Tax & Trade Blog
DIRECT SELLING INDUSTRY: Rep Licensing is Required?
Canada is often viewed as a natural extension of the American direct selling ecosystem: it has a common dominant language, similar culture, convenient land border, and a market of over 38 million people!
While there are many similarities, there are still unique legal and regulatory features that direct selling businesses operating in Canada must be aware of and adapt to — all of which can be easily avoided with the right planning, structuring or advice. This includes the appropriate “Canadianization” of plan documents and overall business strategies.
In the fourth of a 5-part series, we review one of the major risk areas facing the Canadian direct selling industry:
Individual Rep Licensing Required Locally!
Established Canadian direct selling businesses know that in addition to their own direct seller licenses – which are required in most Canadian provinces and territories – certain provinces and territories ALSO require each individual distributor or sales representative obtain their own direct seller licenses before they can legally sell or operate in that jurisdiction.
Sadly, these requirements tend to be honored more in the breach that the observance (e.g., we had one recent Manitoba Client with 300+ contracted distributors in Manitoba, but none of them licensed; that made for an awkward conversation with the Manitoba regulator!)
Recent Enforcement Issues
The risk level for issues in this area has been ramped up substantially in the past two years with some provincial regulators now regularly asking direct selling businesses to explain discrepancies between contracted distributors and those licensed in the province – all BEFORE agreeing to renew the company’s required provincial direct selling license.
For our above-referenced Client, the Manitoba enforcement action led to the implementation of additional internal procedures during sign-up, and some post-signup verification, all aimed at “helping and encouraging” new distributors to become licensed in their provinces of residence as they are legally required to do.
Other direct selling businesses have re-examined their internal threshold for determining whether participants in the Compensation Plan are actually distributing products (requiring licensing) or merely making personal purchases (not requiring licensing) and developing Affinity Programs to deal with the latter group.
Given the diversity of plans and structures in the industry, there are no one-size-fits-all solutions, but professional advice can again assist is reducing the risks in these areas.
The bottom line is that most direct selling businesses operating in Canada are expected to have at least some local “distributor licensing” requirements affecting their distributors and sales representatives. For the Company, this issue is often raised at the point in time that it seeks to renew its own provincial license in these provinces. Companies need to be aware of these obligations, and act proactively.
This local enforcement action leads to the implementation of internal compliance procedures, to “help and encourage” new distributors and sales representatives to become licensed in their home provinces – which is a legal requirement!
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