This article was originally published in The Pennsylvania Observer / Pennsylvania Beverage Media in April 2023. A pdf version can be found here.
Q. I own a restaurant licensed by the PLCB. The restaurant liquor license is held in the name of my limited liability company. I have a buyer who wants to purchase the business and license right away and start operating without waiting for his PLCB transfer approval. The buyer would take all of the profits, and pay me rent as the owner of the real estate. Is there any way I can lease the license to the buyer now and have him take over the business before getting approved by the PLCB?
A. No. The reason why you cannot, and should not, strictly lease the business to the buyer and let the buyer take over the business and the liquor license while awaiting the PLCB’s approval of the buyer’s license transfer is because such a transaction would be illegal. One of the requirements for the issuance of any liquor license is that the person or persons who apply for the license will be the only one having any pecuniary or financial interest in the licensed business. Once the license is issued, it is illegal for any other person to have any monetary or ownership interest in the business without disclosing or reporting the ownership or financial interest to the PLCB and receiving the PLCB’s approval. Since the license was issued to your limited liability company, and not the proposed buyer, it would be illegal for him to lease your license and take the profits.
The buyer must be disclosed to the PLCB if he is to be financially involved. Therefore as a legal solution, the buyer should either buy the membership units of your limited liability company and notify the PLCB of his involvement as a new member. Or your limited liability company may appoint the buyer’s entity as a management company and report the appointment to the PLCB pending the PLCB approval of the buyer’s license transfer.
Note that if the buyer’s financial involvement is not disclosed to the PLCB, the Pennsylvania State Police Bureau of Liquor Control Enforcement can issue a citation against your liquor license, which will delay the PLCB license transfer to the buyer.
Also, as a practical matter, there is no guarantee that the Board will approve the transfer of your license to the buyer. If you sell your business to the buyer and he takes over prior to obtaining PLCB approval, what happens if the PLCB for some reason denies the transfer application? You would have a legal mess to deal with.
The best course of action is to have the buyer’s license transfer application approved by the PLCB and then go to settlement.
You should never attempt to sell your business or license, or purchase a business or license, without first consulting your attorney. There are many important provisions which must be contained in the agreement of sale to protect your interests.
