Brewery Start-up Series: Checklist for Planning a Brewery #2 (Brewery Operating Agreement)

 

A critical step before getting too far along is to form a Brewery Operating Agreement, so you can get everyone on the same page from the get go, and ease decision-making down the line.
A critical step before getting too far along is to form a Brewery Operating Agreement, so you can get everyone on the same page from the get go, and ease decision-making down the line. (Photo courtesy of the good folks at Burial Beer Co.)

Last time in the Brewery Start-up Series, we touched on different brewery start-up sizes, including some creative business planning that might help a brewery get off the ground without forcing its founders to quit their primary jobs just yet. Check out that post here, if you haven’t already. Once you’ve thought through preliminary start-up brewery size questions, then it’s typically time to consider the next step, which is today’s topic:

How Will You Structure Your Start-up Brewery Business?

Every start-up brewery has a different story that led them to the decision to go pro, so every new brewery will have a different answer to this question. How you structure your brewery business itself will turn on your brewery size, how many owners you have, how many managers, how many investors, and how well everyone knows each other. It will also turn on your business goals, the rate you want to pay back investors, and where you see your brewery going in the future. Different founders may have different thoughts on these basic issues, so a good starting point to find some answers to these questions is to begin putting together a solid Brewery Operating Agreement.

What is a Brewery Operating Agreement?

Essentially, it’s an official document among owners (that frequently contemplates investors) that sets forth how decisions will get made, addresses how profits/losses will be distributed, and lays out all the nuances of ownership interests. Whether you’re a family-owned operation, a start-up brewery among best friends, or you’re planning a massive fundraise, it’s essential to get a Brewery Operating Agreement in place so your business can efficiently function and so that everyone’s on the same page.

Some elements of a good Brewery Operating Agreement may not be obvious but are nevertheless essential, such as including a requirement that any new member (owner) of the business pass TTB / local reg background muster, so the brewery won’t jeopardize its licensure. Here at Reiser Legal, we help make sure Operating Agreements have these essential provisions all the time. Outside of that, though, how you structure your business is truly your call. We frequently make suggestions, especially if the business is planning to raise funds, as certain provisions are more likely to drive investor confidence. Nevertheless, it’s ultimately up to you. Often, it’s most helpful if you create a basic framework for the Brewery Operating Agreement before bringing it to us, or your local lawyer, for us to review and offer suggestions.

Here are just a few points you’ll want to think through in building out your Brewery Operating Agreement, depending on your concerns and business plan, you may have many others, and your beer attorney can help you drive that discussion based on your unique needs and concerns:

  • How much money will each owner put in, if any?
  • Will some individuals be investors, while others will be managers?
  • If you’re seeking investors, what’s the maximum amount of the company you’d want to give up?
  • What value would you consider the company to know how much you’d need to raise to reach that value and maximum investor percentage?
  • Do investors have any first rights to distribution (profit payouts), before managers start earning profits according to their ownership share?
  • How do you want decisions to get made?
  • What decisions do you want to require a Supermajority to make, versus a simple majority?
  • Do you want unanimous decision-making for certain decisions?
  • Are members allowed to sell their shares, or do existing members have the right to buy them if they want first?
  • What happens if something happens to a founder such that he or she can no longer pull the anticipated share of management duties? Who gets shares upon a member’s death?
  • What happens if a founder is doing things the other members disagree with, can a founder be kicked out or what steps must happen first?

The best time to make these decisions, and think through a Brewery Operating Agreement, is when everyone’s getting along and building the dream, rather than when something comes up down the line. It’s your business, and you can structure it how you want. However, by agreeing on certain basic terms, a start-up brewery is poised for more efficient decision-making and, by hammering out a professional Brewery Operating Agreement in collaboration with an experienced beer attorney, a brewery is ready to open up shop and potentially take on investors, too.

Next time in the Brewery Start-up Series, we’ll discuss the step of brewery entity selection, an important piece of any brewery’s overall start-up plan. Is the best choice an LLC? Or, should you think about a different business structure? Stay tuned.

 

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