When the economy presents financial challenges, more people look to supplement their income by starting their own home businesses. Many financial advisors, such as Robert Kiyosaki recommend home businesses and in particular Direct Sales MLM opportunities. Many times starting a home based MLM business is the least expensive way to start a business and provides the fastest way to generate an additional stream of income.

However, history has shown that during these same periods of time, illegal pyramid schemes are also more prevalent. It is an unfortunate, but true, fact that when people are struggling, there are others who will prey on the desperate situations caused by the economy.

I'm pretty sure we are in a period of economic distress. Gas prices are at an all time high with no relief on the horizon. Cheap gas is a thing of the past. Unemployment is increasing. Mortgage foreclosures have driven home values down in most communities and many people who need to sell their homes cannot sell their properties for what they owe. The wars in Iraq and Afghanistan continue with no clear end in sight.

Consequently, more and more people either are, or will be, looking for ways to supplement their income. Many will be looking for part time, work from home, business opportunities.

Because illegal pyramids can appear to be legitimate MLMs, it is important for anyone looking for a home business opportunity to understand exactly what constitutes an illegal pyramid so they can protect themselves and their hard-earned savings from predators.

According to dictionary.com, an illegal pyramid scheme is defined as follows:

"n. A fraudulent moneymaking scheme in which people are recruited to make payments to others above them in a hierarchy while expecting to receive payments from people recruited below them. Eventually the number of new recruits fails to sustain the payment structure, and the scheme collapses with most people losing the money they paid in."

Pyramids are illegal because they cannot sustain themselves. They are not valid business models, they are nothing more than an exchange of money for nothing. Many times, these deals pay "commissions" on recruiting new investors and not on the sales of product or services.

Legitimate Direct Sales companies only pay commissions on the exchange of products or services purchased for use or consumption by the end user. They do not endorse buying products that are not for use or consumption and never endorse the payment of money or commission without the exchange of product. If you run across an organization claiming to be a legitimate Direct Sales organization that asks for money that is not in exchange for a product or service.... be very skeptical.

The Federal Trade Commission regulates fair trade practices in the United States. They will not tell you whether or not a particular MLM company is legitimate and always recommend you use good judgment. On their website they offer these seven tips to consider when making your decision:

1. Avoid any plan that includes commissions for recruiting additional distributors. It may be an illegal pyramid.
2. Beware of plans that ask new distributors to purchase expensive inventory. These plans can collapse quickly -- and also may be thinly-disguised pyramids.
3. Be cautious of plans that claim you will make money through continued growth of your "downline" -- the commissions on sales made by new distributors you recruit -- rather than through sales of products you make yourself.
4. Beware of plans that claim to sell miracle products or promise enormous earnings. Just because a promoter of a plan makes a claim doesn't mean it's true! Ask the promoter of the plan to substantiate claims with hard evidence.
5. Beware of shills -- "decoy" references paid by a plan's promoter to describe their fictional success in earning money through the plan.
6. Don't pay or sign any contracts in an "opportunity meeting" or any other high-pressure situation. Insist on taking your time to think over a decision to join. Talk it over with your spouse, a knowledgeable friend, an accountant or lawyer.
7. Do your homework! Check with your local Better Business Bureau and state Attorney General about any plan you're considering -- especially when the claims about the product or your potential earnings seem too good to be true.

The Direct Selling Association is the ethical governing body for legitimate MLM companies. According to their website, their mission is: "To protect, serve and promote the effectiveness of member companies and the independent business people they represent. To ensure that the marketing by member companies of products and/or the direct sales opportunity is conducted with the highest level of business ethics and service to consumers."

MLM companies which belong to the DSA pledge to abide by the organization's code of ethics.

If a company belongs to the DSA, you can have some confidence the company is legitimate. However, you should still use your common sense. A company's ethical commitment may sometimes be blurred by an unethical consultant.

If a company does not belong to the DSA, that does not necessarily mean the company is not legitimate. A company has to have been in business and show compliance with the association's ethical standards for at least a year before it may become a member of the DSA. Once again, you must use your common sense.

The DSA provides these six warning signs of fraud:

1. Pressure to sign a contract quickly and agree to pay a large sum of money before sales claims can be investigated or legal advice obtained.
2. Promises of extraordinarily high or guaranteed profits
3. Claims that profits can be achieved easily
4. A required initial fee which greatly exceeds the fair market value of any products, kits or training
5. A large fee payable before you receive anything in return
6. Evasive answers by the salesperson or unwillingness to give disclosure documents required by law.

Unfortunately, many members of legitimate MLM companies will actually trigger alarm based on one or more of the above warning signs due to their marketing practices. Many MLM companies teach their consultants to market their opportunity based on the potential to make a large commission with very little effort.

These MLM marketers contribute to the confusion between legitimate MLM businesses and pyramid schemes. These marketing practices trigger warning bells for many people, as they should. This is not professional marketing. It is desperation marketing. But, it is rampant in the industry.

Fortunately, the way of the future of MLM is attraction marketing. As more and more Direct Sales professionals embrace this new way of doing business, differentiating between pyramid schemes and legitimate business opportunities will become easier.

However, for the near term; use your common sense when searching for a home business opportunity and be careful with your investment dollars.

But once you find that MLM company that fits your needs and wants, learn how attraction marketing and internet marketing techniques using Web 2.0 can increase your productivity and help to promote yourself as a true Direct Sales professional.