Legal Question in Business Law in California

Offering compensation through several referral levels

Is it legal to offer a financial reward through multiple levels with varying rates of compensation?

For example, I am allowed to earn a commission for sales made by a person introduced to my 3rd level downline:

Me

|

A..B..C

|

X..Y..Z

|

1..2..3

In the above diagram I introduce three people, Mr C introduces three people (x,y,z) and Mr X introduces Mr 1, Mr 2 and Mr 3.

In level one (Mr A,B, & C) I earn 25% commission, in level two (Mr X, Y & Z) I earn a 10% commission and in level three (Mr 1, 2, & 3) I earn a 5% commission.


Asked on 12/01/03, 6:16 am

1 Answer from Attorneys

Michael Olden Law Offices of Michael A. Olden

Re: Offering compensation through several referral levels

You don't really say what this is about. Is the real business with products. Much you keep an inventory and when you "introduce" someone into the business must they buy inventory from you. Who cares what the percentages are, it seems like it is more of a Ponzi scheme, Pyramid scheme more than anything else. It is illegal and depending upon where you are the district attorney in that city may very well arrest you and others in the scheme leading to a charge which could be a felony charge depending upon the amount of money involved and conviction. I wouldn't worry about the percentages as much as the nature of the business. So my advice, why haven't you already seen an attorney, you need an attorney, you need to lay this out in front of an attorney said that a person schooled in the law can tell you the legality or not of the whole of the business and not just whether or not different layers of individuals have less percentages than others. By the way percentage of what???i have been practicing law in this speciality for over 30 years in the san francisco bay area and if you wish to consult with me you can contact me at 925-945-6000.

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Answered on 12/01/03, 10:54 am


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