Before you start your new brewery, you should consider the different types of business structures under which your brewery could operate. There are several different forms of businesses such as Sole Proprietorships, Partnerships, Limited Liability Companies (LLCs), and Corporations. Before you start your brewery you should determine which structure is best for your business.
A sole proprietorship is an unregistered business entity with a single owner. The owner and the business are considered to be the same by the IRS, so business profits and taxes are reported on the owner’s personal tax return. (This avoids the double tax imposed on corporations). Sole proprietors are liable for all debts of the business which leaves the Owner’s personal assets vulnerable to creditors of the busines.
Sole proprietorships are good options for low-risk businesses. This is not a great option for a brewery considering the risks that come with producing and serving alcohol to the public
A partnership is an unregistered business entity with more than one owner. Partnerships have pass through taxation. In a partnership, each partner may legally bind the business (and other partners) and the partners are personally liable for the debts and liabilities of the business.
Partnerships are good options for low-risk business models. Partnerships are not good business models for starting a brewery considering the risks that come with producing and serving alcohol.
Limited Liability Company (LLC)
An LLC is a registered business entity which can be owned by one person, multiple people, or other LLCs. An LLC is beneficial because if properly set up, it shields the personal assets of the owners from creditors of the business. Additionally, an LLC has pass-through taxation where the profits or losses of the business are passed through to the owners and reported on their tax return. Members of an LLC are considered self-employed and therefore they must pay self-employment taxes. An LLC has less formalities than a corporation as this structure does not require a board of directors, issuing stock, or holding annual meetings.
Most of our brewery clients choose the LLC as their business structure in order to take advantage of pass-through taxation and protect their personal assets. When operated properly, an LLC is a better business structure option for breweries because alcohol based businesses are high risk and LLCs offer more protection of the personal assets of the owners than sole proprietorships and partnerships.
A corporation is a registered business entity with one or more owners. A corporation must be owned by a real “person” and not a business entity. Corporations are beneficial because creditors of the corporation cannot reach the personal property of the owners (shareholders) in order to satisfy debts and liabilities. Corporations, unlike LLCs, have double taxation which means the corporation is taxed on its income and the shareholders are also taxed on income they receive from the company. Corporations must issue stock, have a board of directors, and hold annual meetings.
A corporation is an appropriate business structure for a brewery because when ran properly, it will protect the personal assets of the corporation’s shareholders.
Special Categories: Non-profits and Cooperatives
Non-Profits are businesses with a charitable purpose, meaning their main purpose is not to make money. Non-profits are exempt from paying federal income taxes on their profits but they have rules on what they are allowed to do with those profits. If making money is the main purpose of your business, then the non-profit business structure is not for you. For a more detailed discussion on non-profit breweries see our blog on the topic: https://beerlawcenter.com/can-a-brewery-be-a-non-profit/
Cooperatives are businesses run for the benefit of those using its services. Cooperatives are usually run using a business model whereby each owner of the business only has one vote regardless of the owner’s ownership interest. Profits generated in a cooperative are usually reinvested into the business or distributed among the members. Burlington Beer Works, in Burlington, North Carolina is an example of a co-op brewery.
Speak with an attorney to find out what the best business structure is for your brewery. An attorney can assist with all of your business formation needs including submitting all necessary filings with the Secretary of State, obtaining your EIN, drafting your operating agreement, assisting with ABC and TTB licensing and compliance, and even help you register your brewery’s trademark.