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Is it necessary for MLM business leaders to attract specialists from the outside?

We are considering whether it is necessary to attract specialists from outside in network marketing.

<div id="content-wrapper">In the Russian Federation, entrepreneurial activity is regulated by a set of laws, codes, decrees, and resolutions of government authorities (President, Government, Heads of local Administrations). One of the basic documents for conducting entrepreneurial activities is the Civil Code of the Russian Federation, which has been in effect since January 1, 1995. It contains 1109 articles divided into 60 chapters. This volume consists of over 500 pages. It takes at least five days of "thoughtful" reading to get acquainted with this document. Additional Decrees, Resolutions, Appendices, more or less related to entrepreneurial activities, are issued at best on a monthly basis, and sometimes even weekly. 
 
Running a business requires careful study of relevant sources of information. The fastest way to obtain the necessary information is to have a computer database of legal data with constant updates, and the simplest and most accessible way is to read the "Economic Newspaper." Based on the experience of dealing with tax authorities and other government agencies, each official either is not entirely clear about the sources of information or interprets them in their own way. However, there are rare exceptions when you receive an accurate and qualified answer to your questions on the issue that interests you. Such cases can be considered "luck." 
 
What causes such an attitude of officials towards entrepreneurs? Let's briefly consider the specifics of the work of tax inspectors who "supervise" entrepreneurs operating without forming a legal entity. In St. Petersburg, each tax inspector is "assigned" to 20 to 100 entrepreneurs. Throughout the year, the tax inspector checks "unreliable" entrepreneurs based on received signals, conducts a current review of tax payments and advance payments, issues certificates, deals with problematic cases. They are often absent from their workplace for a long time, constantly going out for inspections - it is not easy to reach them for a meeting. 
 
Even if you manage to talk to an inspector, they will not give you any advice or recommendations - they simply do not have the right to. Tax inspectors are required to collect taxes, not provide consulting services to taxpayers. 
 And another important aspect explaining why an entrepreneur should not rely too much on qualified legal assistance from tax authorities' employees. A tax inspector receives a small salary (300-500 thousand rubles per month) and is not allowed to earn extra income. A qualified inspector who is well-versed in legislation and entrepreneurial issues quickly advances in tax authorities or becomes a corporate lawyer in a successful firm, earning several thousand dollars per month. As a result, mostly unqualified employees remain among tax inspectors, unburdened by deep knowledge of Russian legislation. All consultations on your issues usually boil down to the personal experience of this tax inspector, his personal attitude towards you, and his mood. 
 
Therefore, we often come to tax inspectors with small gifts, but leave with a bad mood, shocked by the original interpretation of some regulatory act. 
 

Now, directly about the issues related to conducting MLM business in Russia. From the perspective of Russian legislation, Network Marketing does not have legal status. There is no employment contract with the company, no contract for the supply of goods with the right to sell, no contract for conducting marketing research and work. There is only an agreement between the company and a physical (legal) person on voluntary compliance with the company's set of rules, upon compliance with which the company compensates you for part of your efforts in promoting its products. 
 
The distributor agreement has legal force from the perspective of International law, but which of the tax inspectors will consider this area of laws? However, if you have received income from MLM business, you are obliged to declare it and pay taxes. 
 
You have two options. The first is at your own risk to hide income, falling under the article of the Criminal Code of the Russian Federation "On Illegal Entrepreneurial Activity." The second way is to declare your income. 
 
From the perspective of the current Russian legislation, you are engaged in one or several types of activities - trading and procurement, intermediary, consulting. If you bought a product and then sold it, you are engaged in trading and procurement activities. The difference between the selling price and the purchase price of each sold item is taxable income. If you bought a product and used it yourself, this action is called purchasing goods for personal use and is not subject to taxation. 
 But if you bought a product and then sold it at the same price, this can already be interpreted either as trading-purchasing activity with zero income, or as intermediary activity, with income (return checks) that you can declare or try to hide. It is important to understand that selling a product without receiving income will arouse extremely acute interest from tax authorities. If you do not explain the purpose of this action with documents and your logic, the consequences can be very unpredictable. Almost any tax inspector is already aware of Network Marketing. The fact of selling a product at the purchase price without receiving income from intermediary activity in this transaction will most likely attract special attention and a desire to carefully check all your documents. 
 
The primary check threatens the documents confirming the purchase of goods by you from someone. The document confirming the payment for the goods must be either a payment order with a bank stamp, or a stub of a cash receipt, or a cash register receipt, or a purchase invoice. The document confirming the fact of transferring the goods to you after payment is either a shipping document, or a sales receipt, or an attachment to the purchase invoice. All these documents are subject to a set of rules for their completion (presence of seller's details, signature, and, if necessary, a stamp). In case of incorrectly filled out documents for the goods you purchased, the tax inspector has the right not to consider them. In this case, all the goods sold by you will be considered taxable income, which will be at least 40% of the amount you received. The simple conclusion is always to have correctly filled out documents confirming your expenses. 
 
Considering the specifics of MLM business, it is worth thinking that there may come a moment when one of your distributors will need documents for the goods they purchase. You have a choice again. You can issue the necessary documents yourself, or you can send your distributor to someone who can sell the goods to them and at the same time arrange all the necessary documents. Let's consider a standard situation. You want to sell goods. The first thing to pay attention to is who you want to sell the goods to. There are several options here: to a simple individual, to an individual who is an entrepreneur, to a legal entity, to a foreign citizen, or to a foreign company (for example, Ukrainian or Belarusian). The same sales document, but to individuals with different legal statuses, requires different sales rules. Selling goods to a simple individual can be seen as a simple delivery of goods from the seller to this person, where in order not to make two trips, you prepay the seller the cost of the goods, which you will then take from your recipient of the goods. 
 As a rule, these are small volumes and amounts that no one checks or documents, although there is always a risk of selling goods to a tax policeman. Selling goods to an entrepreneur can occur in the same way as to a simple individual, but more often requires documentary confirmation because they need documents confirming the purchase. Legal entities that properly conduct their business will always require documents confirming the purchase of goods from you, as well as documents confirming the quality of the goods. The sale of goods to foreign citizens and companies must be carried out according to even stricter rules. 
 
The second thing to pay attention to when selling goods is the place of sale. In a legal sense, places of sale are divided into places of public use (shops, stations, institutions, etc.), markets, fairs, stalls and kiosks on the streets, residential and non-residential buildings, etc. Each place of sale must be properly arranged and registered. If necessary, you must have a license or permit to sell in a specific place and at a specific time, issued by the local administration, in most cases you need to have a cash register, permission from the Sanitary and Epidemiological Service, State Fire Supervision, price tags, and certificates for the goods. In other words, trading rules change depending on the place of sale. The most common method of distributing goods in Network Marketing is "realization of goods through trips". 
 
This is the most accessible method, difficult to control by tax authorities, requiring significant personal efforts, but most suitable for network development. Naturally, it is inconvenient to carry a cash register with you, especially since any cash register is registered with the tax authorities with a "link" to a specific place of sale. In this case, entrepreneurs are allowed to trade using strict reporting forms registered with the tax inspection. But if you start selling in public places, be prepared for "tribute" from local authorities for the right to trade on their territory. 
 
The conclusion is obvious: running a business requires significant nervous efforts, basic legal literacy, reasonable caution, business acumen, and exceptional intelligence. Knowledge of legislation and compliance will help you avoid criminal and administrative liability, hefty fines, unnecessary stress, and will also allow you to sleep peacefully. 
 If you are a leader in Network Marketing, then your seemingly commendable desire to work independently in your business as a lawyer, accountant, economist, or programmer is actually hindering your business. After all, your main task is to work with the network, its growth, and stability. Solving accounting, legal, and other tasks listed above can significantly slow down your work with the "branch". Therefore, it seems more correct to hire professionals or enter into contracts with legal entities or entrepreneurs to handle your affairs. A professional lawyer and a professional accountant can not only make your life easier but also that of your network proteges. By managing your affairs competently, they will significantly reduce your temporary expenses, leaving you the opportunity to develop your network. 
 
At the same time, it is always important to remember that hiring professionals is costly, but it truly pays off. I know many examples where MLM leaders hired people without professional training, and sometimes even scammers. This led, on the one hand, to saving on salaries, but on the other hand, to significant financial losses, sometimes exceeding the five-year salary of such "specialists". Often, the lack of professionalism in such employees led to almost a complete halt in network development, as numerous "non-standard" problems had to be solved: finding missing points, products, or money. 
 
It is practically impossible to find a responsible and professional employee who agrees to work for a small reward. Although there are cases when inexperienced people work faithfully and conscientiously for you. They learn, gain experience, and become decent specialists. In this case, it makes sense either to increase their reward for their increased professionalism or switch to other relationships with them, for example, partnership. But this is rather a rare exception. Therefore, it is better not to skimp on money and hire professionals who value their high reputation. At the same time, it is better not to entrust anyone with the full management of affairs. Always reserve the right to full control. The optimal use of specialists is their processing of all initial information, translating it into reports understandable to you, based on which you can quickly make the necessary decision. 
 
With a high degree of certainty, it can be said that the style of "self-activity" in Network Marketing, when the leader of a large MLM organization with one hand builds a network and with the other struggles with accounting reports, is becoming a thing of the past. "Jack of all trades, master of none" is not the most suitable image for a top leader. Don't be a "baker mending boots" - it's better to hire competent professionals. 
 
Authors: 
Dmitry Novoseltsev. In MLM business since 1993. President-director of the company "Inrich". Academician of the International Academy of Informatization. 
Vladimir Malyarevsky. Head of legal protection for distributors of the company "Inrich" in St. Petersburg. Author of 8 manuals for distributors of the company "Inrich".