“Profit sharing” in the context of the Liquor Control Act 1988 (WA) refers to any arrangement where the licensee shares with another party the proceeds of the business, whether or not the proceeds were derived from liquor sales and whether or not the proceeds actually generated a profit.
The word “profit” in this case is not bound by the accounting definition of residual earnings of a business after deducting expenses. It refers to turnover and general revenue.
There are many scenarios by which licensees participate in profit sharing with other parties, such as:
- Turnover rent, where a percentage of the business proceeds is paid to the landlord.
- Staff remuneration. A wholesaler or producer might offer commissions to its sales representatives based on the quantities of liquor products promoted and sold through the sales rep.
- Delivery commissions. A restaurant might pay fees to a third-party delivery company in the form of a percentage of its food orders.
- Food supply. A licensee may engage a third party hot dog maker, for example, to come to the premises to make and sell hot dogs to patrons.
It is illegal for a licensee to share the proceeds of a licensed business with another party unless the arrangement has been approved by the licensing authority. A monetary penalty of up to $10,000 may apply to any licensee found in breach of the legislation in this manner. Fines can potentially be issued on a per breach basis meaning that a fine may be issued for each occasion that the licensee has shared the proceeds of the business with a third party without approval. There is also the potential for other adverse consequences to arise from unauthorised “profit sharing” arrangements.
Licensees should be diligent and make the appropriate application to the licensing authority for approval of their “profit sharing” arrangements. The licensing authority has discretion whether to approve “profit sharing” arrangements.
If you would like to know more about applying for profit sharing approval from the licensing authority, feel free to contact a member of our Liquor, Hospitality & Events team.