MULTI-LEVEL MARKETING IN GEORGIA: A BRIEF OVERVIEW    ______________________________________   THE 1980’s and 1990’s   By most accounts the surge of interest in Multi-Level Marketing (“MLM”) nationally began in the late 1980’s with the emergence of high profile MLM Companies such as NuSkin, Melaleuca, and NSA. In that era, which also introduced the “Infomercial”, some of the MLM Companies even produced video tapes to be used in recruiting new Distributors. These video tapes, some hosted by well known entertainment personalities, typically showed beautiful homes in exclusive intercostal communities with yachts cruising past. While the Companies and Products might have varied, the message of these video tapes was inevitably the same: You can become financially independent through Multi-Level Marketing. In addition to the video tapes there were also audio tapes and, of course, recruiting meetings some of which resembled an old fashion Tent Revival.   The 1990’s saw legal action, both by Governmental Agencies and through private lawsuits, against some of the more prominent MLM Companies. Typically, these legal actions involved allegations that the MLM Company was actually structured as a “Pyramid Scheme” rather than a true business opportunity. The effect was to at least temper some of the more egregious MLM practices.   MLM TODAY   By most estimates there are over 800 MLM Companies operating in the United States today. The majority of these companies conduct business in Georgia. Stock shares in a small number of these MLM Companies (such as NuSkin) are publicly traded. Consequently, detailed public information (including financial) on these MLM Companies can be accessed through the Securities and Exchange Commission’s “EDGAR” system. However, the overwhelming number of MLM Companies are privately held and only limited information is publicly available.   What separates MLM Companies from most businesses is that virtually the entire Sales Force is comprised of independent contractors (usually with titles like Associate, Representative, or Independent Marketing Consultant). For clarity, the remainder of this article will refer to these independent contractors as “Distributors”. These Distributors are independent business people (not employees) who have a contractual relationship with the MLM Company. MLM Distributor Contracts vary in content but all of them typically provide for (i) the Distributor’s right to purchase products from the MLM Company and to resell them, (ii) Policies and Procedures that the Distributor must follow, and (iii) the Distributor’s Termination Rights.   While most MLM Distributor Contracts require a certain level of Retail Sales (usually known as the 70% Rule which is a result of Governmental legal action), the reality is that to become "Financially Independent" a Distributor must overcome two very high hurdles. First, the Distributor must build a large and active “Downline”. Secondly, the Distributor must move a great deal of Product through their organization. Because of these very high hurdles, most studies indicate that less than 3% of all Distributors ever make any significant net income much less achieve “Financial Independence”. Consequently, most data indicates that the Distributor attrition rate tends to be in 70% + range during the first year (either through formal Termination of the Distributor Contract or simply by ceasing activity).     An increasing trend is for professionals such as Doctors and Retired Airline Pilots to become MLM Distributors. These professionals will sometimes purchase a very substantial amount of Product Inventory from the MLM Company (even over $100,000 at net original cost) in order to “move up” their position in the Company’s Compensation Plan and in anticipation of building a large Downline. When the active Downline does not develop, the Distributor ends up with a large, stagnant investment in Product Inventory. In many States, if the Product Inventory is more than a few months old (from the time the Distributor purchased it from the MLM Company), it cannot be returned to the Company for even a partial Refund. Fortunately, Georgia MLM Distributors often have a better option.   THE GEORGIA MLM STATUTE   Georgia is one of a handful of States that has a Statute directly setting out criteria that MLM Companies must meet (the “Georgia MLM Statute”).  The Georgia MLM Statute provides that MLM companies are required to Repurchase certain Products from the Georgia Distributor at a minimum of 90% of the Distributor’s net original Product cost. There is no calendar deadline for such Repurchase (even though Products that have exceeded the Expiration Date on the Product Package are typically excluded from Repurchase). Unfortunately, many Georgia MLM Distributors are unaware of their legal rights under the Georgia MLM Statute. This lack of knowledge is sometimes because the Georgia Distributor hasn’t adequately read the MLM Distributor Contract. However, in numerous instances it is because the MLM Distributor Contract has not properly disclosed the Georgia Distributor’s Product Repurchase Rights.   SUMMARY   Georgia MLM Distributors enjoy Legal Rights that provide in many cases for the Repurchase of certain Product Inventory. However, it is important that the Georgia Distributor timely take action to preserve these legal rights. One of the best ways to accomplish this is by contacting a Georgia attorney experienced in MLM Law.    TURNER LAW OFFICES, LLC 403 W. Ponce de Leon Avenue Suite 207 Decatur, Georgia 30030 Telephone: (404) 261-7787 E-Mail: mlmlaw@prodigy.net                                       DISCLAIMER Materials on this Website are provided for informational purposes only and do not constitute legal advice and are not guaranteed to be complete, correct or up-to-date. This Website is not intended to create an attorney-client relationship between you and us. You should not act or rely on information in this Website without seeking the advice of an attorney. If you are interested in having us represent you in a legal matter, the best way to initiate possible representation is to call us at (404) 261-7787. You may also contact us by e-mail through the link located in the “Contact Us” section of this Website.