POLITICO sat down with Dogfish Head’s Sam Caligione and Victory Brewing Co’s Bill Covaleski at the Craft Brewer’s Conference earlier this month in Washington, DC to talk about the Small BREW Act.
Thanks to Adam at beerpulse.com for the heads up on this.
Starting any new brewery requires careful planning by the founders. Put simply, breweries that do not have solid and forward-thinking plans will not succeed. The ability to make a great end product is, by itself, not enough. To help you get started, I plan to publish a checklist of things related to the law you should do when you are starting your brewery. This is the fourth article of this series, which discusses filing the paperwork necessary to comply with the federal regulations and laws.
Step 4: File Your Federal Paperwork
Assuming you already completed all of the tasks outlined in Step 3, you could be ready to move onto step 4, filing your federal paperwork. In the United States, the brewing of alcohol is a closely-watched industry with numerous laws and regulations that must be complied with. You should know that this brief article does not fully cover all of these and I highly recommend you work with a qualified attorney throughout this process. Due to the large amount of material covered in this section, many topics merely have a link you can follow to a more thorough explanation of that subtopic.
The TTB
Another requirement is that a brewery deposit two original copies of a federal brewer’s bond with the TTB. This requirement exists so that the federal government can ensure that the brewery pays its taxes. Bonds are obtained through surety companies (typically insurance companies). The bond must be obtained before the brewery begins making beer, and must be kept active as long as the brewery is still operating. Where the brewery anticipates tax liability of less than $1,000, the brewery is required to obtain a bond for $1,000 in coverage (costing $100/year, 4 years payment of $400 required up front).
The TTB requires a completed personnel questionairre from each officer, director, member, partner, and shareholder with a 10% or higher interest in the brewery. Applicants need to divulge the following: whether these individuals have ever been arrested and/or convicted for violating liquor or tobacco products or other state or federal laws; employment history; personal references; and more. As I mentioned in Step 3, pick your partners wisely.
The TTB requires that an upstart brewery complete an environmental information assessment, in order to determine whether the brewery’s activity will have a significant impact on the environment. Applicants must indicate the type and source of heat and power the brewery will use, any air pollution control equipment that will be used, and how solid and liquid waste will be monitored and disposed of.
Upstart breweries must also provide sufficient information for the TTB to determine if the brewery will be in compliance with Federal water pollution laws and regulations. This form is required when brewery intends to discharge waste into a navigable waterway, and must disclose the details such a discharge.
Taxes
Everyone knows that taxes are an inevitability in business. The brewing business is no exception. As I mentioned in Step 2, I highly recommend that a brewery acquire a Tax ID number from the IRS early on. This number will be used to pay federal taxes. At the time of this article, federal excise taxes are set at $18 per barrel, an amount that is reduced if a brewery makes less than 2 million barrels/year. Typically, a business will have to make estimated tax payments every quarter.
The FDA
You will need to register with FDA for a “Food Facility Registration”. This is tyipcally done after receiving a Brewer’s Notice. You can now complete this process online. The good news: There is no fee for registration! That is a pleasant surprise, right? The FDA has provided a Small Entity Compliance Guide to help business understand their obligations.
A brewery must also inform the FDA it becomes aware that its product has been adulterated. A brewery typical has to show the FDA that the tampered-with product has been destroyed. The Brewer’s Association (a great resource for breweries) summarized this reporting requirement here.
Application for and Certification/Exemption of Label/Bottle Approval (TTB F 5100.31)
A brewery cannot sell, ship, or deliver for sale any beer that is not marked, branded, or labeled in conformity with the federal laws. These labels must be pre-approved by the TTB before a brewery may bottle, pack, or remove any beer from the plant. Once an application for such pre-approval is filed, the TTB then has 90 days to approve or deny the label. If the TTB approves the label, it will issue a certificate of label approval (“COLA”).
In order for an application to succeed, the label must contain the following mandatory statements: brand name; class of beverage (beer, ale, porter, stout, lager, etc.); brewery’s name and address; net contents (pints, quarts, gallons, fl. ounces); alcoholic content (if required by state); government health warning; name and address of importer; name and address of bottler/packer; beer formula; declaration of sulfates aspartame, and/or yellow 5. Also, the TTB requires that the label meet certain font and size requirements.
There are also several things that cannot be included on a beer label: it cannot contain false, disparaging, obscene, indecent, or misleading statements. Also, the label cannot use the name or image of a living public figure or of a corporation in such a way that a consumer would be led to believe that the figure or corp endorses the beer. Similarly, the label cannot contain flags, coat of arms, crests, or another claim to a government stamp of approval.
A brewery should know that several states also have specific requirements relating to beer labeling. For instance, several states require that a beer label cannot be appealing to children (some breweries have created different beer labels for these stricter states). You should check with your state and local rules regarding labeling to ensure compliance with these rules as well.
Brewer’s Notice (TTB F 5130.10)
The TTB makes it very clear that you may not operate your brewery until you receive an approval of your Brewer’s Notice. The good news is that there is no fee associated with filing a Brewer’s Notice. The bad news is that this process will probably take you at least 100 days. The TTB’s stated goal for approving or denying these notices is within 95 days of its receipt of the perfected application (i.e. after correction of any deficiencies in the application). Taking care to avoid application defects in the initial application will help you start brewing faster and help you minimize startup expenses.
Some of the main requirements in the Brewer’s Notice include providing: the brewery’s name (from step 1); information related to your business structure (from step 2); and information related to the brewery’s location, facility, and equipment (from step 3). You may also be required to file the following attachments: articles of incorporation/organization; trade name registrations; certificate to transact business in a foreign state; power(s) of attorney; diagram (with dimensions) of the brewery/brewpub; legal description of the brewery; supplemental information on water quality considerations; personnel questionnaires for relevant parties to the business; by-laws; partnership agreement(s); environmental information; and/or a statement describing the security at the brewery. Some of these checklist items are discussed below.
The TTB has limited resources to review Brewer’s Notices, and these resources are stretched even thinner as hundreds of new breweries have begun popping up every year. I always recommend that a brewery work with an attorney in this process, but breweries who are handling their own application are able to contact the TTB directly via their contact page to ask for assistance in this process.
The USPTO allows an applicant to file an application for a registered trademark up to 3 years before the applicant actually begins using the mark in commerce. This is one of the main reasons why I recommend that upstart breweries make trademarking their brewery’s name a top priority. Typically, after filing a trademark application, an applicant will have to wait 3-6 months until the USPTO even looks at your application. This gives you as much as 3.5 years to square away everything else (i.e. permits, bonds, financing, etc.) before you will have to worry about beginning to use your mark.
Plus, once (if) your application is granted by the USPTO, you will have a legitimate ownership interest in that trademark application, which may help you with fundraising (assuming you have selected a quality name).
Filing a trademark application typically only costs $275-325 for federal filing costs (plus $150 due every 6 months until you establish use). Of course, if you want to make sure the application is filed properly, I recommend hiring an attorney.
Feel free to call me (703)539-2757 or write to dan@dcbrewlaw.com if you have questions. I give free consultations.
Starting any new brewery requires careful planning by the founders. Put simply, breweries that do not have solid and forward-thinking plans will not succeed. The ability to make a great end product is, by itself, not enough. To help you get started, I plan to publish a checklist of things related to the law you should do when you are starting your brewery. This is the third article of this series, which discusses which steps you should take before filing your paperwork with the Federal Government.
Step 3: Get Ready for the Feds
Opening a brewery requires compliance with countless local, state, and federal laws and regulations. You should not begin brewing your first drop of commercial beer until you have made absolutely sure that you have fulfilled all of these requirements. Before you even begin filing paperwork with the federal and state government(s), there are some things you can do to help streamline the process.
Make Sure You Finished Steps 1 & 2
Having a name squared away (and hopefully, having a federally registered trademark for the name) will help you immensely during this step and the next. Specifically, it will help you obtain financing (as you already own the rights to a quality name) and will help you fill out paperwork in the next step.
Having a registered business organization and a Federal Tax ID number will help you set up bank accounts, enable you to sign a lease on behalf of your organization, and enable you to properly fill out the huge stacks of local, state, and federal paperwork that are heading your way.
Find a Property and Sign a Lease
Deciding where you are going to open up shop is no small decision for a new brewery to make. It is, however, necessary to decide where you are going to be located before you begin filing paperwork. This can be a money drain on new breweries, as they may have to start paying for a lease now, months or even a year before their business will even open. Many landlords will be willing to negotiate lowered rent for a few months to give the brewery a chance to get compliant with the bureaucrats (FYI – the TTB currently has a stated goal of processing a new application in 95 days. Many new applicants, however, have reported waited much longer). Also, take care to make sure that the lease will only be fully enforceable if, and when, the permits and licenses necessary to operate are successfully obtained.
Make sure the location you have selected is properly zoned for brewing beer. Typically, the property should be zoned for industrial or light industrial use. Also, depending on where you live, you may run into trouble if you try to start a brewery too close to a church or school.
Order & Install Your Equipment
In the federal registration step (step 4), you will have to fully diagram and describe of the brewery premises. Also, your equipment must be fully installed by the time the feds review your application and come for an inspection.
Secure Funding
In the next step you will have to divulge your funding sources and business partners, so that the TTB can do a criminal background check on those individuals. You may want to inform these individuals now that this is going to be required, so as to avoid any unexpected problems in the future. Paying a lease and ordering brewing equipment represents a high level of startup costs. Add in the licensing and application fees you will encounter in the next step, and you will quickly learn how important it is to have adequate funding to even get started.
In my experience, it is much easier to get a potential investor to buy into something when you already have something of value in hand. This is why I believe securing a federally registered trademark for a memorable name should be one of the first (if not the first) things a new brewery does. Even if you are not currently using a mark, you can still obtain a registration of a mark (so long as you plan to actually use the mark within three years of receiving the registration).
According to the Smoky Mountain News, the (formerly) Headwaters Brewing Company has given up its brewery name because of threats by Victory Brewing Co. The brewing company will now go by the name, BearWaters. Interestingly, BearWaters had apparently started using the Headwaters name before Victory. Victory, however, had procured a federal trademark registration.
“I gambled,” co-owner Kevin Sandfeur said. “But in the long run, it ended up costing me more.”
As I have mentioned before, the minimal cost of preparing and filing a federal trademark application is minimal. The filing cost is currently set at between $275-325 (subject to change). The cost incurred by Sandfeur and his partners includes both measurable (i.e. new signs, advertising, etc.) and immeasurable (the name recognition they established). For a startup brewery, these costs can be a killer.
My firm is currently offering a bargain package to brewing clients: $1,000 (plus filing fees) to prepare and file applications for your brewery’s name as well as up to 4 beer names. This is a startup package that I am offering for a limited time.
Thanks to Adam at beerpulse.com for bringing this article to my attention.
Starting any new brewery requires careful planning by the founders. Put simply, breweries that do not have solid and forward-thinking plans will not succeed. The ability to make a great end product is, by itself, not enough. To help you get started, I plan to publish a checklist of things related to the law you should do when you are starting your brewery. This is the second article of this series, which discusses selecting a business structure.
Step 2: Selecting a Business Structure
The next thing you should do when you start a new brewery is to select the business structure that best fits your brewery’s needs. Each of the business structures carries with it legal and tax ramifications. Every state governs the types of business structures available within its borders. In most states, the business structure types available are sole proprietorships, partnerships, corporations, and limited liability companies (“LLC’s”). Selecting the right structure for your brewery is a decision that involves several factors and should be made with the assistance of an attorney or accountant.
Sole Proprietorships
Sole proprietorships are only available where the brewery owner is an individual. Typically, a sole proprietor does not need to register with a state authority. This type of organization does not offer any protection from liability (meaning the owner will be personally accountable for the actions of the company). Brewery owners encounter financial liability when they take on loans or other credit and product liability when they offer and sell their products. All income earned by a sole proprietorship is paid as income of the sole proprietor.
General Partnerships
Partnerships arise when two or more people join together to start a brewery without forming an LLC or corporation. Partnerships can be formed even where the parties do not intend to enter into a partnership. The partners share the authority to make decisions regarding the business and share joint liability for the debts and obligations of the business. Income of the partnership passes through the business and is treated as income of the partners.
Corporations
Corporations are they type of entity that require the most upkeep and compliance. In order to start a corporation, the founders must write and submit (to the appropriate state authority) Articles of Incorporation, write and adopt by-laws, and file annual reports. Individuals forming a corporation are able to vest management powers in directors, operations powers in officers, and issue stocks to shareholders. Issuing stocks allows corporations the benefit of being able to raise additional outside capital. Corporations also serve the purpose of shielding individuals from personal liability. Perhaps the biggest downside to this business type is that corporations are said to be subject to “double taxation,” in that corporations pay tax on income as well as distributions. This downside can sometimes be avoided where the corporation qualifies as an S Corporation. S Corporations are a special type of entity recognized by the IRS that allow income to bypass the business entity and be distributed to shareholders directly.
Limited Liability Companies
Many newly formed breweries elect to structure themselves as an LLC. Owner’s of the LLC are called members. The members must draft and submit articles of organization (to the relevant state authority). Annual reports are, generally, not required of LLC’s. LLC’s shield members from personal liability. LLC’s generally can elect how the IRS will tax it. Individuals can form single-member LLC’s, gaining the limited liability benefits inherent in an LLC and may also elect to be taxed either as a sole-proprietorship or an S-corporation.
Other Considerations
Regardless of which type of entity you elect to create, you will likely need an Federal Employee Identification Number (EIN). This can be obtained from the IRS’s website. This number will be useful when you try to open a bank account for your business and file taxes. If you have started an LLC and have elected to be taxed as a S-Corporation (which gives some companies a tax advantage), you will have to send a form to the IRS indicating such.
Starting any new business requires careful planning by the founders. Put simply, businesses that do not have solid and forward-thinking plans will not succeed. The ability to make a great end product is, by itself, not enough. To help you get started, I plan to publish a checklist of things related to the law you should do when you are starting your business. This is the first of this series, which discusses selecting a business name.
Step 1: Selecting Your Brewery’s Name
The name of a company is hugely important to its success or failure. This name is more than what you put on your company’s tax forms every year, it is your brand. Your brand is what consumers will associate with your product. Your brand is what your loyal customers will look for on the shelves at the beer store or order from their bartender.
When you select your brewery’s name, you should try to come up with something that is memorable. This is also the case when you select names for your beers or designs for your logos (which I will discuss in a later article). Most importantly, you must come up with a name that isn’t already being used. One of the worst case scenarios that a new brewery can encounter is to, after already investing considerable resources into developing a new brand, realize that someone else already is using that brand.
TIP: Make sure you do (or hire someone to do) a thorough trademark clearance search of your proposed company name before you settle on a name.
Once you settle on a name, register your name with the United States Patent & Trademark Office. If you have not yet begun using your name, that is fine. You can file an Intent-to-Use application, which gives you up to 3 years to begin using the mark. Registration will give you a piece of mind that nobody else will come along and take your name while you are starting your business and starting to get your name out there.
As always, please keep in mind that we live in a country that is governed not only by federal laws, but also by state and local laws. Any business must take great care to comply with all of these laws, or face peril. I have begun to compile a list of some regional laws that may be relevant to you here.
If you follow this advice, it will help you avoid huge headaches down the road. If you would like help with performing a trademark clearance search and/or preparing and filing a trademark application, my firm is available to help. Call (703) 539-2757 today for a free consultation.
Trademark registration has the direct effect of giving an owner offensive powers. More specifically, the owner is given the right to sue an alleged infringer in order to either stop the infringer from using the mark (i.e. injunctive relief) or collect damages for harm related to the infringing use. An owner can also block (through opposition proceedings) or cancel (through cancellation proceedings) future registrations of confusingly similar marks.
One thing that brewery owners may overlook is the fact that owning a federally registered trademark also, indirectly, gives the owner defensive strength. For instance, a potential plaintiff is less likely to sue a brewery for infringing its mark when that brewery holds title to a registered trademark for that mark. Also, another brewery will not be successful at filing its own trademark application for the same mark your brewery has been using for years.
Registered trademarks are, in my opinion, even more important within the beer industry than in most other product-centered industries. Consumers tend to be very loyal to their favorite beer brand. The brand tells the consumer what type of quality to expect from the beer they purchase. Trademark law provides breweries an opportunity to develop their brand without the fear that other brewers will come along and sell beer in a manner that consumers will associate with your brands.
