MLM in Canada is a legal business model as long as companies strictly adhere to the requirements set out by the Canada Competition Act, especially Section 55.1, which prohibits pyramid schemes. The main difference between a legitimate MLM and an illegal pyramid scheme is the focus on product sales rather than recruitment. This is important for companies looking to scale their network marketing business in Canada, especially existing MLM business owners and startups looking to expand internationally.
In order for MLM to be considered legal, companies must meet key conditions:
Bonuses and commissions should be paid exclusively for actual sales of products or services, and not for attracting new participants. It is the focus on sales that distinguishes MLM from pyramids;
Companies must avoid forced purchasing. Participants must not be cryptocurrency data forced to purchase goods beyond the starter kit, which is sold at cost. This requirement prevents exploitation, where distributors are forced to invest in products they cannot sell. For example, the Competition Bureau of Canada emphasizes that practices such as "inventory loading" are illegal and can lead to the company being classified as a pyramid scheme;
adherence to a buy-back policy that guarantees the return of unsold products under reasonable commercial conditions. This protects participants from financial losses and strengthens confidence in the business model;
Companies are required to provide transparent information about participants' income. The Competition Bureau requires companies to disclose earnings;
But what about non-compliance? Violations related to operating a pyramid scheme are regulated by Section 55.1 of the Canada Competition Act. Fines can be as high as $200,000 per violation. Companies that fail to comply with the law risk not only financial losses, but also jail time for individuals. For example, if a company focuses on recruiting rather than sales, it could be classified as a pyramid scheme, which could lead to consequences.