Existing Client and New Business

[erchess]

Client has long dreamed of finding an investor and opening an operation making corn liquor and beer. He found a potential angel who owns a farm where she grows all the grains and hops needed and a mill where she mills grain and hops (hers and others') to the point they can be sold to breweries and distilleries. She also has currently unused space suitable for the planned operation. The broad outline is that she will provide a sum of money and rent the space for a dollar a year and will receive an ownership stake. I don't know the financial terms (not even sure they have been settled) but she will provide the grain and hops. He will provide the labor and the expertise and will have a controlling interest in the operation. What pitfalls should I alert him to and what pitfalls are there for me in this arrangement? Also is the rental of space for a dollar a year a good idea or is there a more tax advantaged way to structure the situation? Would the self rental rules be in play and where can I turn to read about them? TY for all replies.

BTW I am so ignorant I don't even know if hops is a grain.

[appelman]

I speak from little knowledge.

But should they consider structuring it as a partnership?

[ChEAr$]

BEst advice is that he get legal help before he commits to any arrangement.

I of course would favor an LLC with S corp option, maybe so, maybe not in them thar hills.

Last moonshine I bought was made in Albany, GA and on sale in a store in maryland with the federal red tax stamp prominent.

Why am I suddently seeing an image of Robert Mitchum revving up his 1939 Ford? hmmmm..

[DaveO]

Hops are a flower used to impart bitterness and flavor to beer. The grain used in beer production must first be malted. Is this operation located in Asheville? That's the only malt house in NC I'm aware of.

I've been involved with a craft brewing operation as a principal for several years and have attended distilling school as well. If you have specific questions of too narrow of an interest for the board you can PM me.

As to structure I would say an LLC could be formed to hold what would in essence be a joint venture. If you are going to do the accounting work for them be advised there is no area of industry more tightly regulated or heavily taxed than alcohol production. I file over 60 excise tax and production returns per year for our brewery between the state and federal. It's a fun business but the regulatory requirements are onerous.

Local production and local sourcing of ingredients is the latest market shift in the craft brewing/craft distilling industry. We have aligned ourselves with the slow food people and sustainable agriculture groups in the area. Our spent grains are fed to heritage breeds of pigs and cattle. We are limited in sourcing local ingredients here but do use local honey and produce vegan friendly brews.

[Gary2]

The rules for liquor (i.e., any distilled beverage) are far more stringent than the rules for beer and wine, but farm-based distilleries get a break. So not only would I suggest getting a lawyer, but I suggest getting one familiar with this particular aspect, lest they unintentionally lose out on the benefits for farms.