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, firstname.lastname@example.org
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