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The Competition Bureau: Achieving positive written opinions for multi-level marketers

Canada’s legal system imposes severe civil and criminal penalties on multi-level marketing (MLM) plans that fail to follow the law. Illegitimate businesses face the potential of paying unlimited fines, and individuals may face imprisonment. In light of the severe consequences faced, and the demand for market certainty, section 124.1 of the Competition Act enables MLM operators to apply to the Competition Bureau for a binding written opinion on the legitimacy of the plan presented.

Considering the legality of an MLM business

When considering the legality of a business, the Competition Bureau looks to sections 55 and 55.1 of the Competition Act. These two sections delineate the differences between legitimate MLM plans and illegal pyramid schemes. As a general rule, legitimate plans focus on the sale of products, whereas illegitimate schemes focus on the recruitment of people and use illegal business practices such as inventory loading.

The Competition Bureau uses an MLM plan’s marketing materials, financial disclosure documents, terms and conditions, and other documentation and compares it with sections 55 and 55.1 of the Competition Act.

Competition Bureau written opinions

If the Competition Bureau gives a positive opinion, and assuming that the MLM plan presented is in fact adhered to, the MLM plan should not face future investigation by the Competition Bureau. It is important to note however, that this opinion is only offered with respect to the Competition Act, and not other laws; such as the Criminal Code.

If the Competition Bureau gives a negative opinion, the MLM plan may still yet continue to operate in Canada, however there is an elevated risk of investigation which could lead to higher costs, and potentially lead to fines or criminal consequences.

In order to receive a positive written opinion, it is crucial to have a sophisticated understanding of the different nuances Canadian direct sales law presents. In addition, it helps to have experience in compiling and presenting network marketing business documentation to the Competition Bureau.

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The Siskinds Franchise, Distribution and Licensing Group has a long track record of helping international businesses expand and grow in the Canadian market. Contact us to learn how we can help launch your Canadian business today.  

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