a change in control (such as a sale of the business). Buyers in stock d e a l s should also be a w a r e of antiassignment provisions that define an “assignment” in a way that includes a change in control of the business. Because of the complex regulatory framework that applies to distilleries, a seller should also do an internal compliance review to make sure that nothing comes up in the sale process that could stop the deal from moving forward. The seller’s compliance review should include: (a) making sure all state and federal taxes are paid in full, (b) ensuring all of the business’s licenses are active and have not lapsed, and (c) identifying all of the distillery’s licenses. A buyer will want to know exactly what licenses and permits need to be transferred when purchasing the distillery. Having a comprehensive list on hand when talks with a potential buyer begin can help a seller avoid unnecessary delays and frustrations later in the process. Buyers should also conduct some internal due diligence. A federal Basic Permit holder is required to list its officers, directors and owners as part of the license application process. Making sure that none of the individuals that will be listed will raise any red flags (e.g., due to an ongoing IRS investigation) is just one of the ways a buyer can ensure a smooth transition process for itself.
We have touched on several issues BUYING that can come up when buying or OR SELLING selling a craft distillery, but there A BUSINESS are several others that can have just as significant an impact on IS RARELY AN a transaction process. Buying or EASY ENDEAVOR – selling a business is rarely an PARTICULARLY NOT easy endeavor – particularly not when the business at issue was WHEN THE BUSINESS built as a labor of love by an AT ISSUE WAS BUILT AS entrepreneur with a passion for A LABOR OF LOVE BY craft spirits. Tensions can run AN ENTREPRENEUR high during a transaction, but ultimately everyone works toward WITH A PASSION the same goal. FOR CRAFT As craft distilling continues to grow, SPIRITS. it will attract even more investments from both large spirits producers as well as from investors with no ties to the spirits business. This presents challenges, but also provides great opportunities for the entrepreneurs who have led the way in making the craft spirits industry such a vital, vibrant part of the competitive landscape. Approaching a craft distillery transaction with the same diligence and care that goes into producing a quality spirit can, in much the same way, make everyone walk away feeling like a winner. Marc E. Sorini is a partner in the law firm of McDermott Will & Emery LLP, based in the Firm’s Washington D.C. office. He leads the Firm’s Alcohol Regulatory & Distribution Group, where he concentrates his practice on regulatory and litigation issues faced by supplier-tier industry members. His practice for craft distillers includes distribution agreements, distribution counseling and litigation, spirits formulation, labeling, promotional compliance, compliance strategy, and federal and state tax and trade practice enforcement defense. Barrett K. Lopez is an associate in the law firm of McDermott Will & Emery LLP, based in the Firm’s Washington D.C. office. He is a member of the Firm’s Alcohol Regulatory & Distribution Group where he concentrates his practice on regulatory and general corporate issues faced by supplier-tier industry members. In addition, he advises clients in a broad variety of industries on corporate transactions (including mergers & acquisitions and securities offerings) and compliance matters.
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