Rule 5 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Rule 5(1) lists eleven things every direct selling entity must do: be properly constituted, have a registered office in India, declare that it complies and runs no pyramid or money circulation scheme, keep a certified website, hold the trade mark it sells under, have the right registrations, contract in writing with its direct sellers, verify and identify them, put safeguards in place and answer for the grievances their sales produce.
This article takes the rules as amended up to G.S.R. 454(E) dated 21 June 2023, which changed rule 3 only. Later amendments should be checked on the website of the Department of Consumer Affairs.
Rule 5(1) requires a direct selling entity to be a company under the Companies Act, 2013, a registered partnership firm or a registered limited liability partnership, to have at least one physical registered office in India, to make a self-declaration of compliance and of no pyramid or money circulation scheme, to keep a website certified by a Company Secretary, to own or license its trade mark, to hold a prior written contract on just, fair and equitable terms with each direct seller and to be liable for grievances arising from its direct sellers' sales.
The eleven conditions, clause by clause
| Clause | Duty | In short |
|---|---|---|
| (a) | Legal form | Company incorporated under the Companies Act, 2013; partnership firm registered under the Partnership Act, 1932; or LLP registered under the Limited Liability Partnership Act, 2008 |
| (b) | Registered office | A minimum of one physical location as registered office within India |
| (c) | Self-declaration | Declaring compliance with the rules and no involvement in any Pyramid Scheme or money circulation scheme |
| (d) | Website | A proper and updated website with all relevant details, including the rule 4 documents and the self-declaration |
| (e) | Trade mark | Own, hold or be licensee of a trade mark, service mark or other identification mark; no commission, bonus or incentives on goods or services whose mark it does not own, hold or license |
| (f) | Registrations | All applicable trade registrations and licences, including PAN and GST registration |
| (g) | Certification | Website information certified by a Company Secretary |
| (h) | Written contract | A prior written contract with direct sellers on just, fair and equitable terms |
| (i) | Verified sellers | Verified identities and physical addresses; identity cards and documents only to such sellers |
| (j) | Safeguards | Adequate safeguards that goods and services offered by direct sellers conform to applicable laws |
| (k) | Liability | Liable for grievances arising out of sales by its direct sellers |
For PAN and GST, see our GST guides and income-tax guides.
Clause (a) to (c): set-up and declaration
Clause (a) fixes the legal form. A company must be incorporated under the Companies Act, 2013; a partnership firm registered under the Partnership Act, 1932; and an LLP registered under the Limited Liability Partnership Act, 2008 (printed as "6 of 2009"). Other forms are not listed. An unincorporated, unregistered group of persons therefore does not meet clause (a).
Clause (b) requires "a minimum of one physical location as its registered office within India". A virtual address alone does not meet the words "physical location".
Clause (c) requires a self-declaration "to the effect that it has complied with the provisions of these rules and is not involved in any Pyramid Scheme or money circulation scheme". The declaration then goes on the website under clause (d). The rules do not prescribe a form for it. If your business is preparing the declaration, a compliance advisory review of the structure behind it is worth having, since the declaration is a positive statement about the rules and about the two prohibited schemes.
Clause (d) and (g): the website
The website must hold "all relevant details of that entity, including the documents or records specified in rule 4, the self-declaration specified in clause (c), contact information which is current and updated, details of its nodal officer, grievance redressal officer, its management, products, product information, price and grievance redressal mechanism for consumers". Rule 5(2) lists more items; see rule 5(2). The records come from rule 4.
Clause (g) requires all information provided on the website to be "duly certified by a Company Secretary", with an Explanation defining the term by clause (c) of sub-section (1) of section 2 of the Company Secretaries Act, 1980. Each update to the website information should therefore pass through that certification; the rule does not say how often.
Clause (e): trade mark and commissions
The entity must own, hold or be the licensee of "a trademark, service mark or any other identification mark which identifies that entity with the goods or services to be sold or supplied". It must not give "commissions, bonus or incentives on sale of goods or services of which it is not the owner, holder or licensee of trademark, service mark or other identification marks". In practice, an entity cannot pay incentives on a third party's branded goods unless it holds or licenses the mark.
Clauses (h) to (k): the direct sellers
- Written contract (h). The contract must come first, "in order to authorize them to sell or offer to sell its goods or services", and its terms "shall be just, fair and equitable". The direct seller's side of this is in rule 6.
- Identity (i). All direct sellers must have verified identities and physical addresses, and the entity issues identity cards and documents "only to such direct sellers". This ties in with rule 6(2)(a): a direct seller must not visit a consumer's premises without an identity card.
- Safeguards (j). The entity must create "adequate safeguards" that the goods and services its direct sellers offer conform to applicable laws.
- Liability (k). The entity is "liable for the grievances arising out of the sale of goods or services by its direct sellers". The consumer need not chase an individual seller.
An invented example: Kavya joins a direct selling company as a seller and sells a household appliance to a neighbour. The appliance is defective, and Kavya has since left the network. Under clause (k) the entity is liable for the grievance arising from her sale. Clause (h) and (i) records, a written contract and verified identity, help the entity trace the seller and settle the matter.
Other sub-rules of rule 5
Rule 5 continues beyond sub-rule (1): website information in rule 5(2), declarations, data and grievance handling in rule 5(3)-(9) and advertising, records and monitoring in rule 5(10)-(17). Any contravention is dealt with under the Act (rule 13); see rules 8-13.
Need help setting up a direct selling business?
Choosing the legal form, preparing the self-declaration, getting the website certified and drafting seller contracts all take care. Our compliance advisory team can help you meet rule 5(1) step by step.
Key takeaways
- A direct selling entity must be a company, registered firm or registered LLP.
- It needs at least one physical registered office in India.
- It must make a self-declaration and keep a Company Secretary-certified website.
- It needs a prior written contract with each direct seller, on just, fair and equitable terms.
- It is liable for grievances arising out of its direct sellers' sales.
Read next
- Rule 4: records to be kept at the registered office
- Rule 5(2): information on the website
- Rule 6: obligations of a direct seller
- Section 94: unfair trade practices in e-commerce and direct selling
Disclaimer: Based on the rules, regulations and guidelines named above as published in the Gazette of India or on the CCPA website, with the amending notifications the article names (consulted on 3 October 2026). Later amendments, the Consumer Protection Act, 2019 provisions referred to, State rules and CCPA advisories should be checked. This article is general information, not legal advice; check the official text before acting.