Сontents

• The Role of Affiliate Agreements in Network Marketing Business
• Why is it necessary to write a network marketing partnership agreement?
• How to structure a partnership agreement?
• Case

Today, the sales system, called network marketing, is developing quite dynamically. This process involves the creation of a partner structure, through which the company's partners are able to attract other partners, conduct their training, receive bonuses for their successful sales, as well as for the sales of those who enter the system thanks to these secondary partners. Despite the fact that network marketing is very common, at the moment, for example, in Russia there is no legislative regulation of this type of entrepreneurial activity. Therefore, the question of how the relationship between the company and its potential partner is formed seems relevant.

Why is it necessary to draw up an affiliate agreement for network marketing?

Due to the fact that network marketing is a promising emerging industry, the question arises as to the legal relations arising between network marketing company and its partners. For example, the well-known giant - Oriflame - previously worked with partners under a retail sale and purchase agreement. Amway formalizes relations with partners, resorting to the construction of a paid service agreement.

Why is it so necessary to competently draw up a partnership agreement, place it on the company's website and adhere to its structure? If the marketing plan of the company described in the grounds and procedure of payments to partners rather complicated way, the affiliate is, an agreement is, reveals the essence of the company's relationship with a partner. It contains a list of rights, privileges and legacy and requirements for a partner. As a rule, joining network marketing allows a person to purchase goods and services from a company 2-3 times lower than the market. The agreement defines, what advantages (it may be discounts for goods and services, an additional fee, etc.) undertakes to provide to the company in return for the fact that a person chooses to cooperate and "PR" goods and services companies. Also, quite relevant is the question of accountability partner to the company, Kotor first determined depending on the level at which a partner is - primary, intermediate, advanced, and others. The partnership agreement establishes guarantees for both the company and the person cooperating with it so that both parties are confident in the future stability of the business relationship.

In the MLM industry, there are several ways to structure the order of interaction between a company and partners:

1. Contract for the provision of services[1] 
2. Agency contract[2] ;
3. Distributor agreement[3] .

As a rule, the essence of the contract does not change from the name of the contract. Therefore, companies can choose, for example, the structure of the contract of sale, but to those sections in which describe partnerships, the provisions will apply to the contract of paid rendering of services.

How to structure a partnership agreement?

Since the relationship between the Company and partner characterized as stable, regular and reimbursable then particular attention should be paid to the structuring of the document and placed emphasis on the most important for the company points. Here are the main sections of the partnership agreement and explain, that should be set out in each of them:

1. Introduction - in this section, the company is obliged to explain what this agreement is, between whom it is concluded and what other agreements it includes.
2. Definitions are the part of the agreement where the company explains what terminology it uses in the agreement. Taking into account the fact that each company in the network marketing industry promotes a unique product or service, implements a direct sales system in a special developed method, and also determines the grounds and mechanism of payments, this section is quite important.
3. Requirements for a partner (agent, distributor) - each company sets an age threshold, having crossed which, a person can become a participant in the company's marketing program. Some organizations require the registration of a person wishing to become a partner as an individual entrepreneur. Such a requirement is presented mainly in order to remove the tax issue.
4. General obligations of the partner (agent, distributor) or a responsibilities side - some companies share their liabilities and their potential "employees," and immediately prescribed some duties of both parties in the same section. We believe that contradict obligations of the company and partner must be placed in separate sections.
5. Guarantees - this section describes what rights and privileges the company provides to a partner in return for the services rendered to them. That is, the company specifies that the partner becomes part of the referral program, thanks to which he receives rewards and benefits by bringing new partners and selling the company's products .
6. Responsibility of partners - the reward and rating of the partner depends on how many people willing to cooperate with the company. Accordingly, companies often include a section in their affiliate program stating that each partner is responsible for building their own company business. A surplus intervention in a superior partners can be viewed by the company as the manipulation of the marketing plan of the company.
7. Rules for the presentation of the company and its marketing plan - the agreement establishes the partner's responsibility for the incorrect interpretation of the "idea" of the company and its rules for potential partners.
8. The use of the company's intellectual property is of course the name, trademark and copyright of the company cannot be assigned by the partner. Companies will consider it a breach of contract for a partner to use any of the company's intellectual property without written consent.
9. Sanctions - this section may contain both penalties and sanctions entailing the termination of the agreement and the impossibility of its conclusion in the future.  

Case

In Russia, there is no judicial practice on the issue of interaction between a network marketing company and a partner. The courts did not qualify the partnership agreement, since at the moment no one has addressed such a question. However, there is a decision in which the court indicated which contract should be concluded between network marketing partners. So, in case No. 2-851 / 2019, the dispute between the plaintiff and the defendant was that the plaintiff transferred a large sum of money to the defendant's account in the framework of cooperation in the field of network marketing on the website of Airatex LLC - htps ://syrex.pro. Instead of funds transferred at the expense of the defendant, the defendant had to charge the same amount in the form of points on the balance in your account Airateks plaintiff, and that was done by him. Before filing a lawsuit, the plaintiff sent a claim with a request to return the disputed funds, but there was no response. The plaintiff in his statement asked the court to recover from the defendant unjust enrichment in the amount of the amount transferred to his account.      

The court in its decision explained that on the basis of the provisions of paragraph 1 of Art. 161 of the Civil Code of the Russian Federation, transactions of citizens among themselves for an amount exceeding ten thousand rubles, and in cases provided by law, regardless of the amount of the transaction, must be made in simple writing, with the exception of transactions requiring notarization. Thus, the agreement of the parties on the alienation of cash bonuses at the rate of 1 bonus = 60 rubles must be recorded in writing by drawing up a purchase and sale agreement.

In this case, the court clearly indicated that the relationship between partners of a network marketing company should be formalized in the form of a purchase and sale agreement. 

To summarize, a partnership agreement that is competently executed and posted on the website of a multi-level marketing company allows us to provide potential partners with an understanding of how the company builds a relationship with them and what privileges they receive.

For questions regarding the preparation of a partnership agreement for a company based on the multilevel marketing model, please contact the specialists of the A4 Law Firm.

[1] https://www.amway.ru/legal/rules-of-conduct#r3 .

[2] https://www.enagic.com.ru/pdf/ru_agency_agreement_legal_entities_residents.pdf .

[3] https://armelle.world/files/distributor_contract.pdf.