Sunday, September 21, 2014

The Best Advice for Network Marketers, Sales Consultants and MLM Reps

Let me tell you a story.

It began in January 2005 when I created Purify Your Body, LLC and started selling detox foot pads. My customers loved them, and it was successful from the beginning.  Then about 6 months later I started selling a few more products that also did well. At that time, I found an MLM company that offered a product that would have gone great with my current product line up. By only offering it on my website, I got about a hundred dollars worth of business per month and I didn't have to sell anything at all! It wasn't a lot, and I was just small fish in a big pond.

Then, out of the blue this MLM company got sued. It was a frivolous lawsuit, but they happen ALL THE TIME. The lawsuit also named about 10 "distributors" that they randomly found online. My company was one of them, along with 9 other distributors that didn't have an LLC, but only signed up under their personal name.

It was a horrible experience being named as a defendant in a lawsuit. I had to fill out some paperwork and argue with the MLM to get my company off the hook, to actually enact the "distributor" agreement that I had thought protected me against things like this.

And, it would have been a bit more dreadful for me if I had signed up as an individual, using my social security number instead of my business Tax ID number. Those 9 other defendants had a LOT harder time than I did and it cost them a LOT more than it cost me.

Now, I see a gazillion people out there, as consultants for a myriad of MLM companies. And most of them do it under their own personal name! That is EXTREMELY scary. Many of my friends are consultants under their own personal name as a sole proprietor!!! ACK! I want to help them.

So, what I want to do is give some business advice. Here is a rundown on business entities directly from the IRS website:

Sole Proprieter. 
LIABILITY: A sole proprietor has total control, receives all profits from and is responsible for taxes and liabilities of the business.

LIABILITY: There must be at least one general partner that acts as the controlling partner and one limited partner whose liability is normally limited to the amount of control or participation of the limited partner. General partners of an LP have unlimited personal liability for the LP’s debts and obligation.

C Corporation.
LIABILITY:  In almost all cases this limits the owners from personal liability

S Corporation.
LIABILITY:  In almost all cases this limits the owners from personal liability

Limited Liability Company (LLC) 
LIABILITY:  This classification generally offers liability protection similar to that of a corporation. No personal liability.

So out of all these types of business entities, the one I recommend most for sales consultants that have created their own business representing an MLM is an LLC. This gives you the protection of a corporation, and you can operate it as a sole proprietorship with basically nothing changing except maybe you paid $100 to set it up (each state varies, and it is so easy to do, I will go over that in a moment), and now you have liability protection.

As a sole proprietor, you (and all your personal savings accounts, etc) are solely responsible for all debts, lawsuits, and liabilities against your business! That is SCARY!!

An MLM can even sue you as is the case with Mary Kay.

You also may want to look into getting liability insurance for your new LLC, as well, depending on what type of product you are representing.

Somewhat Personal Story

What spurred this blog post was some folks selling essential oils and telling people they are safe to ingest. I am an essential oil lover, but know that ingesting them improperly is VERY risky, especially for children. I can see in the future someone buying essential oils from a sales consultant who told them to give to their 4 year old child internally.... and then the child's esophagus being burned and irreversible damage to the stomach lining occurring... and then that sales rep, who was only repeating what the MLM told her was "Safe" (although it wasn't) gets sued by that family, and loses not only her savings, but her husband's 401K, they lose their house, and everything they have been working for for the past 15 years. (not a fully true story but based on a friends' personal experience).

If that sales consultant had an LLC, none of her personal accounts would have been touched. (In all fairness, anyone can sue anyone, so she could be sued personally, still, but that would get dropped from court so quickly).

Legal Zoom describes it perfectly here:
As a sole proprietor, you and your business are legally inseparable. In other words, your company's debts are legally YOUR debts. And a lawsuit brought against your business is also a lawsuit against YOU. This means your home, car, savings and investments could all be taken from you should your business get sued or go into debt.

In contrast, an LLC is viewed as a legally distinct entity. If your business hits hard times, you are not personally held responsible for any debts or court judgments. Moreover, if your business goes under, you won't have to carry your business debts over to your next venture. Whatever your line of business, protecting yourself against personal liability can help you avoid a potentially disastrous situation  (p. 5)
So, how do you protect yourself? Create an LLC!

Here's what you need to do to form a limited liability company.
  • Choose an available business name that complies with your state's LLC rules.
  • File formal paperwork, usually called articles of organization, and pay the filing fee (starting  about $100, depending on your state's rules).
  • Create an LLC operating agreement, which sets out the rights and responsibilities of the LLC members.
  • Publish a notice of your intent to form an LLC (required in only a few states).
  • Obtain licenses and permits that may be required for your business.
Each state has different requirements, but when I created mine initially in Minnesota, it cost  about $100 and I had to fill out 2 pieces of paper and sign. That was it. I didn't even need to notarize it. 

You will want to go to your state's secretary of state website.(Google "Creating an LLC in XXXX state") Or you can pay a company like ZoomLegal or New Company to do it for you. But honestly, I recommend you doing it yourself, it is super simple and may save you from severe hardship in the future!

About Me: Hi! I am Rebecca :) I am the owner of Purify Your Body Detox Foot Pads. I love natural health and wellness, and I love to eat real food. :) 

I love my family, and my pets. I actually love all animals -- they are much nicer than most humans! I don't watch TV and haven't watched a movie in the theater for more than 9 months. I would much rather read a book!

I love to garden and make homemade products -- body butter, toothpaste, perfume, cheese, yogurt, etc. It tastes better when it's made from scratch!  Contact me here:

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