How to Legally Start an MLM in Canada: Incorporation, Licensing, and Compliance

Multi-Level Marketing (MLM) businesses in Canada are heavily regulated. This has resulted in a web of layered laws, both federal and provincial, which may present significant regulatory hurdles for those wishing to establish an MLM in Canada. Below is an outline of the necessary steps to legally launch an MLM in Canada.

Incorporating an MLM In Canada

MLMs will have two choices when incorporating in Canada: incorporating federally or provincially. An MLM that is incorporated federally will be governed by the Canada Business Corporations Act (CBCA). Generally, federal incorporation is often more expensive and time-consuming than provincial incorporation, but offers Canada-wide protection to the MLM’s corporate name, among other benefits. 

If the MLM incorporates provincially, it will be governed by the applicable provincial statute, but the MLM will have to register its corporate name individually in each province in which it chooses to operate. Apart from the various legal considerations, there are also significant tax implications involved in deciding the appropriate business structure to adopt, and accounting advice should be considered.

Understanding Extra Provincial Licensing

Regardless of whether the MLM has been incorporated federally or provincially, each province will require the MLM to register in that province before it can do business. This is known as extra-provincial licensing. In Ontario, this may be done through the Ontario Business Registry.

Obtaining a Written Opinion from the Competition Bureau

In Canada, it is the job of the Competition Bureau to promote and protect competitive markets for the benefit of the consumer. To achieve this, the Bureau is responsible for the administration and enforcement of multiple acts, including the Competition Act.

As it is an offense to operate a pyramid scheme in Canada, the Bureau offers to write written opinions for MLMs regarding whether the proposed business plan will be viewed as a pyramid scheme or an MLM. This is critical in order to ensure that the MLM remains compliant. To receive an opinion, an MLM must have set up a Canadian legal entity, have an existing product, and disclose relevant business information, including but not limited to compensation, contracts, marketing materials, and any other pertinent material.

While not strictly a “license”, it is easiest to think of the written opinion as a “licence” to operate in Canada.

Provincial Direct Sellers License

Some provinces, such as Alberta, Manitoba, and Saskatchewan, require additional provincial licensing requirements. To obtain said licensing, you may be required to provide a criminal record, proof of a written opinion, copies of your documentation, and bonding.

Provincial Vendor Direct Sellers License

Direct selling (door-to-door sales) businesses in Canada may require provincial licensing in certain provinces, in addition to maintaining federal and provincial compliance. However, some provinces, like Ontario, no longer require a direct selling license for vendors. Instead, under the Ontario Consumer Protection Act, there are various regulations that the MLM will need to be aware of before engaging in direct selling. These include regulations such as a 10-day cooling-off period where the consumer can cancel the contract for any reason, informing the customer whether the product has been previously used or reconditioned, and many more.

Common Mistakes MLMs Make

Many MLMs attempt to enter the Canadian market without a proper understanding of the regulations, exposing them to serious civil or even criminal liability. Criminal liability most often occurs when an MLM is found to be operating as a pyramid scheme and not as an MLM. 

Another common misunderstanding is that if your product is available online, then you might not need to register in multiple provinces. Even if your product is online, if your MLM has a participant from Nova Scotia join your Alberta-based MLM, you may be carrying on business in Nova Scotia. These are just a few potential mistakes.

Conclusion

Incorporating correctly, registering in every province you operate, obtaining a written opinion, and securing the right licenses are key steps to keep your MLM in good standing and protect your company. If you are looking to launch in Canada, a stitch in time will save you nine.

How MLM Canada helps

MLM Canada is dedicated solely to helping direct selling companies. We support a client base that includes businesses anywhere from start-ups to legacy direct selling brands. If you would like to learn more, feel free to schedule a free consultation.