The United States, renowned for its higher financial landscape, thrives on various ventures with significant earning potential, among which Multi Level Marketing has emerged as a prominent contender. With millions actively participating, MLM has become a cornerstone of the American entrepreneurial scene in the past years.

Nevertheless, amidst its widespread adoption, a fundamental question arises: – Is MLM Legal in the USA? And in this blog we have answered this very question which will clear all your doubts regarding the legality of MLM in the USA.

The Legality of MLM in the USA

The good news? MLMs are legal in the USA. This is according to the Federal Trade Commission (FTC), the government agency that regulates business practices to protect consumers.

However, there’s a condition: MLMs can easily tip over into illegal pyramid schemes if their focus becomes recruitment over product sales. The FTC has clearly stated this distinction between an MLM and the pyramid scheme.

The Federal Trade Commission (FTC) acts as a guardian for consumers regarding Multi Level Marketing businesses in the USA. Here’s a breakdown of their role:

Role of the Federal Trade Commission (FTC)

Legality, Not Legitimacy: The FTC ensures MLMs operate within the law, primarily by preventing them from morphing into pyramid schemes that focus on recruitment over selling products.

Fair Practices: They enforce regulations to prevent deceptive advertising, unrealistic income claims, and unfair pressures on participants to buy excessive inventory.

Consumer Education: The FTC offers resources to help people identify potential MLM red flags and make informed decisions before joining an MLM opportunity.

While the FTC doesn’t endorse specific MLMs, they work to ensure a fair and legal playing field for both MLM companies and potential participants.

MLM vs. Pyramid Scheme: Understanding the Difference

So, what separates a legitimate MLM from an illegal pyramid scheme? Here are some key regulations:

Legal MLM

Imagine you’re selling a popular fitness tracker. You promote its benefits and encourage people to buy it for their workouts. You might also talk to friends about the opportunity to join your team and sell the tracker themselves. Your income comes primarily from commissions on the trackers you and your team actually sell to real customers.

Pyramid Scheme

The focus is on recruiting, not the product itself. Imagine the fitness tracker is of questionable quality and overpriced. The emphasis is on signing people up to pay a hefty fee to join and buy large quantities of trackers they’re pressured to sell to recover their investment. Commissions are heavily weighted towards recruitment fees, not product sales.

Here’s the breakdown:

In an MLM;

  • They must prioritize retail sales of actual products to everyday consumers. The majority of revenue should come from these sales, not just from recruiting new members.
  • Commissions should be based primarily on selling products, not solely on how many people you recruit. While building a team can be part of the model, it shouldn’t be the only way to make money.
  • They shouldn’t pressure participants to buy large quantities of products upfront that they might struggle to sell. Starter kits and ongoing fees should be reasonable.

Here’s a simplified version to understand better;

Aspect Multi Level Marketing Pyramid Scheme
Purpose Legitimate sales of products or services Recruiting members with promise of high returns
Compensation Earn commissions from product sales and recruits’ sales Primarily based on recruitment fees
Legality Legal if products or services are genuine and sales focused Often illegal due to focus on recruitment
Risk Lower risk High risk of collapse or potential legal issues
Sustainability Sustainable if focused on product sales and genuine recruitment Unsustainable, collapses when recruitment stops

Did You Know?

For an MLM to be compliant (i.e., legal and not a pyramid scheme), it must adhere to the 70% rule that “at least 70% of all goods sold must be purchased by non-distributors.” – Forbes

Emphasis on Recruitment Over Product Sales

One of the clear signs of an illegal pyramid scheme disguising as an MLM is an unequal focus on recruiting new members rather than selling actual products or services. If the primary source of income for participants comes from recruitment commissions rather than retail sales, be careful.

High Initial Investment Requirements

Be wary of MLMs that pressure you to make substantial upfront investments in inventory, starter kits, or training materials with promises of lucrative returns. Legitimate MLMs typically have low startup costs and emphasize earnings through product sales rather than recruitment or inventory purchases.

Complex Compensation Structures

Beware of MLMs with complex compensation plans that are difficult to understand or heavily incentivize recruiting new members rather than selling products. Legitimate MLMs usually have transparent compensation structures that reward both retail sales and team-building efforts without excessive emphasis on recruitment.

Promises of Unrealistic Earnings

If an MLM company makes extravagant claims about the potential earnings without providing realistic income disclosures or if they use misleading testimonials to lure in new recruits, exercise caution. Legitimate MLMs emphasize the importance of hard work, dedication, and realistic expectations rather than making unrealistic promises of overnight success.

Lack of Retail Sales

Legitimate MLMs derive a significant portion of their revenue from retail sales to end consumers. If a company lacks a robust retail sales component and relies heavily on internal consumption or purchases by distributors themselves (inventory loading), it could be indicative of an illegal scheme where recruitment is prioritized over genuine product sales.

Lack of Transparency and Accountability

Legitimate MLMs are transparent about their business practices, including product pricing, compensation plans, and company policies. If a company is evasive or unwilling to provide clear answers to your questions, it may be a red flag indicating potential illegitimacy.

Legal Troubles and Regulatory Scrutiny

Research the company’s history and track record, including any past legal troubles or regulatory sanctions. If the company has faced lawsuits, regulatory actions, or allegations of operating as a pyramid scheme in the past, proceed with caution and consider it a warning sign.

Finding a Legit MLM Company: Do Your Research!

There’s no guaranteed formula for finding a legitimate MLM company, but profound research is the key. Here are some tips:

Product Quality

Does the company offer high-quality, in-demand products? Research customer reviews and independent analyses.

Company History

Research the company’s track record and reputation. How long have they been in business? Are there any complaints filed against them with the FTC?

Support System

Does the company offer adequate training and support to help you succeed?

Focus on Retail Sales

Look for companies that emphasize selling products to end consumers, not just focusing on recruiting.

Starter Kit Costs

Beware of MLMs that pressure you to buy large quantities of products upfront. Starter kits should be reasonable and not a financial burden.

How to Spot Legitimate MLM Companies: Essential Tips for Success

Navigating the MLM landscape requires careful consideration and due diligence to ensure that you’re investing your time, effort, and money wisely. To help you make informed decisions, here are some essential tips for identifying legitimate MLM companies:

Research the Company

Before joining any MLM venture, conduct thorough research on the company. Look for information about its history, reputation, products or services offered, and compensation plan. Legitimate MLMs are transparent about their operations and provide comprehensive details to potential recruits.

Evaluate the Products

A reputable MLM company will offer high-quality products or services that have genuine value to consumers. Take the time to evaluate the products or services being promoted. Ensure they are unique, meet a genuine need, and are competitively priced. Avoid MLMs that primarily focus on recruiting without offering products, as they may resemble pyramid schemes.

Assess the Compensation Plan

Understand the compensation plan offered by the MLM company. Legitimate MLMs provide fair and transparent compensation structures that reward both sales and recruitment efforts. Beware of schemes that emphasize recruitment over product sales, as this can indicate a pyramid scheme disguised as an MLM.

Check for Red Flags

Pay attention to warning signs that may indicate an MLM is dubious. These include excessive emphasis on recruitment, promises of quick and easy riches, high upfront costs or mandatory purchases, lack of product focus, and resistance to providing detailed information. Trust your instincts and proceed with caution if something feels off.

Seek Reviews and Testimonials

Look for unbiased reviews and testimonials from current and former distributors of the MLM company. Hearing from individuals who have firsthand experience can provide valuable insights into the company’s culture, support system, and overall viability. Beware of overly positive reviews that seem too good to be true.

Consult with Professionals

Consider seeking advice from legal and financial professionals before committing to an MLM opportunity. They can help you understand the legal implications, financial risks, and potential pitfalls associated with MLM ventures, allowing you to make informed decisions.

Trust Your Instincts

Ultimately, trust your instincts when evaluating MLM opportunities. If something seems to raise doubts, it’s important to listen to your gut feeling. Don’t allow yourself to be pressured or rushed into joining an MLM company without thoroughly investigating it first.

While legitimate MLM opportunities do exist, it’s essential to approach them with caution and skepticism. By following these tips and conducting thorough due diligence, you can increase your chances of finding reputable MLM companies that align with your goals and values.

A Case Study of MLM Companies in the USA

While MLM is legal in the USA, the line between legitimate businesses and pyramid schemes can be blurry. Let’s take a closer look at four established MLM companies to understand their strengths, weaknesses, and key factors for success.


Founded: 1959

Founders: Rich DeVos and Jay Van Andel

Products: Amway offers a wide range of health and wellness products, including vitamins, dietary supplements, beauty care products, and home care items.

Strengths: Amway boasts a long history, global presence, and brand recognition. They offer extensive training and support for distributors.

Weaknesses: Critics point to the high cost of entry (starter kits) and the difficulty of achieving significant income solely through retail sales.

Key Factors for Success: Strong sales and marketing skills, a large and active network, and significant investment of time and effort are crucial for success with Amway.


Founded: 1980

Founder: Mark Hughes

Strengths: Herbalife has a strong brand identity and loyal customer base. They invest heavily in marketing and sponsor high-profile athletes.

Products: Herbalife offers nutrition and weight-loss products, including shakes, meal replacements, and dietary supplements.

Weaknesses: The company has faced controversy regarding the effectiveness of its products and the income potential for distributors.

Key Factors for Success: Building a large team and promoting product sales through social media and personal connections are key to success with Herbalife.


Founded: 1886

Founder: David H. McConnell

Strengths: Avon has a long-standing reputation and brand recognition, particularly among women. They offer a flexible work model and a large product selection.

Products: Avon is a household name in beauty and personal care products, offering makeup, skincare, fragrances, and bath & body items.

Weaknesses: The market for beauty products is highly competitive, and saturation can make retail sales challenging.

Key Factors for Success: Building a network of loyal customers and utilizing Avon’s social selling tools are important for success.

Forever Living Products

Founded: 1978

Founder: Rex Maughan

Strengths: The company offers a unique product line with a focus on natural ingredients. They have a strong presence in international markets.

Products: Forever Living Products specializes in aloe-based health and wellness products, including drinks, supplements, and skincare items.

Weaknesses: The MLM model can be challenging, and saturation in the health and wellness market is a concern.

Key Factors for Success: Strong salesmanship, a focus on customer education about aloe vera’s benefits, and active participation in company events are important for success.

While all four companies are legal MLMs in the USA, careful research is crucial before joining any MLM opportunity. Understanding the strengths, weaknesses, and key factors for success can help you make informed decisions.

Consumer Protection and Resources that help Customers

Scams and fraudulent schemes are whirling around the corner and consumers must stay vigilant in protecting their rights and interests. This is particularly true in multi level marketing. If you find yourself caught in an MLM fraud, knowing your rights and accessing the right resources can make all the difference. Here are steps to take when facing MLM fraud and resources that can assist you:


Recognize the Signs:

The first step in dealing with MLM fraud is to recognize it. Understand the common red flags and if something feels off, trust your instincts and investigate further.


Document Everything:

Keep detailed records of your interactions with the MLM company. Documentation will be essential if you need to file a complaint or seek legal advice later on.


Cease Further Engagement:

If you suspect MLM fraud, stop all further engagement with the company immediately. Cutting ties early can help minimize losses and prevent further harm.


Contact Consumer Protection Agencies:

Reach out to consumer protection agencies or regulatory bodies. Provide them with evidence of the fraudulent activity and seek their guidance on next steps.


File a Complaint:

You can file a formal complaint against the MLM company. IN USA, this can be done through the Federal Trade Commission (FTC).


Seek Legal Advice:

Consulting a lawyer who specializes in consumer protection or MLM regulations. They can provide legal guidance on your rights, options, and potential remedies available to you.


Reach Out to Support Groups:

Connect with support groups or online communities. These groups can offer valuable support, advice, and also share resources and strategies for dealing with MLM fraud.


Educate Others:

Use your experience to educate others about the dangers of MLM fraud and how to avoid falling victim to similar schemes. This can help prevent others from experiencing the same.

Helpful Resources for Consumers: Understanding Your Protections

Being an informed consumer is your best defense in the marketplace. Luckily, there are a whole host of resources available to help you navigate your purchasing decisions and protect your rights. Today, we’ll be focusing on two key organizations: The Federal Trade Commission (FTC) and the Michigan Consumer Protection (MCP).

Federal Trade Commission (FTC)

The FTC is the primary agency of the US government tasked with protecting consumers.

Enforcing laws

The FTC enforces laws that prevent unfair or deceptive business practices. This includes protecting consumers from pyramid schemes, which can sometimes be confused with legitimate MLM businesses.

Providing consumer information

The FTC website offers a wealth of information on various consumer topics, including avoiding scams, understanding contracts, and protecting your identity. This can be a valuable resource for both consumers and MLM businesses that want to ensure they are following best practices.

Taking action against fraud

The FTC investigates and prosecutes fraudulent business practices. This helps to maintain a fair marketplace for legitimate businesses, including ethical MLM companies.

Michigan Consumer Protection (MCP)

The Michigan Consumer Protection (MCP) is a state-level agency that works in conjunction with the FTC to enforce consumer protection laws within Michigan. They offer similar resources to the FTC, but with a specific focus on Michigan residents and businesses.

Understanding Compliance

MLM businesses are required to comply with FTC regulations and state-specific laws like those enforced by the MCP. Familiarizing yourself with these resources ensures your business operates legally and ethically.

Avoiding Pyramid Scheme Accusations

The FTC and MCP actively crack down on pyramid schemes disguised as MLM businesses. Understanding the legal distinctions between these models can help your MLM business avoid suspicion and legal trouble.

Building Consumer Trust

By demonstrating a commitment to consumer protection, MLM businesses can build trust and credibility with potential customers. Highlighting your adherence to FTC and MCP guidelines shows transparency and fosters a positive brand image.


Hope you ‘ve found the answer to the long run question – Is MLM Legal in USA? The legality of MLMs in the USA hinges on adherence to regulatory guidelines and ethical business practices. While MLMs present viable opportunities for entrepreneurship and income generation, navigating this landscape requires vigilance, and thorough research. By understanding the nuances between legal MLMs and pyramid schemes, individuals can embark on their MLM journey with confidence and clarity.

Frequently Asked Questions

MLM software is a platform designed to help MLM businesses to automate, manage, control, and organize their MLM operations. It automates tasks such as member management, commission calculations, sales tracking, and more.

Key features to consider include member management, commission tracking, e-commerce integration, multi-currency support, reporting tools, and scalability.
Meet The Author
Pavanan Ghosh

Co-founder and Chief Marketing Officer at iOSS

A seasoned analyst with a passion for innovative marketing ideas and trends in software development, Artificial Intelligence, and Multi-Level Marketing trends. Specializes in spotting major trends at the intersection of multiple new technologies. Has years of experience planning and delivering compelling projects which combine two or more of these increasingly popular technologies.

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