# Pyramid scheme under the guise of franchising? - Illegal?

**URL:** <https://boards.straightdope.com/t/pyramid-scheme-under-the-guise-of-franchising-illegal/110349>\
**Category:** Factual Questions\
**Created:** [May 22, 2002, 7:01pm UTC](https://boards.straightdope.com/t/pyramid-scheme-under-the-guise-of-franchising-illegal/110349 "2002-05-22T19:01:21Z")\
**Posts on this page:** 2\
**Page:** 1

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**Author:** ![Church\_Key\_Kid](https://avatars.discourse-cdn.com/v4/letter/c/f9ae1b/32.png) [@Church\_Key\_Kid](https://boards.straightdope.com/u/Church_Key_Kid)\
**Post date:** [May 22, 2002, 7:01pm UTC](https://boards.straightdope.com/t/pyramid-scheme-under-the-guise-of-franchising-illegal/110349/1 "2002-05-22T19:01:21Z")

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I know that pyramid schemes are illegal. I do not plan on investing in the business below or any other business. I just want to know if it is illegal and if this scheme is actually a pyramid scheme.

Person A recruits person B & C. For each $2000 they sell, person A gets $500. Person B recruits B1 & B2. Person C recruits C1 & C2. For each $2000 that B1-C2 sell, their recruiter gets $500. However, person A does not get any kickbacks based on either what persons B1-C2 sell, or what persons B & C get as kickbacks.

Since the plan stops at every level, does this qualify as a pyramid scheme? And, is this illegal?

I apologize if the description is confusing 🙂

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**Author:** ![Gary\_T](https://avatars.discourse-cdn.com/v4/letter/g/3ec8ea/32.png) [@Gary\_T](https://boards.straightdope.com/u/Gary_T)\
**Post date:** [May 22, 2002, 7:26pm UTC](https://boards.straightdope.com/t/pyramid-scheme-under-the-guise-of-franchising-illegal/110349/2 "2002-05-22T19:26:59Z")

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Depends on what they’re selling. If it’s membership in this plan, it’s a pyramid scheme (Ponzi plan) and illegal. If it’s a product or service, it’s network marketing (multilevel marketing) and legal.

There are some network marketing companies and plans that are shady and/or illegal, but network marketing is not the same as a pyramid scheme. The term “pyramid scheme” has a specific definition, and does not properly refer to all business plans that appear “pyramidal” on paper.