheme”).
A person sells something to other people. These, in turn, should then find a number of buyers. And who would have thought: These should also find buyers again. This gives the structure more and more levels. There is no real product – or at least only a fictitious product that has no value of its own. Multi-level marketing gives this idea a slightly different twist. Also known as MLM or network marketing, multi-level marketing is a distribution system in which independent sellers or distributors sell consumer goods provided by a particular company. Distributors are paid based on what they sell and are encouraged to build their own sales force by recruiting, training and providing others to sell products, earning a percentage of those sales.
Well done, it`s completely legal; Poorly done, it is an illegal Ponzi scheme. (2) Any person who, in the course of trade, undertakes to induce consumers to purchase goods, services or rights by promising them special advantages either from the broadcaster itself or from a third party if they induce other persons to enter into similar transactions which, depending on the nature of the advertisement, are intended to obtain such advantages for the corresponding advertising directed at other customers: shall be punishable by imprisonment for up to two years or a fine. For manufacturers/companies, we advise/represent (extract) the following: Charles Ponzi is generally regarded as the inventor of the Ponzi scheme. According to legend, he started his career with two dollars and amassed a fortune with a current monetary value of $150 million with investments he traded to his clients. Its customers are still waiting for their lost belongings to be reimbursed. I have subscribed to this submarine for some time and as someone based in Switzerland, in German-speaking countries, I was just as fascinated and enthusiastic about the tactics and antics of MLM companies across the Atlantic in the United States. I have encountered MLMs here in Switzerland in nature or .dem German-speaking part of social media/web. But it seems to me that they are really different from the content of what I see here. MLMs mainly try to infiltrate FB groups to sell their products, they try to sell you things directly or indirectly.