Multi-level marketing (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. So, what are eligibility requirements for MLM registration in Vietnam?
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According to Article 7 of the Decree No. 40/2018/NĐ-CP of Vietnam’s Government providing the regulatory framework for multi-level marketing effective from May 02, 2020, an applicant for MLM registration is required to fulfill all of the following requirements:
1. Requirement for enterprise registration in Vietnam
It must be an enterprise that is duly established under the laws of Vietnam in the territory of Vietnam and has never had a MLM registration certificate revoked.
Notably, 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the MLM company must have never held one of the said positions at a MLM company whose MLM registration certificate has been revoked in accordance with regulations of the Decree No. 42/2014/ND-CP dated May 14, 2014 and regulations of Decree No. 40/2018/NĐ-CP of Vietnam’s Government.
2. Requirement on charter capital
- It must have at least VND 10 billion of charter capital.
- A MLM company is required to open a deposit account at a commercial bank or a branch of foreign bank in Vietnam, and deposit an amount equal to 5% of its charter capital provided it shall not lower than VND 10 billion.
According to Clause 1 Article 50 of the Decree No. 40/2018/NĐ-CP of Vietnam’s Government, compulsory deposit is an amount of money paid to ensure the MLM company’s fulfillment of obligations towards its participants and the Government in the following cases:
- A MLM company terminates its MLM activities under regulations in Clause 1 Article 17 of Decree No. 40/2018/NĐ-CP but fails to fulfill its obligations towards participants and there is an effective decision or sentence granted by a competent authority on settlement of disputes between the MLM company and its participants over such obligations;
- A MLM company terminates its MLM activities but fails to comply with an effective decision given by a competent authority on penalties for violations committed by that MLM company during its operation.
3. Other requirement
In addition to the above requirements, an applicant for MLM registration must have its MLM contract forms, business rule, compensation plan and training programs available, obvious, transparent and conformable with Vietnam’s regulations.
Concurrently, an applicant for MLM registration must develop an information technology system to manage participants in the MLM and a website to provide information about its profiles and MLM activities. The information technology system for managing participants must provide participants with the following basic information:
- Basic information concerning participants as prescribed in Point b Clause 2 Article 29 of Decree No. 40/2018/NĐ-CP;
- Information concerning the number of the MLM contract, identity number, position, level and title of each participant, his/her upline and downline;
- Information concerning the order history of a participant and his/her clients;
- Information concerning the record of commissions, bonuses and other economic benefits of a participant.
The applicant for MLM registration must also develop a communications system to receive and take actions against complaints or queries of MLM participants.
Notably, the applicant shall prepare an application for the MLM registration certificate as regulated in Article 9 of Decree No. 40/2018/NĐ-CP and be legally responsible for the legality, truthfulness and accuracy of the submitted application. A MLM registration certificate shall be effective for 05 years from the date of issue.
Moreover, according to Article 4 of the Decree No. 40/2018/NĐ-CP of Vietnam’s Government, the MLM business model is used to sell products only. The following goods cannot be sold through the MLM business model:
- Medicines; medical equipment; veterinary drugs (including veterinary drugs used in aquaculture); pesticides; insecticidal and germicidal chemicals and preparations which are restricted or banned from household and medical use; other hazardous chemicals;
- Digital content products.
Currently, many organizations have "changed" the method of multi-level marketing, taking advantage of this method in business to deceive many people. However, multi-level marketing is not a scam and has been specifically regulated by law on this business activity. When fully meeting the conditions for registration of multi-level marketing activities, enterprises can completely conduct their business activities in accordance with the law.
Le Vy
