There are many MLM companies in the market. Some are making enough money and some are losing it. Some of them are Pyramid schemes which are totally scams.

There are a few major differences between Legal MLM and the Pyramid Scheme. Let’s look into it and understand it in detail.

Is Network Marketing (MLM) Legal in India?

Yes, network marketing is legal in India, also called Multi-level marketing (MLM), is a sales strategy in which products or services are sold directly to consumers without going through retail stores.

MLM companies sell their products or services directly to other people. Maybe from their home or online. The entire purpose of MLM is to move products. The main idea behind the MLM strategy is to promote the maximum number of distributors for the product and faster increase the sales force.

Is The Pyramid Scheme Illegal?

The simple answer is yes! Pyramid Schemes are about recruiting people and making money by signing up more of them. These schemes are illegal business and scams.

This scheme promises you to become rich by recruiting more people and earning money. But that’s a lie. You also may have to pay repeated fees for training sessions or expensive marketing materials. These schemes promise you to give high returns in a short time for doing nothing. 

Difference Between Pyramid Scheme And Legal MLM:

Pyramid Scheme Legal MLM
No real product or serviceReal product or service
Making Money by recruiting more peopleMaking Money by selling products 
Illegitimate businessLegitimate business
Have to pay repeated fees for things other than productsNothing to pay for things other than products

Because of low knowledge of Pyramid schemes and Legal MLM, People often consider both of these as the same concept. As we have seen above, There are huge differences between the Pyramid scheme and Legal MLM.

Now, you may know a little about the Difference between the Pyramid Scheme and the LegaL MLM company.  Let’s understand it a little more by understanding their Plans and Models, Legitimacy, Types of Products and Services sold through MLM.

MLM Compensation Plans And Models:

Compensation plans in MLM are calculations based on how the commission is distributed among distributors who promote or distribute their product. The MLM Compensation plans include Uni-level, Generation, Matrix, Binary, Hybrid plans, Board MLM Plan, Monoline Plan and Autopool Plan,

MLM Unilevel Plan 

This is the simplest one. In this plan the structure is like a person can recruit unlimited FRONTLINE distributors for the product. The frontline distributors can recruit more distributors in their network. And this cycle continues the same for all. Commissions are paid up to a few levels deep. These levels depend on the company and how much they decide to distribute.

MLM Generation Plan

The Generation plan is structured for individuals as well as group sales. In this plan a person is assigned with multiple recruiters in their network. There is some sales goal to achieve in particular time for distributors to achieve higher commission levels. This pattern continues up to certain limits.

MLM Matrix Plan

The MLM Matrix plan is similar to the Unilevel plan, except that a limited number of distributors can be sponsored at any level, and once that preset number is reached, another matrix can be started.

MLM Binary Plan

This plan allows only two distributors at the frontline. If there are more distributors, they have to be recruited to the next level. The sales volume of the distributor’s both sides should be balanced in order to earn the commission.  

MLM Hybrid Plan 

As the name suggests, combines any of the above-mentioned compensation plans.

MLM Board Plan

Board MLM plan is one of the most popular compensation plans. The distributor or member who met or qualified certain criteria set by MLM companies will get a new position in the next board. A board is a new tree formed for those members who achieve these criteria. Board plan is also known as the recycling matrix plan.

MLM Monoline Plan 

A compensation plan with a single-line structure with unlimited depth or levels. The compensation plan got its name ‘monoline’ because of this single line structure. The new members joining after the first level are spillover to the next available levels.

MLM Autopool Plan

This plan is defined as a combination or group of multiple non-working structures. It’s also a combination of a working and non-working income system. In which working plan structure is Monoline MLM Structure, Binary MLM Structure or 1×3 Matrix MLM Structure wherever non-working is mostly 1×3 Matrix MLM.

Pyramid Scheme Compensation Model:

In this model, People need to make an upfront payment so that they can be allowed to join the scheme. Scheme is used to pay off that money to the earliest investors. The new members start earning if only they are able to recruit more people into the scheme.  

The concept behind the Pyramid scheme sounds simple. It is a scam because there is no real product or service to sell.


The Ministry of Consumer Affairs, INDIA set guidelines that help consumers to find out legal plans. The difference between MLM and Pyramid scheme listed in these guidelines are as below:

  • Sales of actual products or services to consumers, MLM offers products whereas Pyramid schemes do not.
  • Commissions are paid on the sale of products and not on enrolments; MLM has a hierarchical commission set up on the sales of products, whereas pyramid schemes are based solely on new enrolments.
  • The company buys back inventory from participants at the time of termination, pyramid schemes do not have any inventory.

Products And Services Sold Through Direct Sales:

Products and services are the main difference between Legal MLM and Pyramid Scheme. Many products and services sold through direct sales includes:

  • Cosmetics
  • Cookware 
  • Household Decor
  • Clothing
  • Nutritional Supplements
  • Insurance
  • Education Services, etc..

Many of the most successful direct selling companies, including AVON sell consumable products. Such as cosmetics, Skincare, Vitamins, and Household Cleaners. These products are typically inexpensive to produce but can be sold at a reasonably high price. Additionally, Customers need to repurchase them regularly, because these products are consumable. 

Hope this article helps you to understand more about the Difference between the Pyramid Scheme and Legal MLM company. If you have any questions about the Pyramid scheme and Legal MLM company, you can contact us.