Drink at the Co-Op: Issues to Consider

The co-op brewery idea has been popping up more frequently. Some start-ups are considering it, while Black Star Co-Op Brewery & Pub is the first to be doing it. There are also sseveral co-op wineries in the United States, although they are structured more as agricultural co-ops with farmer members, rather than patron members.

It’s a great idea to raise capital for an operation, as well as to get the community involved with the business. There are however additional issues with an alcoholic beverage co-op that other co-ops, such as groceries, do not have to deal with. One of those are the regulations pertaining to the owners of the company.

What is a cooperative business?

A co-op is a business owned and controlled by its members, or shareholders, like any other business. It is a state chartered business entity owned and controlled democratically by the people who use its services.

Management is controlled by a board of directors elected by the members. All members have voting rights, usually one vote for selecting the directors, regardless of the amount of equity the member has in the co-op.

Equity comes from the members, rather than outside investors. Members make direct contribution through membership fees or sale of stock. If the co-op fails, the liability of any given member is limited to the amount invested. Earnings, or losses, on the co-op’s business are allocated to members usually on the basis of the use they made of the co-op, rather than on the basis of equity held.

Issues to Consider

One of the requirements of obtaining a license for an alcoholic beverage business is to disclose certain information about stockholders or members and the board of directors, or anyone with control over the business. Usually, only those stockholders or members holding more than 10% ownership in the company and the board of directors or managing members need to fill out the information forms. This can be relatively easy to get around if the members all hold less than 10% ownership in the company, then only the board would need to submit the required information.

But, some states require all ownership interests to be disclosed. This would get harder and harder to manage as new members buy into the co-op, but not necessarily impossible. Some states also preclude anyone with felony convictions from owning any interest in an alcoholic beverage business at all. So, as a condition to membership, the prospective member would have to represent that he or she does not have any felony convictions. Another condition to membership should also be that all members are 21 years or older.

It’s not impossible to structure a brewery, winery, or distillery as a co-op. It is not, however, as simple as setting up an LLC or S-corp. It will become very important to enlist the help of an attorney that works with co-ops as well as understands the intricacies of the alcoholic beverage laws.