Last year’s TTB suspension of Skokie Valley Beverage’s wholesaler’s permit which asserted the permit was invalid based on unreported ownership changes should have got you thinking about whether or not at both the federal and state level, you’ve had changes in control or proprietorship that you were supposed to report.
Through December 31, 2019, the TTB is running a voluntary program for wholesalers and importers that have undergone a change in control or proprietorship but that haven’t filed a new permit application within 30 days of the change. The program supplements the TTB’s ongoing voluntary disclosure program (yes, there’s an ongoing policy promoting voluntary disclosures).
The temporary program for wholesalers and importers have a streamlined process for reporting changes along with their application for a new permit reflecting those changes.
Under the program, a wholesaler or importer needs to file a new permit application and a request for acceptance of a voluntary disclosure certification. The TTB will not take action against members for failing to report and not having a permit for eligible industry members that take advantage of the program. You can read about the program under Circular 2019-2 and find instructions on the TTB’s website.
For those looking to understand a little more about the distinction between changes in control and changes in proprietorship, here’s a good excerpt from the TTB:
Explanation of Changes in Control and Proprietorship
In general, when there is a change in who controls a business (referred to as a “change in control”) or a change in the person or entity that owns a business (referred to as a “change in proprietorship”), the FAA Act requires a new permit application to be submitted within 30 days of the change. Under the statute, business operations may continue uninterrupted until TTB takes action on the application, provided that the permittee or transferee timely files the new permit application. If the application is not timely filed, however, the business’s permit automatically terminates and the business must re-qualify with TTB.3 See 27 U.S.C. 204(g); 27 CFR 1.44. If a permit has automatically terminated, then the business may not lawfully conduct operations for which a permit is required. Operation without the required permit may subject the business to civil and criminal penalties. To resume operations in compliance with Federal law, a business whose permit has automatically terminated must apply for and obtain a new permit.
Change in Control. TTB generally uses the term “change in control” where there has been a change in either actual or legal control of the business, but the business entity itself remains the same. A change in legal control occurs when there has been a change in the person or entity that owns or controls the majority of ownership interest in the business. A change in actual control occurs when there is a change in the person or entity who exercises managerial control over the operations of the business. Some examples of a change in control include, but are not limited to:
- Any change of the person or entity controlling more than 50 percent of the ownership interest of the business, including, but not limited to, a transfer of ownership interest among family members or a transfer of ownership interest to a trust.
- An overall change of more than 50 percent of the ownership interest compared to what the business has on file with TTB. For example, a business has three owners (A, B, and C) who each hold one-third of the ownership interest. Owner A sells her interest to a new owner. Owner B sells his interest to a new owner. As a result of these two transactions, there has been a change in more than 50 percent of the ownership interest.
- A change of officers, directors, or other management may constitute a change in actual control depending on the circumstances. For example, a change to an officer that exercises managerial control over a business’s regulated operations will likely constitute a change in control.
Change in Proprietorship. TTB generally uses the term “change in proprietorship” where there has been a change in the person or entity that owns the business. For example, a change in proprietorship occurs when a business is sold to a new person or entity; when the business changes entity type, such as from a corporation to a limited liability company; or when there is a change of general partners within a partnership.
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