Legally structuring a new distillery?

[lswanson1]

I am in the process of opening a new distillery in western Montana. I basically have everything ready to go, business plan, 2 year projections, license ready to submit, etc. but the one hold up I have is what is the best way to structure a distillery? I am thinking Limited Liability Corporation but I would like to hear what you all have to say. I would like to keep the business as its own separate entity so my personal assets are not part of the business.

Thanks

[Ralph at Tuthilltown]

Best thing you can do is get your attorney and accountant together, look at tax law and then decide. What was best for others may not be best for your situation or in your state.

R

[Scott @ Twenty2Vodka]

setting up a corporation or LLC is essential to create a "wall" between your assets and the company. However, considering the relative age and lack of operating history of your corporation, many lenders will likely require you to sign a personal guarantee on any money your borrow, basically eliminating that nice corporate wall.

As far as which structure, this topic has come up often, and the right answer will be a combination of many many factors specific to you. We are setup as an S-corp. This made sense for us given our goals on raising money, where we sold shares to many (19) different people across 3 states. This structure made raising money more difficult because the potential distribution of profits is mandated by the nature of the corporation, and could not legally be as "cushy" as can be made with an LLC structure. However, had we gone the LLC route, all of my shareholders would have had to be listed on my DSP license. As it stands right now, only shareholders with an interst of 10% or greater must be listed on the license which (in my opinion) made the more-difficult fund raising worth it. With an LLC, everyone is a "partner". If one of the partner's dies or want's out, your LLC is dissolved, and i would imagine it would make for a giant pain in the ass when having to modify your DSP license (maybe it's a cake walk to modify your license in that respect, i have no plans on finding out).

Your best bet is to read read read about LLCs and SCorps and then bring all of that knowledge to your accountant, and then your lawyer, for their professional council on your specific matter. Then sleep on it and make a choice that is best for you.

If i was to do it again, i'd go the SCorp route for sure. If you setup an SCorp for that reason alone, you are asking for failure.

good luck,

-Scott

[Scott @ Twenty2Vodka]

and if you don't have an accountant and lawyer yet, maybe you should start there. They are both expensive and essential.

-Scott

[Timoteo]

and if you don't have an accountant and lawyer yet, maybe you should start there. They are both expensive and essential.

-Scott

I believe Scott nailed that for you. I structured mine as an LLC and am taxed as an S-corp. I raised money, but didn't allow any partner more than 5% ownership. The LLC does not necessarily have to be dissolved if you lose a partner though. A well written articles of organization can address partner gain/ loss, voting rights, decision making etc, again- the accountant and attorney. My experience was that my accountant was the best to ask first. You can save a lot of money getting his point of view first. I found that my attorney had no issue with his advice and saved much billing time for me and my LLC.

[joe@cpd]

I think it should be set up as a C corp. You get the same liability protection but there are tax advantages. LLC are taxes the same as a sole proprietor.

[Chris Martin]

I think it should be set up as a C corp. You get the same liability protection but there are tax advantages. LLC are taxes the same as a sole proprietor.

Not true Joe. An LLC can choose to be taxed either like a partnership or like a corporation. If the LLC elects to be taxed like a partnership, there actually is no tax on the LLC's profits -- the tax burden is passed-through to the owners.

[Chris Martin]

However, had we gone the LLC route, all of my shareholders would have had to be listed on my DSP license.

Scott, why would this necessarily be an issue, besides the paperwork aspect, or if one of your investors had a felony on record, etc.? As far as the TTB is concerned, are LLC members any more liable than they would be in the course of any other business, just because this is a DSP? What roadblocks did you come to with investors in an LLC formation? I'm curious because we're currently organized as an LLC and starting the fundraising process soon...

Also, just to clarify, the TTB only requires LLC members with 10% or more of the company to be listed along with LLC managers and key people. As for what your state requires, who knows -- you may need to list everyone including your grandmother.

[pressure9pa]

I am a shareholder of other (not alcohol related) S-corps, and in the K-1 forms I receive give me credit for any taxes the corporations paid, just as I have to report my share of the income they produce. Would the federal and state excise taxes be treated the same way? Would the K-1 allow those taxes to be idenitfied as a tax paid by the individual shareholder of an S-Corp?