5. If a participant of a multi-level marketing enterprise establishes a company to handle the business arising from his participation will this act be subject to notification requirement?
In actual practice, participants to MLM may be a company, a commercial establishment, or an individual. A MLM business can also be operated under more types of organizational arrangement compared to other business organizations. Therefore, whether it should be reported to the Commission when a participant establishes a new company shall depend on the following circumstances:
- If an entity A follows the business plan or guideline as formulated by the MLM enterprise B, or participates in contracted MLM, such entity A is considered as a participant referred to in Article 4 of the Multi-level Marketing Supervision Act, regardless of whether such participant is an individual, a company, or business establishment. Therefore, such entity A does not have the obligation to report to the authorities.
- If an entity A, apart from following the business plan or guideline as formulated by the MLM enterprise B, or participating in contracted MLM, establishes another company C, formulates another set of business plan or guidelines, and plans the MLM activities, the new company C is considered as a MLM enterprise referred to in Article 4 of the Multi-level Marketing Supervision Act. In such case, the distributor A has a dual role as both the participant and the MLM enterprise. In its role as a MLM enterprise, the entity A has the obligation to report to the Commission.
- Another situation is also often seen in actual practice. The entity A initially follows the business plan or guidelines formulated by the MLM enterprise B, or participates in contracted MLM. But later due to some reason, the entity A comes into conflict with the MLM enterprise B, and, together with his down-stream participants, leaves the MLM enterprise B to establish a new company, yet still retaining the business plan or guidelines formulated by the multi-level sales enterprise B. In this case, the new company is also regarded as a MLM enterprise referred to in Article 4 of the Multi-level Marketing Supervision Act, and shall report to the Commission in accordance with the law.
Relevant article(s) of law: Multi-level Marketing Supervision Act, Article 4 and 5
Updated at：2016-02-22 16:35:59