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Is It Multi Level Marketing or a Pyramid Scheme?

Part 1: Multi Level Marketing and Pyramid Schemes Can Be Very Similar


Is It Multi Level Marketing or a Pyramid Scheme?

Is it a Pyramid Scheme?

Image (c) Grant Faint / Getty Images

Considering a multi level marketing opportunity? Be careful. It may well be a legitimate multi level marketing business. Or it may be a pyramid scheme.

Multi level marketing (MLM) is an attractive business proposition to many people. Multi level marketing offers the opportunity to become involved in a system for distributing products to consumers. Unlike the person starting a business from scratch, the multi level marketing participant has the support of a marketing company that supplies the products and sometimes offers training as well.

As a multi level marketing participant, you make your money by selling the products to other multi level marketing participants. If they're not already a member of your multi level marketing company, you sign them up. Besides earning money off your own sales, you also earn a percentage of the income generated by the distributors that you've brought into the program (your downline). Often there are bonuses for selling particular amounts of product or signing up a certain number of new members.

Sounds good, doesn't it? And being part of a well-run multi level marketing business can be a lot like being a member of a large extended family.

Unfortunately, not every multi level marketing opportunity is a legitimate business opportunity. Many pyramid schemes, frauds designed to part the unwary from their money, are disguised as legitimate opportunities.

Like multi level marketing, pyramid schemes depend on recruiting people to become distributors of a product or service. Like MLM, the pyramid scheme offers the opportunity to make money by signing up more recruits and by accomplishing certain levels of achievement.

The big difference between multi level marketing and pyramid schemes is that MLM is legal in Canada and pyramid schemes aren't. (Participating in a pyramid scheme is an offence under the Criminal Code of Canada, punishable by up to five years imprisonment.) But it can be very difficult for the person looking for a business opportunity to tell the difference between a legitimate MLM opportunity and a pyramid scheme at a glance. How do you tell whether it's a legitimate business opportunity or a scam?

There are six tips for identifying a pyramid scheme on the next page. Click to continue reading.

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