MLM Law: Puerto Rico MLM Company Laws
Puerto Rico has a "Multi-level distribution company" law on its books regulating the operation of network marketing companies which are defined as: "any natural or artificial person who grants in exchange for an economic retribution, a franchise or concession for the distribution and/or sale of properties or services, to dealers who serve as intermediaries to enlist other dealers to the program and where other benefits or economic incentives are also offered for the purpose of promoting said enlistment." Puerto Rico Laws Annotated, tit. 10 §997a
Under the law, no multi-level distribution company may operate a program in which the benefits to the participants depend primarily on recruiting as opposed to the sale of properties or services, or where payment is in consideration only for the search and enlistment of new participants. In addition, no commissions shall be paid unless distributors exercise "actual control and effective supervision" in the sale of products or services to an ultimate consumer. Puerto Rico Laws Annotated, tit. 10 §997 et seq.
Every network marketing contract must contain various clauses permitting distributors to cancel the contract for any reason within the first 90 days, or if the distributor can show breach by the company. The notice of cancellation shall be made in writing and shall be sent to the company by registered mail. In the event of such a cancellation of the contract, the multi-level company must "reacquire the total of the products acquired by the dealer which are in his possession and in good condition at a price of not less than ninety (90) percent of their original net cost," and ,must refund 90 percent of "the original net cost of any services acquired by him," or "of any sum paid by him for the purpose of participating in the business." Puerto Rico Laws Annotated, tit. 10 §997b
Earnings representations are limited as follows:
No multi-level distribution company may, directly or indirectly through its dealers, agents or participants, use as propaganda in the enlistment of new participants information on the profits or benefits obtained in the past by its dealers, agents or participants, or assure to prospective participants in this type of business a given amount of profits or benefits, unless the profits or benefits mentioned are those obtained at present by a reasonable number of participants in the Commonwealth or a similar geographical area and reflect the average profits and benefits obtained by them through the distribution and/or sale of properties or services. Likewise it is prohibited to make use of propaganda aimed at showing the facility of enlisting and retaining new participants and their operational or economic success.
Puerto Rico Laws Annotated, tit. 10 §997 d.