How should multiple related alcohol businesses be structured so ownership interests never cross tiers?

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Related alcohol businesses stay inside the Tied House rules when every person and company in the group sits on only one level of the industry, as an owner, an officer or director, an employee, a lender, and a party to its contracts. A new LLC does not change that analysis, because the prohibitions reach interests held directly or indirectly, and several of them expressly name interests held through a subsidiary, affiliate, officer, or employee. The Code does allow some combinations, such as a manufacturer selling at its own premises within set limits, a brewpub operating as a retailer, and a hotel holding several retail permits if the businesses are completely separated.

The rule the structure has to satisfy

Section 102.01 of the Alcoholic Beverage Code prohibits overlapping ownership and other relationships between manufacturers, wholesalers, and retailers, and its prohibitions reach four areas a structure has to keep separate: ownership, officer and employee roles, money moving between levels, and contracts that give one level control or a share of another. Sections 102.11 and 102.18 apply parallel rules to brewers and beer distributors.

Package stores carry an additional bar. Under Section 22.06, a person who holds a package store permit or owns an interest in a package store may not have a direct or indirect interest in a brewer’s or distributor’s license, a retail dealer’s on-premise license, a wine and malt beverage retailer’s permit, or a mixed beverage permit, except as Section 102.05 allows for hotels.

Combinations the Code allows

  • A maker selling to the public at its own premises. A brewery’s taproom, a winery’s tasting room, and a distillery’s on-site sales run under the manufacturing permit itself, within statutory limits, and do not extend to holding a separate retail license.
  • A brewpub. A brewpub is treated as a retailer, so its holder stays off the manufacturing and wholesale levels.
  • A hotel with several retail operations. Section 102.05 lets a hotel hold a package store permit, mixed beverage permit, wine and malt beverage retailer’s permit, and retail dealer’s license if the businesses are completely segregated from each other, though Section 51.06 rules out the package store if the hotel’s mixed beverage permittee operates minibars.

Designing the structure

  1. Choose the combination first. Decide whether the group needs a maker selling on its own premises, a brewpub, or a hotel with several retail operations, and confirm the Code allows that combination before any entity is formed.
  2. Segregate the hotel businesses. Where Section 102.05 is used, each retail business in the hotel has to be completely segregated from the others, and the plan cannot include both in-room minibars and a package store.
  3. Keep a package store apart. Because a package store owner may not hold an interest in a bar, a beer-and-wine retailer, a brewery, or a distributor, a group that wants a liquor store and a bar needs different owners for each, unless the hotel exception applies.
  4. Check people, money, and agreements across the group. Before filing, confirm that no owner, officer, employee, lender, or contract links businesses on different levels.
  5. Keep it current. Adding an investor, officer, or lender later can create a cross-level interest in a structure that was clean at filing, so changes get the same review.

Why this is done before filing

For a violation of these prohibitions, the Code directs suspension or cancellation of the permit of every permittee involved, and the bar that follows a cancellation attaches to the people who held an interest, not only to the location. Because each structure turns on its specific people, entities, and agreements, a related-business structure is worth review by counsel familiar with Chapter 102 before any application is filed.

This article is general information about Texas alcoholic beverage law, not legal advice, and reading it does not create an attorney-client relationship. Statutes and TABC rules change; confirm current requirements with the Texas Alcoholic Beverage Commission, the relevant city or county, or a licensed Texas attorney before acting.

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