Articles and Interviews With a Skilled Corporate Lawyer
Mr. Harry B. Ray has been interviewed on several internet radio programs and for magazine articles. He has also had many works released in various trade publications. To learn more, click the following links in the list.
Ray Turns the Road into His Practice Away from Home. Published May 2021
- The Product Sourcing Newsletter interview titled: “Increasing Your Profits Through Buying Groups"
By Chris Malta, Home EBiz Product Sourcing Expert
- Worldwide Brands, Live RSS Transcript Feed From The eBay Radio Show
Interview About Product Sourcing and Buying Clubs
March 14, 2006
We know that the first step to growing your business is always firmly rooted in knowledge and learning what you need to do. That’s why we focus on being a resource for everything you need to know when it comes to operating or leaving a buying group. It’s a big decision and one that you have to make with all the facts in front of you. We've compiled this list of questions that we hear the most often from our clients.
A: The answer depends upon a variety of factors. The only form of doing business that can reasonably be ruled out is that of a general partnership. The other types of business entities provide limited liability to the owners. The question then becomes whether the owners wish to have the business pay its own taxes or whether it desires to have the taxable income and losses flow through to them individually and be included in their own tax returns. If the former is the case, then the group should be formed as a C corporation. If the latter is the case, it would make more sense to form the business as either a limited liability company or an S corporation.
A: At a bare minimum, you should make sure that the corporation has indemnification provisions in its bylaws pertaining to officer and director liability. Specifically, these provisions obligate the corporation to indemnify and hold their directors harmless for any mistakes they make in good faith, even though such mistakes may amount to negligence. Ideally, the corporation should have a director’s and officer’s insurance policy to fund this obligation.
You should also check to see if the corporate charter of the organization contains a limited liability provision for directors. Most states typically allow such provisions to be included in the corporate charter. If the corporation does not already have such a provision in its charter, it could probably be amended at little cost and expense in order to do so.
The primary source of liability to directors is a derivative lawsuit being brought on behalf of the corporation by one of the shareholders. There is a greater likelihood of this happening if there are a number of shareholders than if there are only one or two shareholders. If this particular group is structured with every store owning a share of the corporation, you would have greater exposure than if there were only a few shareholders. This would be particularly true if the shareholders control the decisions of the board. For instance, if there were only two shareholders and they served in two of the three positions on the board, with you being the third member, the likelihood of a derivative action being brought against you would be reduced.
One final piece of advice: if the board ever approves an action with which you disagree, make sure that your dissenting vote is recorded in the minutes.
A: The starting point is to have a written antitrust compliance program prepared for the group. It will contain procedures for conducting membership meetings, keeping minutes, admitting and expelling members and for structuring, and relationships with vendors. Having such a written antitrust compliance program only gets half the job done, however. The group must actually comply with such procedures. An important aspect of any antitrust compliance program is the selection and involvement of competent legal counsel.
A: (a) Price-fixing – Implied price-fixing arrangements among the members either with regard to the prices they pay for products or the prices they charge for products. (b) Boycotts–An illegal boycott could result from an agreement among the members to purchase exclusively from one particular vendor. (c) Market allocation–An agreement among the group members as to where each of them will sell would be illegal. (d) Price Discrimination–The better the deal the group obtains for its members, the more likely competitors outside of the group are to assert that the price breaks are an illegal form of price discrimination. There are a variety of defenses a group has available to price discrimination charges.