Industry sign banking new jersey memorandum of understanding myself
today what we're going to go through is basically a business legal checklist so it's some of the basics that you need to know if you want to become an importer or distributor so some of this may be familiar to you and others who may be looking to get into this industry hopefully it will be a guideline for you okay so as you may be aware there's a three-tier system in the alcoholic beverage industry so each tier is separated for financial reasons and the top tier is usually referred to for the suppliers manufacturers and importers the next level would be wholesaler distributors which are interchangeable and then the retail level so the supplier or the employer manufacturer imports the brings in the products and sells it to the wholesaler and the wholesaler in turn sells it to the retailer's and then the retailer's in turn sell it to the consumers so you're not going to be able to get your products directly just from the importer so if you're looking to start a business you want to determine what its going to be do you want to be an importer do you want to bring in products in from overseas into the United States do you want to be a distributor then you're going to be selling to possibly other distributors and retailers or you can actually do both you can be an importer and a wholesaler so today of course there are other operations you can have you can be a winery you can be a brewery you can have distillery but for today's purposes we're just gonna talk about importers and wholesalers so once you decide what type of business that you want to have so say I just came back from a trip from Italy had some fantastic wine some amazing spirits and I thought you know why don't I come back home and then start this business I could share with my friends family and then others who haven't been exposed to maybe this winery or distillery so I decide that I'm going to start my business in New York because at least if I'm resident here I don't have to fight the traffic so I'm going to start my business I'm going to open up an office here but then I mean I just want to sell those products in New York I may want to sell them in New Jersey I may want to sell them netiquette maybe I want to go down the eastern seaboard to Florida maybe I'm going to be really have grandiose plans and then I'm going to go nationwide I'm gonna sell California and in between so once I determine that and then I can really understand what I need to do to actually start this business so what kind of legal structure do I want you know there are things those sole proprietorships I could just have my own business I can go in with partners I can have a partnership I can also start a corporation or I'm a one up for a limited liability company the reason why you may want to start your own business and create a new entity is so you can insulate yourself from personal liability from those of your corporation if you have obligations and debts so most of my clients usually come to me and they want to form either a corporation or a Liban limited liability company so corporations are probably well aware of you hear about them in the news all the time they are a little more formal in their structure they usually have a board of directors that determines what the strategy is going to be for that business you'll have officers who run the day-to-day operations and the board the officers implement the plans from the board and the board they have to report to their shareholders the shareholders are the owners of the corporation they tend to be a little more formal in their structure in that they have annual meetings that they're required to hold and they report on their meetings so whatever decisions they may have when they get together there's a formal record of it now on the other hand you can have a limited liability company where again it's a little less formal but yet you still have that insulation for liability purposes so you with a limited liability company you are not required to hold these annual meetings however you will do that because you want to have some sort of some type of structure or how you organize yourselves and then also if you have meetings I always encourage people even though it's not required that you actually record those minutes so if you decide on you know acquiring a building or you're going to purchase another company or you're gonna do some other type of business acquisition that you want to have a record of it you don't want to just go to a meeting so they this is what we're gonna do and then nothing else so some of the things that differentiate the limited liability company and a corporation are you know what type of ownership you have G your owners need to be US citizens are you able to split any profits or business losses on your personal income taxes so for instance a corporation right now when they are taxed if there's a profit in the business that profit is taxed at a corporate tax now if those profits are then distributed to the shareholders which are the owners of the company well then once that distribution is made that's taxed at your personal tax level difference with the limited liability company is that you are taxed at your personal tax bracket so if I have a limited liability company and I have four other four other members because as opposed to corporation who has shareholders limited liability companies have members I may have a different tax bracket that maybe the two other members that are part of the organization so there are definitely benefits to it following the recent changes in the tax laws they may not be as Extreme as they once were it's something to consider so when you're looking at the type of entity or structure that you'd like to have it's a good idea to talk to your legal counsel and your accountant just to figure out what's best for you now getting into the state of formation where do you want to be incorporated or where do you want to have your company formed well lots of people will do it in the state where they reside or where the principal office is going to be so if I'm going to open up a business in New York I may say I'm gonna form my organization in the state of New York so I make a filing with the Secretary of State in New York other people may want to file in Delaware you may have heard the Delaware is very favorable to businesses so again that may be another option so these are things that you would want to discuss again with your attorney or your accountants so this way you find out what's the best option for you giving into the ownership structure again what type of organization do you want how is it going to be set up are you going to be working with friends and family do you think you're going to keep it small do you think that you're looking to the future that you want to be acquired well then in such case maybe you want a different entity than you originally thought something that allows you to grow maybe you want to be able to get investors down the line and then management structure again how formalized you want to be do you want it where you need to have your meetings that are very structured and again if you have investors maybe a c-corporation is the way to go but in some cases a limited liability may also be beneficial to you so again these are just things that you want to think about before diving into a to starting up your new entity so once you know what you're going to do what your structure is going to be and say I want to be an importer and distributor because I really love those Italian products that I tried in Italy so now how much money do I really need to fund this company well I think it's really best to do your due diligence and figure that out now if I'm starting just an import company well my cash knees may not be as significant as if I'm looking also to be a wholesaler if I'm going to be a wholesaler of products I may need to go out there and get a sales team together I may need to have vehicles or trucking so I can get the products to where they need to go I may need a warehouse and if I need warehouse space in addition to my lease again these are other expenses that I may not have accounted for so when you're trying to figure out what you actually need you're not just looking at the initial startup cost of the venture you're going to look to the future and say okay how long can I keep this running before I start turning a profit because as we know most startups don't start generating profits immediately so once you figure out how much you need to invest in your new company where are these funds coming from well some people may start out small and they may have their own personal funds set aside and they're going to invest that into this venture others may look to others to get some financial help so maybe there's a gift involved that someone gives you some money to help you start up your organization you may go the conventional route and get a loan you go to the bank you tell them what you're looking to do that you're starting a new business and take out a conventional loan another option is that you may look for investors so if I'm looking with my small company that I want to bring in investors it could be friends and family it could be other acquaintances that have they meet certain thresholds to be an investor in my company then what I would do is issue a private placement memo and give them a subscription agreement so they know that they're purchasing X number shares if it's a corporation or units if it's a limited liability company and what the fees going to be per unit so this way again everything you want to have documented it's not going to be based on a handshake and there's actually a reason for this because when you're going to go apply for your permits you need to be able to show where the source of funds are coming from so if I just go and say I'm gonna start up this business and I have a stack full of money and say hey great I have $100,000 to start my business well that's fine because I have the wherewithal to do it because now I have money however when they're looking for my permit applicant application I have to show where the source of funds are coming from so if it's personal funds that's generally easy right you have a bank account you show them your bank account of withdrawal of ten thousand dollars and it's going to be transferred into the new business account if it's a gift well generally what they want to see is a gift letter so if I give somebody ten thousand dollars to start their business I would write a letter saying yes I issued this ten thousand dollars to so-and-so for this amount now alone obviously is much easier you go it's a commercial loan we know when you sign a loan you're signing your life away there are lots and lots and lots of documents and you would be able to show where that source of funds where the source of funds are coming from and then lastly with equity investors again if you have a subscription agreement then you're able to show the documentation I had 10 investors invest in my company they purchase X number shares or units this is what they paid for it and so now the picture is rounded out where the funds are coming from and then the last thing I think to consider when you're looking at who may be investing in your company or who may become a part of your ownership is China tight house considerations so we're talking about the three-tier system and you have your importers your wholesalers and your retailers so if there's a retailer that wants to invest or be an owner in your company that's going to be problematic because you can't have a retail license and either an importation or wholesaler license so when you're screening people are looking for them to become part of the organization you may just want to double-check and see if they have any interest because normally what they'll do when they're scanning as to who owns a company if you have 10 or less shareholders or members then they're going to want to look at or have personal questionnaires from all those individuals if you have more than 10 shareholders or members well then they're going to look at people that hold over 10% of the holdings so again so to avoid any hiccups with your application it's something that you want to screen for in advance so now what kind of permits do you need well the first thing to do if you're going to start your business is you need to get a federal basic permit so depending upon if you're going to be an importer you'll get an importers basic permit if you're going to be a wholesaler it would be a wholesalers basic permit and also the federal federal level you can get a combined permit so it's slightly less paperwork not that much but you can get a combined permit to do both so once you do that and you are approved and you get your federal permit then if you're going to be an importer you also have to register as an alcohol dealer with the TTB so now that you have your federal license under your belt what do you do how do you start operations well of course you have to do it at the state level too so the federal because we have our federal guidelines overall laws and then each state has their individual laws so if I'm going to open up my business in New York well then I'm going to have to apply for those permits locally so I would go to the State Liquor Authority and apply for an importers permit if I'm going to be an importer in New York and then also if I'm going to be a wholesaler I have to determine what type of wholesaler I'm going to be do I want to be a wine only wholesaler or do I want to be a wine and spirits wholesaler well I'm gonna opt for the wine and whole and spirits wholesaler because I like those products in Italy right the wine and the distilled spirits so then I would apply for those permits in New York and then once those are issued then I I can start my operation in New York but now what about those other states that I was interested in selling into what if it's New Jersey what if it's Florida what if it's Nevada well if it's California well I can't just sell because I had my federal basic permit and also my New York permits so now I have to look to those individual states and see what I need so if I am going to sell to another wholesaler in another state I may need an out-of-state dealers permit or I may need an out-of-state shippers permit or whatever permit that is required for that particular state so providing everything is fine I got my other permits my federal in my New York state permits assuming that everything is good I should be able to get those in the other particular states now in addition to those permits because you haven't filled out enough paperwork you need a certificate of authority to do business in those states as well again this is a nominal filing it's not very costly but it just allows you to do business because if I have a New York corporation that's considered far into other states so it's not far and meaning outside the borders of the US but it's far into that particular state so New Jersey if I'm if a Delaware corporation wants to to do work or conduct business in New Jersey they're considered foreign so they would just file an application to do so so now that you have your permits in place you have federal permits you have your state permits well how do you actually start running your business well people right we need people in order to do this so you may be in a position to either hire employees or maybe you're not in a position to hire employees right now maybe it's really too early in the game so you may look to hire some consultants now this is beyond going friends and family and everyone like pitching in to help you out so if you're going to go with employees against or if you're a company just starting out you may not have lots of resources to help you issuing these letters or screening people to come on board but what you do want to have is again some form of documentation I apologize I'm a lawyer I like paper and so if you go with an offer letter it doesn't have to be something that's extremely extensive it doesn't have to be a ten page document but you want something that is a couple of pages that says you know we're offering you this position you're going to start on X date this is your salary these are the
ours of the office this is your title imperii or your vacation days or paid time off and whatever else is pertinent for that position and then again because if we're going the simple route if you bring somebody on board as an employee and for some reason they either leave voluntarily or they're dismissed you want to have some form of protection for any confidential information that you may have for your business now that could be anything from your business plans it could be your customer lists it could be formulation if you're producing a product so anything that is confidential to your business that you'd like to protect if you have them sign what's either called a confidentiality agreement or a nondisclosure agreement that will give you some level of protection so that's generally a one-page sheet maybe it's two pages but it's something that I recommend that people do so you have an offer letter and a non-disclosure agreement now if you're dealing with consultants so again somebody that's ward that's not full-time maybe they're helping you out on a particular project maybe they're you're getting your website on board or up you know up and running maybe you want them to design your labels whatever that may be and it doesn't encompass full-time employment you can deal with the consulting agreement with again could be something that's very short that's talking about the scope of work that they're going to be providing for you the compensation and the expectation of what type of deliverables that would be are they going to provide you with a full label for your product and they're going to do that within two weeks well you want to just include that in your document now confidentiality agreements can have the non-disclosure provisions included in it or again if you want to go simple the simple route you can just have a very short consulting agreement and then provide the standard NDA or confidentiality agreement to have them sign it because again they may be working on projects for you that a competitive may be working on to maybe they're designing your label maybe they're talking about events that you're going to be holding maybe they're preparing the demographics for your customer your ideal customer so again they're collecting data information that you don't want your competitors to have when you give it some more sophisticated employment agreements generally when you're dealing with probably executives or the management level you may want to have some restrictive covenants in there which prevents those individuals from competing with one of your competitors so if I have my CFO that I've worked with for five years and for whatever reason we part ways well here's somebody who's been working on my budget they know my plans they know what I'm going to be doing the marketing plans or sets for the next five years out and they've been working with me for five so maybe I don't want that person to go to my competitor who is my brother because we're not talking and he's out there trying to beat me in my business so I may put in a non-compete restriction now non-compete maybe he could not compete for six months maybe it's a year but there's usually some form of compensation that I would provide because I can't just restrict somebody from earning a living and then another type of restrictive covenant that's comment would be a non solicitation how many times have you heard that someone has a business there's a falling out and then one of the partners leaves are one of the parties and management leaves and what do they do they take the they cherry pick the good employees they take five are your key employees and now what now you don't have a business so a non slit non-solicitation provision also helps you protect your business so this way someone can't run off with those employees and it's not always just limited to employees it could be customers that you do business worth with so again it's something to consider everything here that I'm mentioning isn't an absolute but they're just suggestions as you're building your business and you're going and then the last thing is an employee handbook so whether you work at a company right now you may have an employee guide or employee handbook basically is a combination of all the different procedures that you need to follow at the company it could be you know what hours you need to work it could be what do you do to get reimbursed for expenses if there's a sexual harassment claim who do you go to how do you report that what do you need to do for submitting for vacation time or time off so these are just things that you want to put together because again the day and age that we're in right now where everyone's looking to sue somebody you want to be pretty consistent in your policies so you don't want to give Sally five days off but when Tom asks you for it you say no or you know Joe gets two weeks vacation because his family lives in another country but when Lisa asks to go on vacation just because she wants to visit another country you say no so again you want to try to keep your procedures and policies consistent so now that you have your employees on board you have your consultants well now you're looking for your suppliers and distributors depending on which tier you're in or which if you're an importer or distributor or both so again you may be confronted with somebody coming to you and say okay I'll work with you however I want you to sign this non-disclosure agreement or confidentiality agreement but it may be one-sided so again what they're trying to do is protect their interests for their business they may be in existence for you know 50 plus years in Italy or wherever they are and they come to you you're starting out or you're a newer business well why am I going to give you all my plans and the information for my pricing for my products or what I'm going to be rolling out the next couple of years unless I have some assurances that you're not going to tell everybody else so if somebody comes to you what I would normally recommend is that you make the confidentiality agreement or a non-disclosure agreement mutual right because you're maybe disclosing plans that you have or ideas for that particular company and they're going to be disclosing their ideas to you or their products and this way you both have a good level of comfort so then once you get past the NDA you may go into a non-binding agreement so you'll negotiate what your terms are going to be and then somebody may issue you or you may issue to the other side what could be either called a term sheet a letter of intent or a Memorandum of Understanding so basically what these documents do they're going to highlight a broad strokes as to what you've agreed to maybe you've agreed to import wine a particular brand or brands you're going to talk about maybe the pricing how often you're going to be purchasing inventory what the term of your agreements gonna be maybe you're gonna work together for a year maybe it'll be indefinite maybe it's five years and then it may have loose terms about you know if you terminate what happens so these non-binding agreements are good because they outline what your arrangement is between the two parties however that's not a definitive agreement when I say definitive agreement I mean that's the agreement that you actually signed that you live by so that could be an importation agreement if you're importing products it could be a distribution agreement if you're working with a different distributor so once that's agreed to then once you go through your definitive agreement it's going to be a little more robust you know you may talk about now how do you terminate your arrangement together if you have intellectual property if there are trademarks involved are you are they authorized to license those marks to you do they own them whatever reps and warranties that they're going to make that would be in the definitive agreement and again everything is going to be a little more robust with information so now once you sign your agreement what do you need well now to bring that product in you have an agreement but in order to bring it into the US you need an authorization letter so the supplier would issue that letter to you you would file it and say that generally you'll be the exclusive importer of that particular product and then once you have that the last thing that you need to do is file that facility has to be registered as a facility because they're going to be producing product that's coming into the United States and also they need to receive notice as when as to when that product is coming in this was implemented under the bioterrorism Act after 9/11 so compliance issues again we're extremely heavy heavily regulated in this industry so there's certain things and formats certain formalities that we have to go through before bringing product in so one of them is a certificate of label approval so again we have our we have our agreement with our supplier to bring products in and now in order to do so the product has to be properly labeled so certificate of label approval is something that is submitted to the TTB and it has to follow strict strict standards as to the type of product it is the volume alcohol and some other information that is requested so again it's a simple form it's easy to fill out a copy of the label is included and then it once that's approved then you can generally start bringing product in now in some cases there's a pre Cola product evaluation and what that is in certain countries and certain products you may need to pride either a formula you may have to provide samples and also talk about various ingredients because certain ingredients and products outside of the US are not permitted to come into the US so in certain cases you may also have that extra step involved and now once you now have your federal Cola approved now you're able to start applying to go into the states so the states that you decided to work with so some states require brand registration so you would have to file which brand you're bringing in usually it's the brand the type the size and whatnot and then in some other states you may be required to price file now price filing is not required in all the states however they do do this so people are on a level playing field so if I'm selling a particular product in New York and say that say my friend John is a retailer and I really like him and I want to help his business and he said he would help my business so I'm gonna sell it to him in a great price but then you know there's Peter over here who I'm really not fond of and he's been giving me a hard time so you know what I want to charge him a little extra just because well you can't do that everybody needs to be able to purchase your products at the same price now of course there's some exceptions if they're highly allocated products but for the most part as a general rule that's the reason why they have price posting so now sales and marketing again important because now you're selling and marketing these products and again heavily regulated industry so you want to make sure you don't run afoul of the strict standards in which we do so so it's important to work with your internal team whether that's your employees or your consultants they're also agents and representatives that you may work with you may get a third party agency to host events for or plan events for you and you may work with a modeling agency so you can have models that are going out to try and have consumers taste your products which is perfectly fine and legal you may also have your supplier or manufacturer who has you know people on their teams that want to come to the u.s. and really talk about it and educate the consumers about their products so they may host date maybe a chef's tasting they may have an event where they're doing a pairing a wine and food or it could be spirits and food whatever the event may be you just want to make sure that they understand the guidelines in which they can actually hold these events and go out and sell I've worked with companies who've had their own sales people that come from abroad that come into the US and they think that they can go out and they can just give away free products well that's something that you can do here now there's such a thing as giving people samples like maybe I go to a retail account I sit down have a formal tasty and going through the attributes of that particular product but then I can't keep going back every week and giving them another bottle of product to try hoping to encourage sales so it's really important to go through and understand what these standards are both at the federal level and at the state level and then educate your team and then also work with your suppliers or your third-party vendors that are helping you so looking at the looking at the compliance governance we have again federal trade practices ABC boards will tell you what you can do you have the Federal Trade Commission for advertising and the Attorney General oversee the trade and advertising as well so now the best way to keep up-to-date with the industry is really to look at these resources that are available and everything basically is available online the TTB obviously is the guiding force for the federal level this is where you get your permits and there's a lot of great information on there about how to obtain your permits what you can and can't do they post the laws in the statutes if you you know want some light reading I urge you to do so also at the state level you can look at the particular state ABC boards because again they have valuable information and there were a couple of other organizations such as the National Association of beverage importers which is a great resource especially if you're an importer right so they're gonna let you know are their trade tariffs coming down what has been what's not permitted to come in what you know what ingredients is is in a certain product that's not permitted and then also the distilled spirits Council previously known as discus now is DSC again another fantastic resource they'll talk about you know the history of this industry and also the different things that are going on various states and events and and lastly just looking at blogs and other online resources because again it's invaluable there's so much information available at your fingertips and obviously events like today are great so between your beverage trade network is great for getting the news out there for everybody and like I said you're going to be walking around talking to a lot of people today and I'm sure you're going to get a lot of great knowledge so with that I will leave you so this way you can start mingling and networking and hopefully I provided you with a little bit of information that will help you with your businesses [Applause]
