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The differences between pyramid schemes and multilevel marketing

You've seen it before; a post on social media stating that you can make $300 today if you'll just deposit $20 into a bank account for a program that can help you succeed. While there are some programs designed to help you market real products and services, many of these so-called immediate moneymakers are pyramid schemes.

Pyramid schemes are illegal, and they are so for good reason. When a person starts a pyramid scheme, he or she begins to recruit. The individual asks for a recruitment fee, and then he or she asks the recruited party to recruit more people. The original "business owner" continues to collect fees from new recruits, and the next level of recruits gets compensated by hiring more new recruits. Over time, the market is saturated and there are no people left to join the "company." At that point, everyone except the top tiers of the pyramid have lost what they put into the company.

Pyramid schemes are illegal because there are no services or products exchanged. These aren't the same as multilevel marketing programs. In multilevel marketing programs, people are recruited to sell services. For example, Avon representatives sell the company's goods to make a commission. They also make commissions off others in their teams when sales are made.

While people like to suggest that MLM organizations are pyramid schemes, it simply isn't true. Any business that has products that ship to customers cannot typically face allegations of being a pyramid scheme, since actual assets change hands. If you are accused of starting a pyramid scheme but think you are a multilevel marketing company, your attorney can help you refute the claims against you.

Source: FindLaw, "Pyramid Schemes," accessed Oct. 17, 2017

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