This article was originally published in The Pennsylvania Observer / Pennsylvania Beverage Media in July 2024. A pdf version can be found here.
The Pennsylvania Liquor Code legally permits management companies to have a financial interest in a licensee’s business. A licensee can engage a management company to operate, manage, or supervise all or just a part of the licensed business operation, and in return the management company can receive all or a portion of the revenues generated.
The use of a management company by a licensee often occurs with hotels and restaurants, and eating place dispenser licenses where the licensee and a buyer enter into an agreement of sale for the business and the buyer wishes to assume control over the licensed business while the license transfer application is being processed for the premises.
The licensee must enter into an agreement with the management company (or buyer), which sets forth the terms and conditions for the management of the licensed business. The management company becomes an employee or the agent of the licensee by the use of the management agreement. The licensee remains the owner of the PLCB licensed business, but by the use of a management agreement the licensee delegates certain aspects of the business operation.
The licensee, however, must at all times be in ultimate control of the licensed business operation and should supervise all activities, since the engagement of the management company does not affect the licensee’s responsibility to comply with the Pennsylvania Liquor Code and the regulations of the PLCB.
Once that agreement has been completed and signed, the licensee must complete and file with the PLCB an Application for Use of Management Company, along with a copy of the signed and dated management agreement, with the required filing fees.
The PLCB’s legal department will review the management agreement and will advise the licensee as to whether or not it is legally acceptable in accordance with the Liquor Code and the regulations of the PLCB. The management agreement may have to be amended if the PLCB determines that certain provisions are in violation of the law. Once the agreement is approved, the management company can commence operation. The licensee must notify the PLCB if and when the management agreement is terminated.
There are several provisions particularly to consider: The licensee’s business taxes are to be reported and paid under the licensee’s entity and tax numbers; All employees are the licensee’s employees; There should be adequate insurance coverage; and the licensee must be notified of any citations or violations that may be brought against the license or incidents involving any accidents.
Management agreements are complex; consult with your attorney regarding the drafting of the management agreement and the reporting of Application for Use of Management Company to the PLCB.
