Recently we had a potential client contact us because the NC ABC threatened to shut down his alcohol establishment. Sounds sad, but we discovered a major compliance issue.
The man, let’s say his name was George, was part owner of a nightclub in Downtown Raleigh. He received a letter from the ABC on Friday morning. We received his call the same day, and understandably the man was worried. The letter said that his business needed to close immediately. And, on Friday, he had very limited opportunity to fix whatever the problem was before the weekend – meaning no sales or patrons on his busiest nights.
The ABC letter was pretty threatening: “If you have not already done so, please immediately surrender said permits to the law enforcement officer serving this paper to you.” The man was nervous and scared because his livelihood was on the line. We read the letter from the ABC, and, unfortunately, it made sense.
George currently owns the nightclub with his two brothers and their father. George’s father previously owned 100% of the nightclub. In 2016 George’s father filed the NC Annual Reports (remember people: due April 15th for LLCs!), listing just himself as the only manager/member of the nightclub’s company. Subsequently, George and his brothers bought part the nightclub so that the brothers, all together, owned less than 25% ownership. Fast forward to 2019 and George’s father is not listed on the Annual Report at all; instead, George and his two brothers are listed as managers of the nightclub’s LLC.
A change in the managers of an LLC is a change in ownership or management for ABC purposes. Any significant change in management or ownership, or any ownership over 25%, must be listed with the ABC. Sounds like, no one reported change in ownership to the ABC. So, George got a letter from ABC that said, essentially, “the North Carolina Secretary of State indicates that the management of the LLC has changed. Changing management without approval from the ABC is a violation of the state’s alcohol laws. That means your permits have been revoked.”
Why? Your ABC permit is attached to a person-someone has to physically apply for an ABC permit for a particular establishment. If the person who the ABC permit is attached to no longer works at the establishment, then the ABC has to be notified. To update a change in ownership with the ABC you have to completely reapply for new permits. All of the ABC retail forms have to be completed, along with new premise inspections. It’s a pain, but if you fail to do it then your business could be in trouble. George did not notify the ABC of the change in ownership, and therefore their alcohol permits were ineffective.
Even though George and his two brothers have less than 25% ownership in the nightclub they would still have to apply to the ABC because they are listed as managers on the Annual Report. We never had the opportunity to review the company’s operating agreement, so I’m not sure what George’s official title in the company is.
This story will have a happy ending for you, the reader, because you would never let that happen to your place of business! You know that if ownership changes or you acquire a new manager in the company you must reapply with the ABC. You also need to notify the TTB, as well, through an amendment application if you also have a TTB permit.
Your Annual Report is critical to your business-please fill it out every year. We don’t send you reminder emails because we are bored. Listing members/managers on the Annual Report should be painless. We felt bad for George because it could have been avoided.
To avoid compliance issues with your retail establishment, make sure you hire an attorney that is well versed in alcohol law and corporate compliance.
If you have any questions please do not hesitate to email me at firstname.lastname@example.org or call 919-335-5291.
Be sure to check out Beer Law Center and Matheson Law Office for all things NC legal.