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Best of… for the week of June 18, 2012

June 22, 2012 Leave a comment
Happy Hour

Happy Hour (Photo credit: joelplutchak)

Ok, so here’s the round up for this past week. I’m going to try and separate by topic area, but there’s a lot to cover, so buckle in!

Small Business

Beware the Paralyzing “Whac-A-Mole” Trademark Mentality

Trademark: develop a trademark strategy. First, don’t run after a trademark after someone else has started using it. Then don’t fall into the “whack a mole” trap of trying to secure marks after you’ve started using them in… unpredictable ways. http://t.co/710cu3ea

Is your business protected in Bankruptcy?

Bankruptcy, personal or business, is a serious matter. In your planning for bankruptcy or looking at your credit situation, make sure that your business is protected. http://t.co/kViHrDCS

You May Need a Lawyer for that

Start-up are often (wisely) concerned with saving money up front. When is it a good investment to pay for professional services (like a lawyer). http://t.co/Wz9xwvA4

Capital Gains Tax Opportunity: Permanent?

Be sure to keep up on what’s going on tax wise. Unless you’re not planning on making any money ever. http://t.co/7udiFixq

Social Media Tips for Trademark Protection

Ways you can prevent cybers-quatting and trademark-hijacking. http://t.co/7udiFixq

At Will Employment: Does it Matter?

If you have (or are gonna have) employees, you need to check this out. You’ll need to have an employee handbook or some set of personnel policies, but what should be in them/it? http://t.co/7udiFixq

Beer Business

Contract Brewing Revisited

Contract brewing goes through cycles, but remains an important part of our industry. How do your brewery and Contract (or Partner) Brewing fit together? http://t.co/Yj7Nmkew

So You Want to Open the Next Great Craft Beer Bar?

If you’re looking at opening a bar (or even just your taproom at your brewery), Chris Black of the award-winning Falling Rock Tap House shares his thoughts on what it takes http://t.co/a1vYcyOh

Financial / Progress Report from Boston Beer Co.

Check out how well one of the big micros is doing. http://t.co/bYnPgkms

Global Beer Prices (per pint)

Just saw this today. I don’t know if I’d say it was determinative, but it does give you a good perspective on how beer prices work at the consumer, front-of-the-house, lay-your-money-down level. http://t.co/Eog3Tsx7

Just for fun (Humor/Trivia)

Weird History. Follow them on Twitter for your daily dose of the absurd that seemed TOTALLY spot-on at the time.

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Why should a brewery start out as an LLC?

June 22, 2012 1 comment
Startup financing cycle

Startup financing cycle (Photo credit: Wikipedia)

So, I got this question late last week and advised a client appropriately, but perhaps it is worth a bit more discussion / generalization. Sorry this post turned out longer than most, but it is all important stuff. So here goes:

You may have seen my article earlier on LLC v Inc, and that is all generally valid. But there’s more to it than that (as you might expect).

As a start up brewery, if you’re looking to limit your liability (and you are) and you looking to raise capital (and you will be), you want to be some sort of business entity other than a General Partnership or a Sole Proprietorship. For the most part that points you to either an “LL” company or a traditional Corporation (Inc.). Unless you’re looking to structure the business as a partnership (which would be… unusual for a brewery), you’re focusing on an LLC or an Inc.

Why an LLC?

  1. Design: An LLC is *designed* to be owned by only a few people and that the interest (i.e. ownership) in the company doesn’t change much. Sounds like a start-up brewery so far. A traditional Inc. uses stock to define ownership and (just like IBM) you can buy/sell or trade stock to change ownership. But, as an owner of an LLC, you’re a Member of the LLC, and membership (so they say) has advantages. As a Member, it is hard for the company to get rid of you and you are guaranteed broad voting rights (for the most part) in the company. The law protects Members and Members’ liability is limited only to what they put into the company (you can’t lose more than you’ve already invested). Sounds pretty good.
  2. Income: Like an S-Corp, an LLC avoids the so-called “double-taxation” problem by letting the income pass through the LLC to you as a Member. That is, you only get taxed on what you get paid by the company, not what the company makes. Big difference. When you’re starting up a brewery, no one expects to make money very quickly, and if they do it’s all going back into the business, right? Well with an LLC, the company doesn’t pay income tax on that money. Sounds pretty good.
  3. Formalities: The threshold for conducting “business formalities” (such as owner meetings, reports, voting, etc) is pretty low AND you get to decide what and how you’ll do it. You define this structure (and the operating structure of the business) in the LLC’s Operating Agreement (works like the By-Laws in a traditional corporation). This agreement says who runs the company, who owns the company, who gets to decide what, and how the company will generally function. “Formalities” sounds like it’s no big deal, it is a big deal. Without adhering to the formalities, a court can decide that your “company” isn’t really a “Company” and that they’re going to ignore the limited liability part of the LLC. That is, you could lose the limitation on liability and that was one of the main reasons why you started a Company to begin with. Formalities, hmmm, generally a pain, but at least the LLC sounds like it makes it as little pain as possible. Sounds… well, it doesn’t sound *bad*.
  4. Employees: Because of the “income” bit above, an LLC is designed so that most of the income goes to the Members and the Members are active in the business. This TOTALLY sounds like a startup brewery. When there’s just a few of you opening a brewery, it’s more than likely that you’ll also be the only employees of the company – at least for a while. Having an LLC really simplifies the taxes, payroll deductions, reporting, and payroll process for getting paid if you’re a Member and not just an employee. Having non-owner employees is a major reason for going with an Inc instead of an LLC. Sounds like that fits too.
  5. Flexibility: This is probably the single biggest reason I advise people to go with an LLC. An LLC gives the Members a tremendous amount of latitude to define how they’ll run the business. You can designate Managers (that run the day-to-day business) as a distinct sub-set of the Members, so you can have folks that are purely investor/owners and not employee/owners. Also, like I said above, you get to write the Operating Agreements (and there aren’t a lot of requirements). You want to have an Official Meeting only every other year? Go for it. You want to only let people from Debuke, Iowa be members? It’s your prerogative. The important bit is that you have some governing document, the content or rules are (more or less) your call. Oh, and all it takes to change those rules? The Members write/adopt a new Operating Agreement – so the rules can change over time as you grow or change strategies. That part sounds really good if you’re a startup.

Ok, that’s the basics. I think these few reasons definately point a startup brewery toward an LLC as a first step (you can always change later). Think about it.

Keep in mind that the above is (1) VERY general and (2) does not constitute legal advice, just some thoughts. You should always consult an attorney licensed in your jurisdiction to make sure that you’re making the right decisions for your business. If you need help in NC, drop us a line at info@jslawcenter.com or check out our website at www.jslawcenter.com

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Not Too Big, but Too Many?

June 15, 2012 3 comments
United States microbreweries, regional breweri...

United States microbreweries, regional breweries, and brew pubs per capita by state. Brewery data from the state locator at http://www.brewersassociation.org/pages/directories/find-us-brewery. Population data from Wikipedia. National totals: 54 regional craft breweries, 377 microbreweries, 975 brewpubs, for a total of 1406. Highest five per capita are Vermont (29.0 per million), Maine (24.3), Montana (24.0), Oregon (21.6), and Alaska (19.0). Data current as of February 28, 2008. (Photo credit: Wikipedia)

I’ve been thinking about the craft beer market lately.

I work with several craft breweries and folks who want to get into the craft beer and beverage industry and I’ve been reading a lot about new breweries opening, new beers out there, and what the latest and greatest “extreme” beer to come down the pike.

“Oh look, a beer that’s higher in alcohol than my favorite bourbon!” or “Wow! I’ve never had a beer dry-hopped with turnips!” (you get the idea).

Also I’ve been drinking since the mid 90′s and I remember the boom/bust of the 1990s brewpub.

And, I’ve read that now we have more breweries in the US than we did pre-prohibition. Which is great. But it makes me wonder… is it too much?

I love craft beer, and I”ll be the first one to order the new beer I’ve never heard of before. And I totally support local beer and local ingredients, etc. I’ve argued that you can’t be too big to be a craft brewery (it’s about the craft, not about the size of your fermenters, at least in my opinion).  But, it seems that everyone with a plastic bucket and a bag of grain is opening up a brewery. Is there enough room in the industry, in the marketplace, for all the players?

I go in the grocery store and its clear that there’s serious politics involved for shelf space in the beer aisle. If you don’t believe me, check out Beer Wars. As we add additional breweries, that’s only going to get more cut-throat.

Now, a key difference between now and the mid-90s is that in the mid-90s a lot of the beer was crap. I’m not pointing any fingers, but a stainless steel pot and a bag of hops, does not a brewer make. At least now, the beer is good. Not all of it is great, but nearly all of it is good.

Making good beer isn’t an option anymore. If you’re not making good beer, you don’t get out of the gate. But, on the other hand, making great beer isn’t a sure thing either. I’ve seen people with great beer not get off the ground because they’ve got other issues working against them (you know, like they’re a jerk or something). You’ve got to make great beer and have your marketing/business strategy straight to stay in the game. Is there a point where there are so many craft breweries that, as an industry, we’re all hurt?

NC is one of the fastest growing beer markets in the world right now, and I love it. But it makes me wonder if this growth curve is sustainable? Are we headed for another brewery shake out or market consolidation? I think the Beer Culture has changed in the last 20 years (good Lord, the mid-90s *WAS* almost 20 years ago!) Do you think that makes a difference?

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Best of… for the week of June 11, 2012

June 15, 2012 1 comment
President Barack Obama delivers remarks to sma...

President Barack Obama delivers remarks to small business owners, community lenders and members of Congress in the East Room of the White House in Washington, DC. Secretary of the Treasury Timothy F. Geithner has his back to the camera. (Photo credit: Wikipedia)

I thought I’d try something new on the blog this week… I’ve been posting some interesting articles that I’ve found on other blogs, websites, etc. that I think are particularly relevant to small businesses (especially breweries, which are near and dear to my heart). So, today, I thought I’d recap the “best of” for this past week. Let’s get started with…

Mark Sperling blogs about decisions by the NC Business Court

Ok, so this is a little dry for most business owners, but it’s occasionally worth a read or search. NC is one of the few states in the country that has a specialized Business Court specifically to hear business issues and cases, particularly complex ones. This is a great blog to check out from time to time, especially if you’re a business attorney. http://www.ncbusinesslitigationreport.com/

Peer to Peer Business Lending

There’s been a lot of discussion about Crowdfunding lately, here’s an additional twist: Peer2Peer lending. Businesses use other businesses as investment opportunities, cutting out the bank altogether. If you’re thinking about starting a business and need startup money, it’s worth a read. http://under30ceo.com/consider-peertopeer-p2p-lending-business/

Debt v Equity

Another great topic for startup businesses. I advise clients everyday on the difference between debt and equity and what that means to you as a business owner. Read this over before you finalize your business plan. http://venturebeat.com/2012/06/09/debt-vs-equity-which-is-right-for-your-startup/

USPTO Offers IP Awareness Assessment

This is more of a press release than an article, but it’s a great tool for small businesses to make sure they know what their Intellectual Property (IP) issues are. Need copyright? Trademark? What’s a “trade secret,” anyway? The USPTO has some great resources. Check out the press release at

http://www.iplawalert.com/2012/06/articles/patent-1/uspto-offers-ip-awareness-assessment/  and their main page at http://www.uspto.gov

Let’s start there for this installment. I’ll post more next week as things come up that are pertinent to small businesses and the craft beer industry.

Thanks for reading and please, let me know what you think in the comments!

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Facebook, Privacy, and Your Agreement

June 7, 2012 Leave a comment
Mark Zuckerberg, founder and CEO, shows off th...

Mark Zuckerberg, founder and CEO, shows off the new messaging system in Facebook. (Photo credit: Wikipedia)

Ok, here’s another “bonus post.” This one is on the topic of Facebook and how it works versus how some people think it works.

I noticed a few people post a “status” in the last few days that starts something like

For those of you who do not understand the reasoning behind this posting, Facebook is now a publicly traded entity. Unless you state otherwise, anyone can infringe on your right to privacy once you post to this site. It is recommended that you and other members post a similar notice as this…

Or something like that.  It goes on:

PRIVACY NOTICE: Warning – any person and/or institution and/or Agent and/or Agency of any governmental structure including but not limited to the United States Federal Government also using or monitoring/using this website or any of its associated…” etc.

So let’s start analyze this:

  1. The fact that Facebook is now publicly traded in no way changes your contractual agreement (that’s right, you have a contract with Facebook – that’s what the Terms of Use is) position with Facebook. Facebook has to honor the same terms of service and agreements they had before the IPO (Initial Public Offering). So, for the users, whether the company is owned by Mark Zuckerberg or Joe Six-Pack and his cronies, really doesn’t matter – they’re still responsible for the same stuff.
  2. Nothing you post on your Facebook status/wall/etc. changes your fundamental rights or obligations with Facebook. The ownership of the content that you post on Facebook is governed by the Terms of Service (that’s why I – and any attorney I know – strongly recommend that you read the Terms of Service before you click “ok”). And, because this is a contractual agreement, you cannot unilaterally (meaning on your own without their approval) modify the agreement. “Ah!”, I hear you scream,  “But Facebook makes changes all the time without MY approval!” Well, guess what, that’s in your Terms of Service. Facebook can make minor system changes, improvements, enhancements, etc without your express permission. Your recourse if you don’t like the changes? Don’t use Facebook.

So let’s think about the alternative… if what you posted on Facebook could modify the agreement, they would have to have an attorney (or someone) reading every post by every person ever to make sure that things haven’t changed. Not only is that patently ridiculous and no court would require them to do that, but you don’t want an attorney reading every post you ever made (attorneys with information and free time on their hands is a bad combination). Think of the trouble that would cause!

Lastly, legal issues aside, Stop Being Stupid on Facebook. Generally speaking, you have a right to protect your works (copyright) and ideas (trademark) and other intellectual property. However, that requires that YOU police others’ use or theft of that content and that you don’t knowingly give them express or implied permission to use your property. And, that also assumes that you know about the use/theft and that there’s an adequate remedy available. For example, imagine the Ridiculously Photogenic Marathoner (look it up), do you think he gave every website that used this picture express written permission to use the photo? Ok, who does he sue to enforce his rights? Everyone? He’d spend MILLIONS trying to recover a few dollars from each offender – totally not worth it, nor could he track down every single possible defendant.

Bottom line: if you don’t want it (at least potentially) available to anyone anywhere, don’t put it on the Internet. Not even Facebook.

Oh, one last thing: in the “notice” I saw posted by friends on Facebook, there was a citation to the UCC (the Uniform Commercial Code). The sections cited have NOTHING to do with topic of the posting. If you see something that quotes a law, rule, or regulation, look it up. Chances are, in cases like this, it’ll be immediately obvious that somethings amiss. Ar best, you’ll avoid looking like a doofus. At worst, you’ll know more than when you started.

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Categories: Legal Basics Tags: , , , , , ,
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