Buying and selling a brewery requires both the buyer and the seller to plan ahead and cooperate through the transfer.
Brewery Purchase – Stock Purchase or Asset Purchase?
In an Asset Purchase transaction, only the assets of the brewery that are specifically identified in the asset purchase agreement are transferred to the brewery buyer (and any specifically assumed liabilities). These generally include the brewery’s equipment, inventory, beer trademarks and other intellectual property, and goodwill. The brewery seller retains all other assets and liabilities. The brewery buyer must therefore create a new business entity (such as an s-corp or an LLC) that will take the assets and operate the brewery, (or use an existing business entity).
In a Stock Purchase transaction, the brewery buyer purchases all (or a majority) of the brewery seller’s stock in the brewery – including all of its assets and liabilities. The brewery buyer “steps into the shoes” of the seller and takes control of the brewery operations (the business entity remains the same and carries on with the same EIN number) and the brewery operation, in essence, continues uninterrupted. In a stock sale, the brewery seller has no continuing interest or obligation with respect to the operations, assets or liabilities of the brewery – unless specifically agreed otherwise, for example through a transitional services agreement.
Brewery Licensing and Permitting
The buyer of Brewery or Brew Pub must determine early on what Federal, State and Local liquor licensing and permitting they will need to transfer and/or obtain. In Colorado, the existing brewery will have either a Colorado Manufacturers License and a Beer Wholesalers License and a Federal (TTB) Brewer’s Notice. If a Brewpub, the existing brewpub will have a Colorado Brewpub License and Federal Brewer’s Notice. The purchaser of the brewery will have to obtain both the state and federal licenses before they can brew beer. Colorado generally will issue a temporary license, but at the federal level, the TTB does not issue a temporary brewer’s notice.
TTB Brewery Permitting Issues:
Brewery Change in Proprietorship or Change in Control?
According to TTB:
- A change of proprietorship is when an existing proprietor has new ownership. Usually, this will be the case in an asset purchase agreement – where a different corporation, LLC or person is now operating the business and will have a different EIN. This may be due to an entire new owner taking over, or due to a change of entity type (change from sole proprietor to LLC; from partnership to corporation, etc.) of the existing owner.
- A change of stock control is when a change of stock distribution or LLC membership ownership occurs producing a new person or company owning more than 50% of the outstanding stock or ownership interest. A new Brewer’s Notice must be submitted within 30 days of the change. The notice should be filed showing the next serial number and describing the change of stock/interest ownership. In these cases, the organizational structure of the entity has not changed.
In either the Asset Purchase or Stock Purchase scenario, the successor brewer must qualify for the Brewer’s Notice before beginning operations, so it is critical that all forms are filed well in advance of the proposed effective date of the change.
Finally, specific due diligence is very necessary in a brewery purchase transaction. Understanding what you are and aren’t buying in the sale is important. Seemingly simple things like beer distribution agreements can create major issues (i.e., expensive issues) down the road. Often times, even the sale of a brewery will not release the brewery from onerous beer distribution agreements. Make sure you know what you are buying!
When considering buying a brewery it is crucial to involve knowledgeable legal and tax counsel. Improper agreements and failure to plan for the transfer of federal and state licenses and permits can easily derail any transaction. Proper planning is a must.
Our Brewery and Beer Lawyers are ready to assist your brewery and beer related business. Whether obtaining TTB and state beer permits; including a Colorado manufacturer’s license, or general business representation, our beer attorneys will start by addressing your needs and continue to provide guidance along the way. Your goals and bottom line are our priority. Contact the Colorado beer lawyers at LaszloLaw today to discuss your needs.