Puerto Rico

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.

Laws of Puerto Rico

TITLE 10 COMMERCE

CHAPTER 49B MULTI-LEVEL DISTRIBUTION COMPANIES

§ 997. Definitions.

The following words and phrases as used in this chapter shall have the meaning hereinbelow expressed:

(a) Multi-level distribution company Means any natural or [juridical] 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.

(b) Dealer Means any natural or [juridical] person to whom is granted a franchise or concession for the distribution and/or sale of properties or services as dealer, agent or participant for the purpose of developing a market therefor in Puerto Rico.

(c) Distribution contract Means the relationship established between a dealer and a multi-level distribution company whereby the dealer takes charge of the distribution and/or sale of properties or services in Puerto Rico.

(d) Benefit Means any retribution, wage, incentive, commission, dividend, consideration, bonus, agent's fee, reimbursement, deduction or any other type of profit with regard to a distribution contract.

(June 5, 1973, No. 96, p. 409, § 1.)

§ 997a. Prohibited activities.

No multi-level distribution company may, by itself or through dealers, agents or participants, carry out the following activities in the Commonwealth of Puerto Rico:

(a) Operate or directly or indirectly participate in the operation of any marketing program in which the benefits of the participants depend primarily on the continuous and successive enlistment of other participants and where the distribution and/or sale of properties or services is not required as a prerequisite to obtain said benefits.

(b) Offer to pay, pay or authorize the payment of benefits to its dealers, agents or participants in consideration only for the search and enlistment of new participants.

(c) Offer to pay, pay or authorize the payment of benefits to its dealers, agents or participants unless said persons exercise actual control and effective supervision in the distribution, sale, delivery or remittance of the merchandise or services to an ultimate consumer.

(d) Offer to pay, pay or authorize the payment of benefits to its dealers, agents or participants when such payment depends or is caused to depend on any aleatory or lucky element that prevails over the ability or judgment of said persons; or when such ability or judgment does not influence in any degree the obtainment of the benefits to be received by said persons, or when the dealer, agent or participant does not have a sufficient degree of control over the operations performed as to substantially affect the benefits to be received by him.

(June 5, 1973, No. 96, p. 409, § 2.)

§ 997b. Contracts.

(1) Every distribution contract shall contain clauses permitting the dealer to cancel the contract:

(a) At any time and for any reason within the term of ninety (90) days after the signature thereof, and/or

(b) at any time upon showing noncompliance with any of the essential obligations of the distribution contract on the part of the multi-level distribution company or any act or omission by the latter affecting adversely the interests of the dealer in the development of the market of the properties or services.

(2) The notice of cancellation shall be made in writing and shall be sent to the company by registered mail.

(3) At the time of the cancellation of the contract, the multi-level distribution company shall be bound to perform the following:

(a) 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 percent (90%) of their original net cost.

(b) Return to the dealer not less than ninety percent (90%) of the original net cost of any services acquired by him.

(c) Return to the dealer not less than ninety percent (90%) of any sum paid by him for the purpose of participating in the business.

(June 5, 1973, No. 96, p. 409, § 3.)

§ 997c. Reasonable stock of merchandise available.

No multi-level distribution company may, by itself or through its dealers, agents or participants, require the acquisition of products or services or payment of any sum as an indispensable condition to participate in the business, unless the company, its dealers or agents have a reasonable stock of merchandise available, or are in a condition readily to render services.

(June 5, 1973, No. 96, p. 409, § 4.)

§ 997d. Enlistment of new participants; information on gains or benefits obtainable.

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.

(June 5, 1973, No. 96, p. 409, § 5.)

§ 997e. Injunction.

The Secretary of Justice of the Commonwealth of Puerto Rico shall have power to bring injunction or any other kind of proceeding to prevent, avert, detain and punish violations of this chapter or to obtain any other proper remedy.

(June 5, 1973, No. 96, p. 409, § 6.)

§ 997f. Noncompliance with orders; penalties.

Noncompliance of an order of the court to enforce the provisions of this chapter shall be punishable as contempt of court and the person guilty of said violation shall be sentenced to pay a fine not less than one thousand (1,000) nor more than ten thousand (10,000) dollars for each day elapsed without complying with the court's order; Provided, That the provision of this section shall not be construed as a limitation of the powers inherent in the courts to enforce its orders.

(June 5, 1973, No. 96, p. 409, § 7.)

§ 997g. Provisions of public order; waiver prohibited.

The provisions of this chapter are of a public order and therefore may not be waived.

(June 5, 1973, No. 96, p. 409, § 8.)

§ 997h. Prescription of action.

Any action arisen from this chapter shall prescribe after three years reckoning from the date of the definitive expiration of a distribution contract.

(June 5, 1973, No. 96, p. 409, § 9.)

Links to Specific States

MLM Law in 50 States