Laws of the People's Republic of China

Based on the relevant laws and regulations such as the Fighting Against Unfair Competitions Law of the People's Republic of China, the Protection of the Consumer's Rights and Interests Law of the People's Republic of China, Product Quality Law of the People's Republic of China, the Registration of Enterprise Legal Person Regulations of the People's Republic of China, and in the light of actual conditions in Shanghai, the present Procedures are formulated to standardize pyramid selling activities, to prevent illicit transactions through pyramid selling, to protect the consumer's lawful rights and interests, and to maintain the order of socialist market economy.

   Article 2 (Definition of Pyramid Selling)

The pyramid selling mentioned in these Procedures refers to a mode of direct promotion, in which enterprises that have been approved, according to the law, to engage in pyramid selling (hereinafter referred to as pyramid selling enterprises) and sell goods to customers by recruiting multi-level pyramid selling individuals (hereinafter referred to as pyramid sellers).

   Article 3 (Scope of Application)

All the enterprises and salespersons who are engaged in pyramid selling activities in Shanghai must comply with the present Procedures.

   Article 4 (Qualifications of Pyramid Selling Enterprises)

The pyramid selling enterprise must have the status of an enterprise legal person and shall submit a written application to the municipal industrial and commercial administrative organ before it undertakes pyramid selling. It can start operation only after obtaining approval.

The following documents shall be submitted in applying to conduct pyramid selling:

1. Written application;

2. A copy of the business licence for enterprise legal person;

3. Detailed operating plans or schemes for the pyramid selling, including the date of launching the selling, the varieties, trademarks, qualities and prices of the commodities to be sold, the requirements and formalities for the pyramid sellers involved, the specimen agreement to be signed with the pyramid seller, ways of training the pyramid seller, and measures for handling unsold goods and the matter of remuneration after the termination of the agreement between the pyramid selling enterprise and the pyramid seller, etc.;

4. Other documents required by the municipal industrial and commercial administrative organ.

The municipal industrial and commercial administrative organ shall make a decision on examination and approval within 30 days after receiving the written application.

   Article 5 (Cessation of Pyramid Selling)

The enterprise that intends to cease its pyramid selling activities shall go through the necessary formalities with the municipal industrial and commercial administrative organ.

   Article 6 (Qualifications of Pyramid Sellers)

The following individuals who have the registered permanent residence in Shanghai may be recruited as pyramid sellers:

1. The unemployed;

2. The redundant staff pending reassignment in enterprises;

3. The retiree and other individuals not on the job.

The above-mentioned individuals shall undergo the professional training provided by the pyramid selling enterprises and can commence pyramid selling activities only after obtaining the pyramid seller's certificates.

No individual is allowed to extend pyramid selling by himself or herself, or to draw other people into such business activities.

The pyramid selling enterprise shall not charge fees for the professional training sponsored by it.

   Article 7 (Information To Be Given to Pyramid Seller)

The pyramid selling enterprise shall give the pyramid sellers true information on the following points:

1. Requirements for becoming a pyramid seller;

2. The status of the enterprise's operation;

3. Methods to operate the pyramid selling;

4. The qualities, performance, prices and applications of the commodities to be promoted;

5. Ways to deal with disputes arising from pyramid selling;

6. Procedures for withdrawal from the pyramid selling;

7. Procedures for handling returned goods.

   Article 8 (Signing of Agreement)

The pyramid selling enterprise shall sign with the pyramid seller a written agreement, which shall cover Item 3 to 7 in Article 7 of the present Procedures.

   Article 9 (Prohibition)

The pyramid selling enterprise shall not require a pyramid seller candidate to purchase goods or pay earnest money as his or her qualification for holding the job.

   Article 10 (Collection of Deposit)

The pyramid selling enterprise may collect a deposit from the pyramid seller when it consigns goods to him or her, and settle the account after the sales. The proportion of deposit shall be decided through consultation between the pyramid selling enterprise and the pyramid seller, but it shall not exceed 50 per cent of the cost price of the goods.

   Article 11 (Commodities Prohibited from Pyramid Selling)

The pyramid selling enterprise is not allowed to promote the following commodities:

1. Commodities of which the free trading is forbidden or limited by the state;

2. Domestic electrical appliances;

3. Fresh aquatic products, foodstuffs and medicines;

4. Gold, silver, jewelry and diamond ornaments;

5. Other commodities prohibited from pyramid selling promulgated by the municipal industrial and commercial administrative organ.

   Article 12 (Pricing of Commodities for Pyramid Selling)

The commodities for which prices have been set by the state must be priced as set by the state; prices subject to an authoritative approval must be reported to the department in charge for approval; prices to be fixed by the enterprise itself must not be obviously higher than the prevailing market prices for commodities of the same category.

   Article 13 (Withdrawal from pyramid Selling)

To withdraw from the pyramid selling activities, the pyramid seller shall inform the pyramid selling enterprise in advance, go through the withdrawal procedures as prescribed in the agreement and return the seller's certificate to the enterprise.

The pyramid selling enterprise shall not refuse the unsold goods returned by the pyramid seller nor retain all or part of the latter's deposit.

   Article 14 (Compensation for Damages)

If the returned unsold goods are damaged or lost through the fault of the pyramid seller, he or she shall make a reasonable compensation to the pyramid selling enterprise.

   Article 15 (Responsibility for Sales)

The pyramid selling enterprise shall be responsible for the quality of the goods sold by the pyramid seller, assuming the civil responsibility for the goods sold, in accordance with the provisions of relevant laws and regulations of the state.

The pyramid seller must present his or her certificate to the consumer in the pyramid selling activities; the consumer has the right to ask the pyramid seller to show his or her certificate.

   Article 16 (Preservation of Materials)

The pyramid selling enterprise shall keep an accurate record of the status of the pyramid selling and preserve the following materials:

1. Original vouchers for the purchase and sales of goods, account records, bank bills, bills for transportation and storage expenses and the accounting sheets for the pricing of commodities;

2. Data on the pyramid seller's professional training and related expenses;

3. The total number of its pyramid seller, their names, identification data, work units and home addresses;

4. The agreement signed with the pyramid seller;

5. Vouchers for remunerations paid to the pyramid seller;

6. Other materials related to the pyramid selling.

All materials listed above shall be kept by the pyramid selling enterprise for at least five years.

   Article 17 (Payment of Taxes According to Laws)

The pyramid selling enterprise must pay taxes in accordance with law.

The pyramid seller's personal income tax shall be deducted by the pyramid selling enterprise from his or her earnings from the pyramid selling activities.

   Article 18 (Measures for Dealing with Breaches)

Pyramid selling enterprises that violate the present Procedures may be punished by the industrial and commercial administrative organ according to the following provisions:

1. Enterprises that are engaged in pyramid selling without governmental approval shall be ordered to cease their pyramid selling activities and face a confiscation of the illegal earnings with a fine 2 to 5 times as much as the earnings; the business licence for enterprise legal person shall be revoked in serious cases;

2. Enterprises that conceal or lie about the items stipulated in Section 2 Article 4, constituting illegal pyramid selling, shall be ordered to cease their selling activities; a confiscation of the illegal earnings and a fine ranging from RMB 2000 to RMB 10,000 shall be imposed according to the seriousness of the case;

3. Enterprises that require a pyramid seller candidate to purchase goods or pay earnest money as his/her qualification for holding the job, shall be ordered to cease their pyramid selling and to return to the pyramid seller his or her payment for goods or earnest money; a fine 5 to 10 times as much as the payment for goods or the earnest money shall be imposed according to the seriousness of the case;

4. Enterprises that conduct pyramid selling involving commodities prohibited by the relevant laws, rules or regulations shall be punished by confiscation of the illegal earnings with a fine 5 to 10 times as much as the illegal earnings according to the seriousness of the case;

5. Enterprises that fail to preserve the relevant materials as stipulated in Article 16 of the present Procedures shall be ordered to rectify the situation within a specific period; a fine ranging from RMB 10,000 to RMB 50,000 coupled with a cessation of the pyramid selling shall be imposed according to the seriousness of the case.

   Article 19 (Functions of Other Administrative Departments)

Any pyramid selling enterprise that violates the relevant laws, rules or regulations on prices, taxes, qualities or sanitation shall be dealt with according to the laws, by the price, taxation, technical supervision or health administrative departments within their respective spheres of functions; serious cases of breaches may be referred to the industrial and commercial administrative organ with the request that it order the enterprises concerned to cease their pyramid selling.

   Article 20 (Civil Responsibility and Criminal Responsibility)

Disputes arising between the pyramid selling enterprise and the pyramid seller shall be handled in accordance with the provisions of the civil laws.

If a breach of the present Procedures is serious enough to constitute a crime, the party concerned shall be prosecuted for its criminal responsibility according to the laws.

   Article 21 (Administrative Reconsideration and Lawsuit)

If the party concerned finds the specific administrative acts unacceptable, it has the right to apply for reconsideration of the case according to the Provisions in the Regulations on Administrative Reconsideration and the Administrative Procedure Law of the People's Republic of China or to take legal proceedings with a people's court.

   Article 22 (Organ to Interpret the Application of the Present Procedures)

The Shanghai Municipal Industrial and Commercial Administration is vested with the authority to interpret the specific application of the present Procedures.

   Article 23 (Date of Implementation)

These Procedures shall become effective on the date of promulgation.