CONDITIONS OF MULTI-LEVEL MARKETING IN VIETNAM
With the phrase “Multi-level marketing” (MLM), many people will think it is a fraud. However, it is not true, as some MLM organizations have transformed it, taking advantage of it to defraud. Therefore, Vietnamese law has specifically provided for the MLM business to have a mechanism to control, avoiding variables and risks for the parties involved. So, what are the terms for MLM business? What conditions organizations and individuals doing a MLM business have to comply? In this article, DTD will help Clients to answer these problems.
1. What is multi-level marketing?
Pursuant to Article 3, Decree No. 40/2018/ND-CP on Providing regulatory framework for multi-level marketing, the term of MLM is defined as follows:
“MLM” means a business model that utilizes the network of participants at different levels wherein commissions, bonuses and other economic benefits are or may be paid to participants based on their personal sales and the sales made by other distributors below the participants, also known as downline distributors.”
“Participant” refers to a salesperson who participates in the multi-level marketing under a contract signed with the multi-level marketing company.
"MLM contract” means a written agreement on the participation in the MLM entered into by and between a salesperson and the MLM company.
Thus, it can be concluded that the MLM mode is quite wide with a large network of participants. Therefore, it is really important to acknowledge the term as well as the nature of MLM, which is the basis for the enterprise’s business to be more favorable.
2. Conditions of multi-level marketing business
Article 7 of Decree No. 40/2018/ND-CP also stipulates that individuals and organizations, when doing MLM business, must satisfy the following conditions:
2.1. Conditions of establishing an enterprise
Doing business in the field of MLM, organizations and individuals need to carry out business registration procedures.
Pursuant to provisions under Vietnamese law, enterprises can exist in the forms: proprietor, limited liability companies, joint stock companies…
Accordingly, an enterprise doing MLM business must be established under the laws of Vietnam in the territory of Vietnam and has never had a MLM registration certificate revoked. Only enterprises are allowed to register for an MLM business. Other organizations and individuals are not allowed to conduct MLM business. Enterprises under this provision do not include organizations or individuals in an MLM business whose certificate of registration of MLM has been revoked.
In addition, the enterprise shall have the partners, if the MLM company is a partnership; the proprietor, if the MLM company is a private enterprise or a single-member limited liability company; the members, if the MLM company is a limited liability company of two or more members; the founders, if the MLM company is a joint-stock company; or the legal representative of the MLM company must have never held one of the mentioned positions at a MLM company whose MLM registration certificate has been revoked.
2.2. Condition of capital
According to Decree No. 40/2018/ND-CP, enterprises must have at least VND 10 billion of charter capital.
In addition, it is required to open a deposit account at a commercial bank or a foreign bank branch in Vietnam. This is an amount of money paid to ensure the MLM company’s fulfillment of obligations towards its participants and the Government in some cases as prescribed by law. Enterprises doing MLM are responsible for opening the account and depositing an amount equal to 5% of its charter capital but not less than VND 10 billion.
Opening a deposit account shall be confirmed in writing by the bank where the enterprise opened it.
2.3. Other conditions
In addition to the above conditions, an MLM enterprise must satisfy conditions as following:
+ Having a draft of MLM contract; business rules; compensation plan and training programs being available, obvious, transparent and consistent with provisions of Decree No. 40/2018 / ND-CP;
+ Developing an information technology system to manage participants in the MLM and a website to provide information about its profiles and MLM activities.
Information technology systems for managing networks of MLM participants must be operated on servers located in Vietnam, including basic information about participants of MLM as follows: Basic information about participants of MLM; information on MLM contracts; information on purchase history of participants of MLM... (specifically prescribed by Article 44 of Decree No. 40/2018/ND-CP)
The website of an MLM business must contain the following basic contents: documents relating to the MLM business of the enterprise; information on goods traded according to the mode of MLM; information of the MLM business... (specifically prescribed by Article 45 of Decree No. 40/2018/ND-CP)
+ Having a communication system to receive and resolve questions and complaints of MLM participants;
+ Participants in MLM must have full civil act capacity.
+ MLM business will have to submit an application for the MLM registration certificate as regulated in Decree No. 40/2018/ND-CP to the Competition Administration Department - Ministry of Industry and Trade.
In conclusion, MLM is allowed by Vietnamese law; however, individuals and organizations need to understand the regulations so that MLM activities are carried out consistently with the law.
