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Pyramid Schemes and Missouri’s Corporate/Business Law

On Behalf of | Jun 8, 2022 | Business And Corporate Law

Pyramid schemes have been controversial for decades in Kansas City, Missouri. Pyramid schemes are a problem for state and local law enforcement because they usually include fraudulent activities. Missouri has introduced new laws designed to limit the impact of pyramid schemes in the state.

What is a pyramid scheme?

Pyramid schemes were an exciting business trend of the late-20th-century. However, investors soon found they were losing money in fees and payments to an organization at the top of the pyramid. The operators of pyramid schemes promise profits for lower-level investors, who recruit more members to the scheme. The fraudulent nature of these schemes is based on their failure to follow Missouri’s corporate/business law. Instead of making money through investments or retailing products, a pyramid scheme makes money from the recruitment of fee-paying members.

Multi-level marketing and pyramid schemes

There has been some confusion about the difference between multi-level marketing and pyramid schemes. Multi-level marketing companies often have a pyramid structure but produce products for sale that drive profits for members. When you are choosing a type of business to enter, you should be aware of its structure. Multi-level marketing companies produce goods that lessens the reliance on recruiting new members.

Missouri’s pyramid scheme laws

Corporate/business laws in Missouri have taken a powerful stance against the arrival of pyramid schemes. Looking to the north, Missouri’s legislature saw a widespread pyramid scheme take hold of the Canadian economy. The laws of Missouri include a ban on the marketing of pyramid schemes in the state. Any franchise owner must receive a 90-day notice for their franchise license to be terminated.

Missouri has taken a firm stance on the solicitation of pyramid schemes. Understanding the structure and pitfalls of pyramid schemes helps you to identify them.