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Buying (or Investing in) A Brewery in Washington State? A Few Things To Keep In Mind

You love beer.  You’ve been making it at home for a few years, or are working in a brewery, and want to take the leap into running a microbrewery in the Seattle area.  How do you go about doing this? This article looks at a few important steps.

While you are dreaming about how you’ll open best brewery in the region, a good friend asks if you want to invest in his or her own microbrewery. A chance to get in to an existing operation!  It sounds like a great opportunity.  But even though you are friends, don’t forget to do your due diligence. It’s no insult to a solid business relationship to find out as much as possible about what, exactly, you are getting into – if there is resistance to you asking appropriate questions, it may not be the right fit. That said, it’s not uncommon for potential investors or buyers to be asked to sign a non-disclosure agreement (NDA) in order to keep confidential the financial and other proprietary information you want the company to share with you. The conditions can vary from one NDA to the next, so if you haven’t already hired a lawyer to help you navigate things, this is a good time to get one, not least because a properly drafted NDA is a contract.

Due diligence involves looking at a number of items, some of which don’t even relate to whether the beer is any good or how great the potential sales are or even how good or bad the company’s finances are.  For example, is the company’s own corporate paperwork in order?  Is the company complying with local rules regarding employees? Are its licenses up to date with both the state and federal authorities? Are there any outstanding tax or other liens?  What does the lease say about change in ownership of the tenant? Often change in ownership or control of the tenant company is considered a change in the tenant; is the landlord’s permission required for change in the tenant’s ownership? Is failure to get the landlord’s permission deemed a breach of the lease? These are just a few of the issues to consider before thinking about how great the beer will be.

But hold on. Before you can buy (or buy into) a brewery, remember that the state and federal licensing authorities must be notified of and approve the change in ownership.  A change in ownership by as little as 10% means the new investor (you), and the transfer to you, must be approved (see, e.g., Revised Code of Washington 66.24.025). A new owner is subject to background checks; both Washington’s Liquor and Cannabis Board (LCB) and the U.S. Department of the Treasury’s Alcohol and Tobacco Tax and Trade Bureau (TTB) have forms and procedures for this, and the process can take between several weeks and a few months. Even with no criminal background, an investor who is certified to be violating a child support order can be denied approval (or will have an existing license suspended. RCW 66.24.010). In short, without approval from the LCB and TTB, this path ends. Investing as a corporation or an LLC will not get around the requirements; not surprisingly, the LCB and TTB focus on the people who are involved, not just the entities.

Curious?  Stay tuned. But if you are seriously considering investing in or opening your own brewery, don’t wait for more blog posts – consult with a lawyer.  Law Office of Susan K. Fuller, PLLC, susanf@fullerpllc.com

© 2018 Law Office of Susan K. Fuller, PLLC

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Opening a Business? Don’t Forget a Lawyer! Licenses and Leases

Congratulations, you have decided to go into business for yourself! Tired of working for others, and you are ready to take the leap. If you are opening a business in Washington State, there are many things to keep in mind, and a lawyer can bring help make the process more manageable. More importantly, a lawyer can help minimize the chances you’ll make a costly, avoidable mistake.

Funding

If you are not applying for outside funding, you may not yet have put together a business plan. If you haven’t put together a business plan, do start with that. It will help you figure out how to get on a successful path. There are a lot of resources to help you with your business plan. This article does not tell you how to make a business plan. Instead, this and other articles focus on some legal issues to consider before opening for business. By now, you have already decided on a type of entity structure for your business (e.g., corporation, limited liability company, partnership or sole proprietorship). If you haven’t  yet determined the right entity structure, don’t worry, your lawyer will be ready to help you figure out some solutions.  But now, let’s look at licenses and leases.

Licenses

Most people know they need a business license to do business in this state, need to be listed with the Department of Revenue, and Department of Labor and Industries, and possibly also the Secretary of State’s office (depending on entity type you have chosen). But you may also need a license in the city you will be working in. It is safest to assume your business will need to be licensed in your city, but because each jurisdiction handles things a little differently, it’s important to know what your jurisdiction requires.

In addition to a basic business license, do you also need a specialty license? Food and beverage businesses (restaurants, bars, food trucks, artisinal food and small batch producers, etc.) are obvious examples. Be sure to check whether the type of goods and services you will provide have special licensing or permitting requirements in your jurisdiction.

Leases

Opening a storefront or office? Great! You’ll probably be looking to rent. Don’t forget to have a lawyer help you with that process. Leases are legal documents that are important to the lifeblood of your business. Most landlords have lawyers prepare their standard leases, and that lawyer’s duty is to protect his or her client – the landlord. Who will look out for your interests? YOUR lawyer. Level the playing field and have a lawyer on your side.

For example, besides the base rent, what are you – the tenant – expected to pay for? Is it a triple net lease? How long is the initial term – and is there an option to renew? How much will the rent change if the lease is renewed? What happens if the business takes off and you want to move to a different location (or if the business is less successful than you’d like) ; can you terminate the lease early? Is there a penalty to do so? How much notice must you give the landlord if you want to leave? What happens if the landlord sells the building – must the new owner honor your lease, or can you be kicked out? These and many other questions are an important part of negotiating for terms that best suit the needs of your business. Many important terms are in the “boilerplate” sections that cause most normal people to fall asleep. But remember, lawyers are the ones who draft the boilerplate, so get a lawyer on your side.

Unless the space was used for the same kind of items you plan to sell or services you will provide, the space will need some remodeling to suit your needs. Who will pay for that? Tenant improvements are often paid for by the tenant, but sometimes the landlord will contribute, or allow a reduced rent while the space is being renovated.   These issues are typically addressed in the lease.

Try to find out what your jurisdiction requires when a new business is going into a space that will be put to a new use, so you can plan your budget and timeline as realistically as possible. What permits (if any) do you need simply because a different use of the space is planned? Is the space in a location that is zoned to allow the type of business you want to open, or would a variance have to be sought? Is it in an historic building that might have restrictions on what renovations can be done? How much work will be needed to make the space right for you (and what is it estimated to cost)? It is helpful to look into these sorts of issues and consider negotiating for an exit provision in case the building codes prohibit the renovations needed for your particular venture (or make it prohibitively expensive).

As you know, there are a lot of things to be done before ever opening your doors; level the playing field by hiring a lawyer on your team.