Source: http://www.connelllawoffices.com/disclosure-requirements-in-massachusetts-for-those-holding-an-interest-in-a-liquor-license/
Timestamp: 2018-02-23 12:07:52
Document Index: 391993904

Matched Legal Cases: ['§15', '§15', '§18', '§19', '§12', '§26', '§18', '§19', '§15', '§12', '§15', '§17', '§26', '§12', '§15', '§ 12', '§26', '§12', '§15', '§ 12', '§26', '§12', '§15', '§18', '§ 19', '§ 19', '§15', '§18', '§ 15', '§18', '§19', '§16']

The Law Offices of John P. Connell, P.C.: Obtaining a retail on premise or off premise liquor license in Massachusetts requires full disclosure of all officers, directors and LLC managers of the licensee entity and every individual with a direct or indirect, beneficial or financial interest in the licensed business. G.L. c. 138, §15A and 204 CMR 2.01(6). Each license type stipulates statutory requirements that may prohibit certain individuals from holding an interest or participating in the licensee entity. Failure to disclose such an interest can cause revocation of the license and disqualification of the individual from having a further interest in any liquor license.
The Massachusetts Alcoholic Beverage Control Commission (“ABCC”) requires all stockholders, LLC members, officers, directors, LLC managers and managers of record to complete one form detailing personal information (i.e. Personal Information Form) and another authorizing a criminal record review (i.e. CORI Release Form). All disclosed individuals must detail whether they currently or previously have held an interest in any liquor license (Massachusetts or elsewhere) and whether such license was subject to discipline by an authoritative agency. Investors must disclose the amount and source of their investment funds by providing documentation such as bank statements, loan documents and often affidavits attesting to the same.
Also included in those having to be disclosed and approved vary from landlords with a percentage interest in the lease and others the ABCC characterizes as holding an “indirect” interest in the license. In determining whether an individual holds an “indirect interest” in a liquor license, the ABCC will consider not only interests possessed by stockholders, but interests possessed by creditors or management employees as well. Number Three Lounge, Inc. v. Alcoholic Beverages Control Commission, 7 Mass. App. Ct. 301 (1979). Licensees are required to disclose all indirect interests in a license and that “indirect” interest is not defined narrowly to mean “only such interests as are possessed by the owners of the corporation’s stock.” The ABCC instead determined that the concept of “indirect” interest should be considered in a “broad” sense. Id. at 311.
Private Corporate Entities: The sole proprietor or closely held corporation is the prototypical applicant requiring disclosure of all direct and indirect, beneficial and financial interest holders. Complex private corporations with multiple subsidiary and parent companies require a detailed investigation by those familiar with the legal requirements to determine what and who must be disclosed.
Publicly Traded Companies: Publicly traded companies are often not subject to the same disclosure requirements as private corporate entities. If a stockholder of a publicly traded corporation holds less than ten per cent of the outstanding stock entitled to vote at the annual meeting then they are exempt from disclosing their interest. G.L. c. 138, §15A. Those stockholders holding more than ten per cent of outstanding stock are required to disclose such interest. Additionally, the application typically requires a corporate structure chart detailing the flow of interest from the licensee entity to the publicly traded parent company.
Lease – Percentage Interest: Landlords often include provisions within lease agreements that calculate rent based upon a percentage of alcoholic beverages sold. The ABCC has determined this amounts to a beneficial interest in the liquor license and therefore requires the ultimate beneficial interest holder(s) of such landlord entity to disclose its interest.
Pledge of License: An applicant obtaining financing by providing their license, stock or inventory as collateral must disclose such and receive approval by both the local licensing authority and ABCC.
Employee Stock Option Agreements: Businesses are increasingly organizing corporate ownership to provide stock options to employees. The ABCC has recognized the fluidity of employee equity ownership and how cumbersome the disclosure process becomes when requiring revised applications for each new employee, particularly when ownership is a mere fraction of a percent. The ABCC has shown a willingness to provide an exception for employees who become shareholders, with no operational control over the entity, via a stock option plan. The licensee entity must name a trustee, who shall also have no operation control over the licensee entity, to oversee the funds. The stock option plan must then be submitted, along with a vote by Board of Directors and list of employee shareholders, for approval by the ABCC. The list of employee shareholders requires disclosure of their name, address, date of birth and social security number. Finally, the licensee entity is required to file, at the least, quarterly updates with the ABCC of any change in ownership, providing the same shareholder personal information as the initial filing.
Crowdfunding: The internet has become an incubator for new investment vehicles to raise capital. Crowdfunding allows companies and entrepreneurs to accept funds for their business project by providing an opportunity for individuals to “pledge” or donate a chosen amount of money. Licensee entities are not prohibited from participating in Crowdfunded ventures but must be aware of the legal implications when raising funds of this nature.
In the November 20, 2013 decision In re: Homestead Hard Cider, LLC d/b/a Homestead Hard Cider, the ABCC held that “de minimis” amounts of money acquired through online “crowdfunding” websites need not be disclosed as a source of funds within an applicant’s license application. Due to the “de minimis” nature of the funds acquired through donors on Kickstarter, which ranged from amounts of $5.00 to $500.00, the disclosure of those donors’ identities and the amount of their contributions were not required for the approval of the applicant’s license application.
Specific License Requirements
The Retail On-Premises “Pouring” License: The applicant for a retail on-premise “pouring” license must be at least twenty-one years of age, must not have been convicted for a violation of a federal or state “narcotics drugs law” and must otherwise be of “good character” in the city or town in which they apply for the license. No person holding a Wholesaler’s and Importer’s License under §18 or a Manufacturer’s License under §19 may also hold an interest in the on-premise “pouring” license. G.L. c. 138, §12. The majority of directors or LLC managers of the licensee entity must not be aliens but shareholders and members have no citizenship or residency requirements.
The Retail Off-Premises “Package Store” License: The applicant for a retail off-premise “package store” license must be at least twenty-one years of age, must not have been convicted of a “felony” and must otherwise be of “good character” in the city or town in which they apply for the license. The applicant must be an individual who is both a citizen and resident of the Commonwealth; a partnership composed solely of citizens and residents of the Commonwealth; a corporation organized under the laws of the Commonwealth, provided all the directors are citizens of the United States and a majority of the directors are residents of the Commonwealth; or a limited liability company organized under the laws of the Commonwealth. There are no citizenship or residency requirements for shareholders and members. An applicant who is not a U.S. citizen may appoint a citizen manager or citizen principal representative pursuant to G.L. c. 138, §26. No person holding an interest in the “package store” license, or any agent, employee, stockholder, or officer thereof, can hold more than five (5) such licenses in the Commonwealth, more than one (1) such license in any town or more than two (2) such licenses in any city. The Massachusetts Legislature has passed legislation for incremental increases of the number of such “package store” licenses that may be held by one interest holder. Further, no person holding a Wholesaler’s and Importer’s License under §18 or a Manufacturer’s License under §19 may hold an interest in the “package store” license. G.L. c. 138, §15 and no person may hold both a §12 retail “on-premise” license and a §15 retail “package store” license in the same city or town. G.L. c. 138, §17.
Wholesaler’s and Importer’s License: The applicant for a Wholesaler’s and Importer’s License must be an individual who is both a citizen and resident of the Commonwealth; a partnership composed solely of citizens and residents of the Commonwealth; a corporation organized under the laws of the Commonwealth, provided all directors are citizens of the United States and a majority of the directors are residents of the Commonwealth; or a limited liability company organized under the laws of the Commonwealth. However, an applicant who is not a U.S. citizen may appoint a citizen manager or citizen principal representative pursuant to G.L. c. 138, §26. No person holding an interest in this license may also hold an interest in a “pouring” license under §12 or a “package store” license under §15. G.L. c. 138, §§§ 12, 15 and 18.
Manufacturer’s License: The applicant for a Manufacturer’s License must be both a citizen and resident of the Commonwealth; a partnership composed solely of citizens and residents of the Commonwealth; a corporation organized under the laws of the Commonwealth or under the laws of any other U.S. state admitted to do business in the Commonwealth; or a limited liability company organized under the laws of the Commonwealth. However, an applicant who is not a U.S. citizen may appoint a citizen manager or citizen principal representative pursuant to G.L. c. 138, §26. No person holding an interest in this license may also hold an interest in a “pouring” license under §12 or a “package store” license under §15. G.L. c. 138, §§§ 12, 15 and 19.
Farmer-Winery, Farmer-Brewery or Farmer-Distillery License: The applicant for a Farmer-Winery, Farmer-Brewery or Farmer-Distillery License must be of “responsible character” and be both a citizen and resident of the Commonwealth; a partnership composed solely of citizens and residents of the Commonwealth; a corporation organized under the laws of the Commonwealth or under the laws of any other U.S. state, admitted to do business in the Commonwealth; or a limited liability company organized under the laws of the Commonwealth. However, an applicant who is not a U.S. citizen may appoint a citizen manager or citizen principal representative pursuant to G.L. c. 138, §26. No applicant for a Farmer-Winery, Farmer-Brewery or Farmer-Distillery License, or co-partner, corporate official, stockholder, manager or agent thereof, may retain or own an interest in a business with an existing “pouring” license under §12, a business holding a “package store” license under §15, or more than one business holding a Wholesaler’s License under §18. However, once an applicant obtains a Farmer-Winery, Farmer-Brewery or Farmer-Distillery License, the licensee may apply for and hold an interest in a “pouring” license pursuant to §§§ 19B(n), 19C(n) or 19E(o). G.L. c. 138, §§§ 19B, 19C, and 19E.
Pub-Brewery License: The applicant for a Pub-Brewery License must be of “responsible character” and be both a citizen and resident of the Commonwealth; a partnership composed solely of citizens and residents of the Commonwealth; a corporation organized under the laws of the commonwealth or under the laws of any other U.S. state, admitted to do business in the Commonwealth; or a limited liability company organized under the laws of the Commonwealth. No applicant for a Pub-Brewery License or co-partner, corporate official, stockholder, manager or agent thereof, may retain or own an interest in a business holding a “package store” license under §15 or holding a Wholesaler’s License under §18, or an out-of-state business that would be licensed under §§ 15 or 18 if it operated in the Commonwealth. Further, none of the aforementioned persons may retain or own an interest in any business engaged in the manufacture of alcoholic beverages, in the Commonwealth or out-of-state, not including a business licensed as a Pub-Brewery, nor any interest in a business holding a Certificate of Compliance under §18B. G.L. c. 138, §19D.
As previously mentioned, all direct and indirect, beneficial and financial interest holders must be disclosed and approved at the outset of the licensed business’s operations as well as at any point in time when a change in those interests may occur. For this reason, those renewing their licenses should be mindful of any new persons who have acquired an interest in the license and should make sure to disclose those persons’ identities on the renewal application. Failure to do so may result in an automatic revocation of the license. G.L. c. 138, §§16A and 64.
Further, those transferring their licenses should be mindful of any new interests that may result from the transfer, and disclose those interests accordingly. Simply handing over control of a licensed business will constitute a “transfer” of the license in the ABCC’s eyes. If any undisclosed or unapproved individuals exercise control over the licensed business the ABCC will have reason to suspend, revoke or cancel the license (See http://www.connelllawoffices.com/transferring-control-over-your-licensed-business-without-approval-can-render-serious-consequences/).
Submitted by Robert J. McGovern, Esq.