Government Rules For MLM Companies In India
Indian Government Guidelines for MLM Companies
Direct Selling or Multi Level Marketing is a process in which products or services are sold outside a retail store. Due to unavailability of a physical brick-and-mortar store, the consumers generally remain in doubt regarding the quality of products as well as authenticity of the store. To regulate such businesses, special rules and regulations are formed in constitution which comes under the Competent Authority.
Before we go deep into the actual process and regulations of multi-level marketing, let's understand some terms and definitions used in this business.
- Direct Selling: the process of supplying goods or services directly to the consumer, without involvement of a third party or without a physical access of the supplier. The only process includes in direct selling is the pickup points of the goods and delivery points of the goods.
- Direct Selling Entity: the entities involved in direct selling, such as but not limited to a company incorporated under the Indian Companies Act or a partnership firm registered under the Indian Partnership Act.
- Direct Seller: The person who is responsible for and is engaged in the process of direct selling through a direct selling entity.
- Consumer: The person who buys goods from the direct selling entities. Someone is considered a consumer only if he/she buys the goods for personal use and not for resale.
- Goods/Products: Goods/Products are defined under the Sale of Goods Act and Section 3(26) of the General Clauses Act 1897, as every kind of movable property other than actionable claims and money.
- Sales Incentives: Sales incentives are the payouts or profits paid to Direct Seller. The payouts are made as per the contract signed between the Direct Seller and the Direct Selling Entities.
2. Conditions for establishing Direct Selling Entities:
The rules applicable to a Direct Selling Entities are quite different to those applicable to a private firm, yet they apply to the same extend.
- The Direct Selling Entity must have at least one bank account with a nationalised bank.
- Participation Deed or Memorandum of Association should be signed between the participating entities and it should clearly mention the nature of the business.
- The Entity must agree to pay the incentives at the defined rate at within the agreed time period.
- The company website must contain the names and identification numbers of their authorised direct sellers.
- Should have a dedicated cell for consumers where the issues of the consumers must be resolved within 7 working days.
- Company website must have a space where consumers can register their complains.
- It is the responsibility of the Direct Selling Entity to appoint direct sellers upon receipt and scrutiny of application in a well-mannered format.
- An agreement must be signed for any such appointment between the direct sellers and the direct selling entity.
- Applications must meet the guidelines of the Indian Contract Act.
- Each direct must be allotted a unique identification number before allotting the license to start direct selling.
- There should be no role of sales volume while distributing the incentives.
- Supply/distribution of the goods/products should be avoided if the goods/products are inferior or exceeded its validity period.
- Direct Selling Entity or Direct Seller may not indulge in any money circulation scheme.
5. General Conditions:
- MRP of the products should be clearly visible on the packaging of the product.
- Accounts of the direct seller should be well managed and visible on internet.
- Sales incentives should be distributed to the direct seller by or before the agreed dates.
- Goods/products sold by the manufacturers should carry the guarantee/warranty.
6. Information Readiness
Every Direct Selling Entity must maintain an information file containing below mentioned documents:
- Certificate issued by Registrar of Companies, MOA and MOM.
- Xerox copies of TIN, DIN of Directors, TAN, and PAN.
- Certificate of Sales Tax, Service Tax, CST Registrations.
- Copies of all Sales Tax Returns filed with the authorities.
- Copies of Service Tax Returns filed with the authorities.
- Copies of IT Returns of company filed with the authorities.
- TDS Statements of Distributors and respective challans paid.
7. Grievance Redressal Mechanism
Every Direct Selling Entity must have a complaint cell mechanism which addresses and resolves the complaints registered by the consumers/direct sellers.
8. Breach of Guidelines
The direct sellers/direct selling entities that do not adhere to above mentioned guidelines shall not be considered appropriate to their roles and would be controlled as per the provisions of existing laws.
Rajasthan, India Govt. MLM Guidelines