There are many creative ways to start businesses, and typical business structures include hierarchical structures. Hierarchical structures often take the form of the founder being at the top of the system, risking more but potentially reaping the highest financial benefits. Meanwhile, the least experienced employees at the bottom of the hierarchy will likely receive the lowest pay.
This is a picture of a typical organization, and while this pyramid structure is completely legal, there are many organizations that become unlawful when they take on a similar, but slightly deviated form. These types of organizations are know as pyramid or Ponzi schemes.
What are pyramid schemes?
Pyramid schemes take inspiration from the typical hierarchical structures of organizations, however they incorporate another specific formula that means that the business becomes a fraudulent one.
This formula usually takes the form of recruiting new members or "employees" and demanding that they pay a fee in order to join. The new member must then try and recruit new members, demanding a fee from them in addition.
The factor that tends to distinguish illegal pyramid schemes from legal multi-level marketing organizations is that pyramid schemes put more emphasis on the recruitment aspect of the business rather than the product that they intend to sell. In this way, the product being sold simply becomes a prop from behind which organizations can operate their pyramid or Ponzi scheme.
If you have been accused of operating a Ponzi or pyramid scheme when you believe that you are operating a multi-level marketing organization, it is important that you take action to defend yourself.