Being considered an expert on comp plans and knowledgeable of laws as they relate to business opportunities, direct sales, and network marketing (In addition to having built some of the largest and most successful groups in the industry with my 2 partners over the past 3 decades, I often consult with people wanting to start companies wth a good friend of mine who is a former promintent Attorney General and leading nework marketing attorney), the answer is: IT DEPENDS!
If you are promoting any program, regardless of the comp plan, be it a matrix, a binary, a unilevel, a stairstep, etc., and you are making statements that I commonly see here at Adland such as "you don't have to sponsor anyone, sell any product, you don't have to do anything and you can still make money," then statutorily your program is classifed as an illegal pyramid and subject to a variety of statutes, including lottery statutes-period. End of story.
The above type statements are usually associated with matrix plans. You see them every day here at Adland.
Regulators like to see that you have sponsored a few people, acquired a few customers, and have to meet some minimal performance requirements as a justification for your earning income, especially on people you don't know. Without these "triggers" in place, then you are getting paid based on luck if you can make money without having to do anything and that is a big no no in their eyes.
In addition, if the bulk of the income is being earned on the sales made to distributors, your program is destined for regulatory scrutiny. First, regulators don't consider a purchase made by a distributor to be a legitimate retail sale as their primary purpose for making that purchase was in lieu of a business consideration. They want to see sales being made to NON-BUSINESS participants (a true retail customer.)
Second, if you can make money by simply sponsoring someone and without having to do anything else, then you have an illegal program and are subject to "head hunting" charges by regulators. This is one reason why legitimate companies have various requirements in order for distributors to receive income.
Third, regulators like to see at least a 3 to 1 customer to distributor ratio in companies. (This is the reason why Amway instituted a 10 customer rule, why telcom opportunities like ACN have their 6 customer rule, etc.) Any company where the bulk of the revenue is based on distributors purchases and with little to no sales being made to non-business participants (a retail customer) is likely to be hit with pyramiding charges as you are basically left with nothing more than a "money game" amongst business participants.
In addition, you need a legitimate product or service involved that has real value to the consumer (money is exchanged for something of value whereas in a typical pyramid the only thing that exchanges hands is money and the promise of a future consideration, i.e., making money.) Even if you have a legitimate product, you can still have an "illegal pyramid" due to the manner in which the opportunity is promoted by the company or by its distributors.
Matrix plans typically have many of the problems highlighted above, which is one reason why regulators are not big fans of matrix plans as they are often associated with either illegal or "gimmicky" types of programs.
The one common retort from the uninformed is "Well, they haven't had any problems yet," as if this is somehow a legal justification for the program. LOL. It simply means they haven't landed on a radar's screen yet. Numerous companies eventually deemed "pyramids" and shut down operated for several years before getting regulatory attention and prosecution.
Finally, historically, matrix plans have never worked long term, with only 1 company in 50 years having achieved any substantial success and longevity, and even that company has modified their plan numerous times in the past 10 years in order to retain their leaders. I certianly wouldn't want to follow a business model where only 1 company had demonstrated signficant, long term success.
The common benefit that distributors like to promote in a matrix is the possibility of spillover, but you get considerably more potential spillover in a binary plan. The fewer number of legs required in the program, the greater the potential for spillover from a mathematical point of view. There are other, far more inherent problems with a matrix plan which would take up too much space to try to and explain them here. Suffice to say, most knowledgeable and experienced leaders would not work a matrix plan and certainly wouldn't start a company with a matrix plan. (Just because someone has been in the industry for a while does not mean they're knowledgeable about pay plans, the law, etc. In fact, most distributors aren't.)
Furthermore, you can usually earn considerably more money on the same dollar amount of sales volume generated in one of the other, more common types of pay plans.
For both legal reasons as well as historical, I would recommend staying away from programs with a matrix plan, especially if it is a new company as 99% of all programs fail within their first 2-3 years, regardless of the pay plan involved.
If they are promising they have a new, never been done before type of matrix plan, that would be an even better reason to wait for several years as there is no way of knowing if the theory behind their pay plan is really going to work as the matrix pay plan has never really worked long term and successfully. If it is still around 2 years later and thriving, then get in.
Hope the above info helps....
If you have any specific questions, you can reach me at:
themlmdreamteam@hotmail.com
Ken