Alternating Proprietorships – “Power is gained by sharing knowledge, not hoarding it.” The Empire Strikes Back
With so many new craft beverage producers, I encourage start-ups to consider an alternating proprietorship as an option to reduce start-up expenses. In an alternating proprietorship, two (or more) craft beverage producers use the same space and equipment to produce alcoholic beverages. Shared infrastructure is a great way to reduce costs and maximize the capacity of equipment. If a brewery wanted a 5 BBL system but could only afford a 3 BBL system, a brewery might join forces with another brewery to buy the larger system.
How does it work? Typically one brewery is the “host” and another is a “tenant” paying rent to the host. The rent can be a fixed monthly rate or based on equipment hour usage. Other shared cost arrangements are possible. All that is required is that the arrangements be in a binding contract approved by the TTB and state alcoholic beverage regulatory agency. In New York, it is the New York State Liquor Authority.
Licensed premises may not be used by, shared with or rented to the other person or business without pre-approval by the TTB and NYSLA. Doing so without the necessary licenses and approvals puts the host at risk of losing federal alcoholic beverage manufacturer permits and licenses as well as state wholesale licenses, or at the very least, very substantial fines.
There is also good news for the tenant. The approval process simply reviews the written agreement for the sharing arrangement. The laws are strict but not rigorous. The required practices amount to common sense and good business practices.
Tracy Jong has been an attorney for more than 20 years, representing restaurants, bars, and craft beverage manufacturers in a wide array of legal matters. She is also a licensed patent attorney.
Her book Everything You Need To Know About Obtaining and Maintaining a New York Retail Liquor License: The Definitive Guide to Navigating the State Liquor Authority will be available next month on Amazon.com as a softcover and Kindle e-book.
Her legal column is available in The Equipped Brewer, a publication giving business advice, trends, and vendor reviews to help craft breweries, cideries, distilleries and wineries build brands and succeed financially.
She also maintains a website and blog with practical information on legal and business issues affecting the industry. Follow her, sign up for her free firm app or monthly newsletter.
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Tracy Jong Law Firm