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socrateaser
socrateaser, Attorney
Category: Business Law
Satisfied Customers: 33568
Experience:  Retired (mostly)
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Question regarding profit in the context of organizing a family

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Question regarding profit in the context of organizing a family reunion

Hello,
We just organized a family reunion where we rented a venue, hired a catering company, also had to buy decorations and some sound equipment. We decided up front that we will divide all expenses to all participants. The total expenses come to about $6000.

An issue came up with the sound equipment (about $300 worth) we had to buy for this purpose. This equipment has been used only once for this reunion and we could not decide if it is legal if we can all pay for it while one person will take it home after.

Everybody wants to pay their share (about $10 per person) for this equipment, but some are worried that in our liquor license we got for the party it says we should not make a profit. Some interpret that buying this sound equipment, using it once then one person taking it home until we use it again next time means we made somehow a profit - in the sense that one person gets to use what others paid for.
Since we do this every year we plan to possible use the same equipment next year and some of the people (but not all) who paid this year get to use it next year too.

Is the "profit" concern valid in this case? What is the definition of profit? Are there some limits under which we should not be worried anyway?

Thank you.
Submitted: 1 year ago.
Category: Business Law
Expert:  socrateaser replied 1 year ago.
Hello,

A profit is generating more revenue from the sale of intoxicating beverages than they cost to purchase. Simple as that.

The problem here is that you intend to use your liquor sales, up front to purchase something that will be owned by one person. That's a profit and it's illegal, under the proposed license. If the sound equipment is owned by a nonprofit mutual benefit corporation, and it just happens to be stored at one location, that's not a profit. But, if only one person takes title to the equipment (e.g., makes the purchase and holds the receipt), then that is a profit for that person, unless he/she is purchasing the equipment on behalf of the nonprofit entity.

This would also mean that the mutual benefit corporation would be the entity applying for the liquor license, because otherwise someone else is getting the profit.

Obviously, setting up a nonprofit could be a pain in the butt, but if you intend to do this annually, then that may be what you will have to do, assuming that you intend to hold property for the mutual benefit of the membership.

That said, the government is not going to get on your case over a few bucks, because no one can predict with certainty exactly how much it costs to pour each drink (though commercial establishes can get pretty darn close). So, it's unlikely that anything would happen as the result of this bit of extra dough and the equipment purchase. But, there is a risk, so I must identifying it, so that whomever is buying this equipment understands the risk. Unfortunately, the only means of mitigating the risk is an expensive corporation setup.

Frankly, it would probably be cheaper to rent the sound equipment, but if you've already bought it, then it's a little late for that option.

Hope this helps.
Customer: replied 1 year ago.

Thank you for the prompt response.


I have few followup questions such I can understand this better:


 


(1) Is the risk to the person that applied and got the liquor license or to the person that takes title (stores the equipment and holds onto the receipt) ? Or to both? Aka who goes to jail if it comes to it?


 


(2) Isn't the same risk applicable to all material leftovers from the party? E.g. there were decorations left that somebody took home for next time.


 


What other more reasonable mitigation do we have : e.g. if the equipment is store at more then one person or if one person buys it and owns it and others might make a "donation".


Or any exchange of money is a payment regardless on it is called?


 


Thank you again.

Expert:  socrateaser replied 1 year ago.
I think I can short circuit this issue for you. According to RCW 66.24.380, a violation of a special occasion license (which is what I assume you have) carries only a penalty of a $250 fine and the suspension or cancellation of the license.

So, if you get caught, you end up with only $50.

Hope this helps.
Customer: replied 1 year ago.

Thank you for the answer. I'm looking for a mitigation where I'm not at fault regardless. I do not want to have a record with police where I'm at any fault even for $10.


One last followup question : if one takes title of the equipment it basically takes title of just the residual value of that equipment after is has been used once. What if ALL participants pay just for what was used - that is $100 - and the person that took it home pays for the rest of $200?


 


Technically after it was used the resale value is only $200 from the $300 original. The person taking it home would cover the $200 and the rest pay $100 for what they consumed. Next time we can do the same until there is no more residual value in there.


 


What is your take on above. Also what is your answer on the question with all other material leftover items (e.g. decorations)


 


Thank you again.

Expert:  socrateaser replied 1 year ago.
An intentional purchase of items with the profit from the sale of liquor under a special occasion license is a violation of the license, because the license is issued only to a bona fide nonprofit, and you are expressly intending to generate a profit to pay for a private purchase by a member of the organization. You can argue that it's not really a private purchase, because it's intended to be used by the organization. The counterargument is that there is no organization, unless and until the members create a mutual benefit corporation and assign the license and the equipment to that organization.

From an academic view, I would have to rule that the license violation occurred, because there is no minimum amount of excess profit, and so the interpretation must focus on the intent of the parties -- which without a legal entity to vest title to the merchandise and to hold any profit in trust for the members, the profit is private as a matter of law.

From a practical view, I'm not going to waste my courtroom time for $300, because there are more important things on the docket. But, if the district attorney shows up and wants to make an example, then I will have to listen to the BS and rule. And, that ruling could go against you.

Re the other items, I view that as "de minimis non curat lex," which is latin for "The law disregards trifles." No judge is going to give that issue 10 seconds of deliberation, and no district attorney will bring a complaint based upon a bunch of used stuff that's probably as much trash as anything else.

Seriously, if you intend to do this repeatedly, then you need to get your members to dig into their pockets a little deeper so that you can form a legal entity and avoid any future issues. You'll probably be running raffles, and who knows what else in the future, and you will need the tax-exempt structure to keep things from becoming unmanageable.

Hope this helps.
socrateaser, Attorney
Category: Business Law
Satisfied Customers: 33568
Experience: Retired (mostly)
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