MLMIA Legal Mentoring Bulletin Eight

Business Opportunity

What do the words mean? The generally accepted meanings imply “commerce” and “making money,” or at least having the realistic hope of making money. The word “chance” is avoided, because “chance” implies luck, like buying a lottery ticket. Also, the two words, “business” and “opportunity,” when used together, have a generally accepted meaning of the opposite of a JOB. Jobs have workplaces to report to, set hours, a regular pay check, sick days (sometimes), and other benefits (sometimes).  Business opportunities usually have none of these things.

People with jobs receive wages or salaries, with the employer withholding payroll taxes, as required by law. At the end of the year, what was paid and what was sent to taxing authorities are reported on a W-2 form. Business opportunities are most often structured as independent contractor relationships. Payments, without taxes withheld, and sometimes sales (over certain amounts), are reported to the participant and to taxing authorities at the end of the year on IRS Form 1099.

What is written above is generally true, whether the business opportunity does or does not have a multi-level form of compensation. A critical factor, and the point of this Bulletin, is that Business Opportunities (capital B, capital O, on purpose) are strictly regulated in 23 states, and Federally; but at the same time, virtually all of the traditional MLM income opportunities currently available are NOT Business Opportunities in this sense.

WHY NOT? All 23 states laws, and the Federal law, have threshold dollar amounts, BELOW WHICH the laws are not applicable. The legislative intent was not aimed at the Avon Lady or the Amway Distributor, but rather at the vending machine routes and the chinchilla farms. The threshold dollar amount varies between $200 and $500 and, in its most common application, applies to the required purchases to participate in the opportunity, at the onset, and during the first six months. Now you know one reason why the cost to join most direct sales income opportunities is often zero, or a modest amount. 

It has been my experience that 99% of direct selling companies using a multi-level form of compensation, position their “income opportunity” offer to prospective participants so that the cost to join is below the thresholds of all the “Business Opportunity” Statutes. If one is required to pay more than $200 to participate in the income opportunity, the Business Opportunity threshold has been exceeded in some states.

I recommend using the words “income opportunity,” rather than “business opportunity,” when describing a way to make money offered at a cost below the thresholds of the 23 states that have Business Opportunity Statutes. It is a small thing, perhaps, but since so many states have defined what a Business Opportunity is to them, why use their language, and possibly be measured by their definition, when an alternate phrase is available?

The above is provided as general information and, although written by MLMIA Board Member and Direct Selling Specialist Attorney Gerald Nehra, is NOT provided as the rendering of legal advice. Readers are urged to seek the counsel of attorneys or firms with special knowledge of direct selling laws. The four firms that devote their practice exclusively to counseling corporations about direct selling legal issues are, in alphabetical order: Babener & Associates, Jeffrey A. Babener, 503-226-6600, [email protected]; Grimes & Reese, PLLC, Kevin D. Grimes and Spencer Reese, 208-522-2600, [email protected]; Nehra & Waak, Attorneys at Law, Gerald Nehra and Richard Waak, 231-755-3800, [email protected]; and D. Jack Smith Law Firm, D. Jack Smith, 901-292-5225, [email protected].