Multi-level marketing ("MLM") or direct selling models, where goods/references are marketed/sold directly to the end user (and not through a fixed retail location), by a network of distributors at different levels of distribution is a well-established business model used by various companies. However, for doing business by MLM, certain precautions need to be taken care, as all the activities in the nature of MLM is not permitted especially when it comes to financial transactions, then regulations issued by different sectoral regulator- SEBI, RBI etc. need to be analyzed carefully. There have been various instances, of 'ponzi' or 'pyramid schemes', operating under the guise of MLM models, where income is generated through enrolment of more and more members, rather than sale of any tangible product, and which lure in the unsuspecting public through claims of quick and easy money. These schemes are regarded as a 'Money Circulation Scheme' and prohibited under the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 ("Money Circulation Act").
It is advisable to discuss and take a detailed opinion before moving forward, as a small error in the beginning may cost you fortune at later stage.
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