In high school, a friend and I swindled our way into becoming presidents of the school. There were more votes cast than students, but somehow the powers that be let it fly. Up until last week, that was the highest position I have ever achieved at anything (Yay for peaking in high school!!!). Well that has changed now that the fine State of California has accepted our incorporation, making me the President of the Wild Parrot Brewing Company!
Making your business legit is pretty intimidating, mostly because the options for your business structure differ in ways that only lawyers and accountants can fully understand. For a brewery, sole proprietorships and partnerships don’t make sense because they don’t provide the legal protections that shield you from somebody going after your personal assets - I’ll be damned if I’ll put my Nintendo at risk. You are also likely going to want to raise money, and these two business structures don’t really help with that. The only real options are a LLC or a Corporation (In our case an S-corp, which is a detail you likely don’t care about), which each have their own benefits and drawbacks. Here are the mega-basics from a brewery-in-planning standpoint:
LLC - This is the simpler route. There is a lot less formality (no required meetings, less paperwork) than a corporation, which makes things easier. Another benefit is more flexibility in classes of shares (called membership interest for a LLC) versus a S-corp. In California, you pay the Franchise Tax (minimum $800) plus an additional fee based on gross income.
Corporation (S-corp) - This is a more complex arrangement and requires a bit more corporate upkeep. The main advantages are that it is an easier sell to investors and there are preferable self-employment taxes compared to a LLC. In California, you pay the $800 minimum tax, but that is waved for the first year. S-corporations pay a franchise tax of 1.5% of net income to the State. After discussing the options with the Wild Parrot law genius as well as our accounting guru, the decision was made to go with the Corporation, with S-corp tax election.
In talking with other brewery owners, there was a general consensus among those with LLCs that they wished they had gone with a corporation. It is a pain in the ass (and expensive) to change from a LLC to a corporation, and if you are planning on growing into a large company, the corporation is the way to go. I should point out that my ever-understanding and supportive wife is an equal partner with me in this. You can look forward to a future blog post where she lays down some serious truth. I’m a little nervous to see what she writes. Next moves - submit additional paperwork to the State and IRS, open a bank account for the corporation and submit the trademark application.