Say I am selling a service and I sign up a corporate customer for my services(Principal not employee). I then sign that customer to a contract as an agent under my company and the compensation is 30% of the profits generated by the business initiated by the now "agent" (e.g. if the agent generates $10,000 in a month, I would pay the "agent" $3,000 in commissions).

Is this legal?

  • 2
    Your description of that scenario is somewhat confusing. (1) The fact that your agent was initially your customer seems irrelevant. (2) You pay 30% of the profits he generates, but then you say you pay the agent "$3,000 in commissions" each month: is it safe to assume that the percentage and the amount will match? (3) What exactly makes you think that something in this scenario might be unlawful? Commented Nov 15, 2023 at 13:51
  • Where? The law, especially on issues like this one, is not the same everywhere.
    – ohwilleke
    Commented Nov 15, 2023 at 17:26

1 Answer 1


We don't have enough facts to know from the facts of the question. But under U.S. law, there is a real possibility that this is an illegal Ponzi scheme.

Primarily, the question of whether a multi-level marketing scheme is illegal or not depends upon whether the economic benefit flows substantially from recruiting "agents", in which case it is in illegal Ponzi scheme, or whether the return mostly flows from the profits from sales of the underlying goods and services. There is also the question of whether adequate disclosures are made to new potential "agents" under securities and/or franchising laws (at both the state and federal level).

Of course, every illegal Ponzi scheme operator claims to be (and belabors the point ad nauseam with everyone involved) that they are "really" just a legal multi-level marketing system, just like big businesses with commissioned salespeople in all sorts of other fields, even when they are not.

As a lawyer advising a client about whether to become an "agent" in a scheme like this one, I would strongly advise them to run as fast as they can away from the possibility. Even multi-level marketing schemes that are technically legal are almost always riddled with deceptive trade practices, abusive management of the contracts involved, disreputable founders selling dubious goods and services, poor economic returns for those not near the top of the pyramid, and destroyed interpersonal relationships for the participants. People with legitimate, good quality goods and services to sell simply do not structure their enterprises as multi-level marketing schemes.

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