Founders programs are a sort of corporate jump-start for network marketing companies. They are often, but not always, used at start-up and may be called “pre-launch” programs. Though rare years ago, such programs have become increasingly common in the last decade or so. When properly designed, they can be effective at getting the company off to a strong and legally compliant start. But unfortunately many such programs are not properly designed.
In too many cases, the programs are designed and intended to compensate for slow cash flow in companies that are struggling to start with limited capital. These types of programs tend to incorporate features that press (or exceed) the regulatory limits on allowable business practices. The abuses may include: excessive income claims, required product purchase or front-end loading, and passive investment and/or common enterprise pay features. It’s a laundry list of risk elements that historically have caused ventures to be shut down as pyramids, unregistered business opportunities, or unregistered investment securities.
One recent example of a pre-launch effort that came to such an unfortunate end was the Funky Shark program that was shut down by the Montana Commissioner of Securities and Insurance (reported in this firm’s December 2012 newsletter). That case resulted in the Company’s owner being fined $40,000.00 and refunding more than $270,000.00 to the program’s participants.
So what can a company do to avoid such problems while trying to boost its chances on start-up? Some options to consider are:
Expect and Plan for slow growth;
Don’t launch before you are ready – Proper development and promotion of a VIABLE RETAIL CONSUMER PRODUCT IS CRITICAL;
Find an angel investor/partner;
Consider making a private share sale. See a securities specialist lawyer regarding a private offering; and
If all else fails, develop your Founders Program ideas and take them to your MLM specialist lawyer. Discuss the risks and consider adjustments to make the program legally acceptable.