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For a brewery truly rooted in the community, consider forming a cooperative, guest post by Sara Stephens, Sustainable Economies Law Center.

For a brewery truly rooted in the community, consider forming a cooperative

The cooperative business model is gaining popularity. Even many craft breweries are forming as co-ops. If you’re thinking of starting a brewpub, the cooperative business model might be the way to go.

The Sustainable Economies Law Center (SELC) is the authority on co-ops. MicroBrewr Podcast recently spoke with SELC as part of a series about breweries as co-ops. Here, Sara Stephens, staff attorney at SELC and the Law Office of Sara Stephens, expands on how the cooperative business model can be applied to breweries.

Disclaimer: This blog post is made available only to give general information about the law and not to provide specific legal advice. The law is different in every state and subject to change. You should consult an attorney about legal questions pertaining to your situation.


For a brewery truly rooted in the community, consider forming a cooperative

Full disclosure: I am Nathan Pierce’s girlfriend wife. Because of that, I am learning more about craft beer than I ever expected I would. Although I’m not a big beer drinker, I am a big fan of entrepreneurship that helps create a more equitable economy. My job as an attorney at Sustainable Economies Law Center is to help people start cooperative businesses, equitable housing and land stewardship models, and other projects that create more resilient communities.

What impresses me most about craft breweries is how unlike conventional businesses they tend to be (in a good way).

  • They give back to their local communities.
  • They collaborate and share with each other.
  • They innovate and take risks.
  • They generally resist selling out to make a bigger profit.
  • And they seem like great places to work.

Because of these qualities, I believe the craft beer industry is ripe for the cooperative movement to take hold.

Cooperative basics and benefits

Cooperatives, I believe, are the best type of business to form if you want to be truly rooted in your community. By “cooperative” I mean an entity that is owned not by outside shareholders but by its members—the people who actively help the business to succeed.

Members might be:

  • The business’ workers (worker co-op)
  • The business’ customers (consumer co-op)
  • Producers of the product it sells (producer co-op)
  • A combination of those categories

Members of a cooperative jointly own the business, share its profits, and democratically manage its operations. This form of business keeps more wealth in the local community because the members (local workers, customers, and/or producers) are its owners. In the case of a brewery, the members could be the workers in the brewery, the consumers of the brewery’s beer, and/or independent brewers whose beer the co-op sells.

These members also have a say in how the business is run, so they can keep it from exploiting its employees or the local environment. Worker cooperative breweries, in particular, allow the people making the beer to have creative input and ownership in their work. Rather than focusing on maximizing returns to shareholders, a cooperative can truly operate for the benefit of its workers and community.

Listen to podcasts about breweries as co-ops:

MicroBrewr 046: Start your brewery as a worker-owned co-op

MicroBrewr 047: Proof of concept for a brewpub co-op

MicroBrewr 049: Planning California’s first cooperative brewpub

The cooperative model is taking hold

If you’ve been listening to MicroBrewr Podcast (particularly episode 046, episode 047, and episode 049), you’ve heard about these and other benefits of running a brewery as a cooperative. You’ve also heard from a couple of breweries that have chosen the cooperative model.

As it turns out, this trend is really taking hold.

Here’s the list of cooperative breweries Nathan and I have compiled so far. Some have not yet opened, but are well on their way. Below each, I’ve also indicated what type of cooperative it is or intends to be (as far as I could tell). Some of the consumer cooperatives below may actually be hybrids, if the workers are also members and exercise democratic self-governance. If you know of other cooperative breweries, tell us about them in the comments!

  1. 4th Tap Brewing Co-op (Austin, TX)
    • Worker cooperative.
  2. Black Star Co-op Pub and Brewery (Austin, TX)
    • Hybrid consumer and worker cooperative. First cooperative brewery in the world. Hear their interview on MicroBrewr Podcast episode 047.
  3. CO-HOP (Chicago, IL)
    • Still in planning. Looks like a producer cooperative and brewery incubator that markets the beer its tenants produce. No posts on their blog or social media in several months; I hope this project is still happening!
  4. Fair State Brewing Cooperative (Minneapolis, MN)
    • Consumer cooperative.
  5. Fifth Street Brewpub (Dayton, OH)
    • Consumer cooperative.
  6. Flying Bike Cooperative Brewery (Seattle, WA)
    • Consumer cooperative.
  7. Full Barrel Cooperative Brewery & Taproom (Burlington, VT)
    • Consumer cooperative, with democratic worker management.
  8. High Five Co-op Brewery (Grand Rapids, MI)
    • Consumer cooperative.
  9. Los Alamos Beer Co-op (Los Alamos, NM)
    • Consumer cooperative.
  10. Miami-Erie Brewing Co-op (Middleton, OH)
    • Consumer cooperative.
  11. San Jose Co-op Brewpub (San Jose, CA)
    • Consumer cooperative. Hear their interview on MicroBrewr Podcast episode 049.
  12. Together We’re Bitter Cooperative Brewing (Kitchener-Waterloo, Canada)
    • Hybrid consumer and worker cooperative.
  13. Utah Brewers Cooperative—Wasatch and Squatters (Salt Lake City, UT)
    • Producer cooperative. Joint marketing of Wasatch Brewery and Squatters Craft Beers.
  14. Yellow City Co-op Brewpub (Amarillo, TX)
    • Consumer cooperative, with democratic worker management.

Key legal issue: choice of business entity

Since I’m a lawyer, I’ll say a little about one of the biggest legal decisions cooperatives need to make: what entity type to choose.

The most important distinction between a cooperative and a conventional business is the set of principles under which it operates. Check out the International Cooperative Alliance’s Cooperative Principles, which most cooperatives strive to follow.

Your state law may or may not contain a “cooperative corporation” business entity type, or something similar. Even if it does, you could still form something else (like an LLC) and may want to for various reasons. Typically, the LLC or cooperative corporation will be the best choice because they limit your personal liability.

Every state is different, but in California, here are some of the pros and cons of incorporating as a cooperative corporation.

Pros of incorporating as a cooperative:

  • This entity type legally enshrines cooperative principles into the business, requiring democratic decision-making and member ownership. These principles can be part of an LLC’s Operating Agreement, but there is a risk that members could vote to remove the cooperative provisions.
  • The business must incorporate as a cooperative corporation in order to use the word “cooperative” in its business name.
  • The business can raise up to $300 from each member without triggering cumbersome securities laws.
  • If it meets requirements under Subchapter T of the Internal Revenue Code, the business can avoid the double taxation that conventional C-Corporations face. However, LLCs are not taxed at the entity level at all, so both of these entities receive tax benefits.
  • Salaries of owners are not subject to self-employment tax, unlike LLC owner salaries.

Cons of incorporating as a cooperative:

  • Even though all of the workers might be owners of the business (i.e. a worker cooperative), the law might consider them “employees,” requiring the business to follow employment laws. In that case, the business would have to pay minimum wage, deduct payroll taxes, purchase workers compensation insurance, etc. even while it’s just getting the business off the ground. In contrast, members who co-own an LLC generally will not be considered employees.
  • There are more administrative requirements than an LLC, such as annual meetings, Board of Directors meetings, annual report filing requirements, etc.

Resources to start a brewery cooperative

You should meet with a lawyer to determine the best entity choice for you.

Sustainable Economies Law Center also has a free legal resource library on cooperatives (currently under construction).

And the Democracy at Work Institute has some great legal tools, particularly for worker cooperatives.

If you are in the San Francisco Bay Area, the SELC offers drop-in legal advice three times a month for businesses and organizations trying to improve their communities. Come by for advice about your brewery!

The cooperative movement is growing and I hope you’ll join—either as a cooperative brewery entrepreneur or as a member-owner of a cooperative brewery!

Image showing Barn raising in lansing by Alexander W. Galbraith / Wikimedia Commons / Public Domain was modified from its orignal state.

 

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MicroBrewr 049: Planning California’s first cooperative brewpub, with San Jose Co-op Brewpub.

MicroBrewr 049: Planning California’s first cooperative brewpub

You’ve decided that your brewery is going to be a cooperative. Now you need to find others who will share the burden and resources. You can work together to start your own brewery. That’s what Christian Borglum and others are doing with San Jose Co-op Brewpub in San Jose, California.

San Jose Co-op Brewpub is still being planned. So it’s not certain what the future establishment will look like. A dedicated group of people are volunteering their time and pooling resources toward their shared dream: to own and operate a brewpub.

Other podcasts about breweries as co-ops:

MicroBrewr 046: Start your brewery as a worker-owned co-op

MicroBrewr 047: Proof of concept for a brewpub co-op

Christian is currently on the volunteer board. He gives us insight to the progress.

  • It will be a democratically run business.
  • The members will own a part of the company and have voting rights to elect the board of directors.
  • Membership lasts a lifetime.

San Jose Co-op Brewpub is currently doing a membership drive. They’re trying to double their membership from 300 to 600, by April 2015. Now is your opportunity to own a part of California’s first co-op brewpub.

“You drink the beer, you should own the bar.”

Check out their website to learn more.

“Principle advantage of doing this as a cooperative is you have a lot more people to draw from.” [Tweet This]

 

Listener question:

If you could ask one question to every brewer or brewery owner, what would you ask? Let me know.

Book recommendation:

Check out the entire list of recommended books, click here.

Your Free Audio Book

An upcoming beer style:

Session Beer

Other resources:

You can reach Christian Borglum and San Jose Co-op Brewpub at:

Sponsors:

“Compare free quotes from top suppliers within 48 hours.”

Kinnek "Compare free quotes from top suppliers within 48 hours." http://www.kinnek.com/microbrewr

Support MicroBrewr

Help keep MicroBrewr on the air. CLICK HERE for ways you can help.

Subscribe on iTunes             Listen to Stitcher

MicroBrewr 047: Proof of concept for a brewpub co-op, with Black Star Co-op Pub and Brewery.

MicroBrewr 047: Proof of concept for a brewpub co-op

If you’re thinking of starting a brewpub, the cooperative business model might be the way to go. Chris Hamje has been at Black Star Co-op Pub and Brewery, in Austin, Texas, since shortly after they opened. He explains how the cooperative model plays out for their operation.

Jessica Brook Deahl, an accomplished and self-proclaimed "Beer Artist" at her opening show with head brewer Chris Hamje of Black Star Co-op.

Jessica Brook Deahl, an accomplished and self-proclaimed “Beer Artist” at her opening show with head brewer Chris Hamje of Black Star Co-op.

“There’s a lot of precedence for a worker-owned factory model,” explains Chris. “When you look at beer, this is a very high-tech fabrication plant. The model works very well, the precedence is there historically, for this exact operational process. When you take the people who are moving parts of this factory, giving the most creative input in what the product is like, you suddenly have something really special. And that works really well in the craft beer movement.”

There are many ways to organize a brewery co-op. Black Star has 2 member bases.

There are about 3,000 “patrons” worldwide, who pay $150 for a lifetime membership, and gain the right to elect a 9-seat board of directors.

The “workers assembly” has great autonomy as they follow the board policies on a day-to-day basis. Employees must work at the co-op for one year before going before an election to gain a place on the workers assembly. The workers assembly has one meeting each month, and votes on day-to-day operations.

Other podcasts about breweries as co-ops:

MicroBrewr 046: Start your brewery as a worker-owned co-op

MicroBrewr 049: Planning California’s first cooperative brewpub

Chris is currently preparing to start a production, package brewery, 4th Tap Brewing Co-op, in Austin that will also be a co-op. He has lots of advice, including:

  • Look at how your state’s laws treat a co-op.
  • Choose a location with high visibility.
  • Take a class in organic chemistry.
  • Hire an extra staff member.

Last week we talked with Sustainable Economies Law Center to get an overview of the cooperative business model and how it might apply to a brewery. Next week we’ll hear from San Jose Co-op Brew Pub about their plans to start California’s first co-op brewery.

Brewery specs:

Kettle size: 10 BBL.

Size and quantity of fermentation tanks: 4, 10-BBL.

Size and quantity of bright tanks: 5, 10-BBL.

Annual brewing capacity/last year’s production: A little over 700 BBL.

Square footage: Around 900 sq. ft., including a mezzanine.

Years in operation: 4 years (opened 2010).

“Always have that little bit of fear that drives you to learn more.” [Tweet This]

 

Listener question:

From Zack Chance: Where do you recommend buying ingredients on the West Coast? How do estimate the number of customers in a year?

Book recommendation:

Check out the entire list of recommended books, click here.

Your Free Audio Book

An upcoming beer style:

Sour Beer

Other resources:

You can reach Chris Hamje and Black Star Co-op Pub and Brewery at:

Sponsors:

San Jose Co-op Brewpub

“Be co-owner in California’s first co-op brewpub.”

San Jose Co-op Brewpub "Be a co-cowner in California's first co-op brewpub." http://sjcoopbrewpub.com/microbrewr/

Support MicroBrewr

Help keep MicroBrewr on the air. CLICK HERE for ways you can help.

Subscribe on iTunes             Listen to Stitcher

MicroBrewr 046: Start your brewery as a worker-owned co-op, with Sustainable Economies Law Center.

MicroBrewr 046: Start your brewery as a worker-owned co-op

The cooperative business model is gaining popularity. Even many craft breweries are forming as co-ops. If you want to form your brewery as a co-op, Janelle Orsi, Executive Director of Sustainable Economies Law Center, in Oakland, California can answer your questions.

The cooperative business model is still relatively unknown. A worker-owned “co-op” is usually democratically organized, so each employee gets a vote on business decisions and elections for the board of directors. Employees earn dividends based on patronage—the amount of time they have invested in the business, rather the amount of money they have invested.

Other podcasts about breweries as co-ops:

MicroBrewr 047: Proof of concept for a brewpub co-op

MicroBrewr 049: Planning California’s first cooperative brewpub

Cooperative businesses provide many benefits to society:

  • The work source is stable because the employees aren’t as at-risk of layoff.
  • Profits stay in the local economy, rather than going to faraway shareholders.
  • Customers are happier because they know the product is made by sustainable jobs.

Cooperative businesses experience many benefits:

  • Decisions are made from many contributors.
  • Don’t have to pay double taxes like C-Corporations.
  • Workers are happier because they have a say in their environment.

“If we buy beer from a worker-owned cooperative, we’re actually reversing the flow of wealth.” [Tweet This]

 

Listener question:

If you could ask one question to every brewer or brewery owner, what would you ask? Let me know.

Book recommendation:

Check out the entire list of recommended books, click here.

Your Free Audio Book

An upcoming beer style:

Pale Ale

Other resources:

You can reach Janelle Orsi and Sustainable Economies Law Center at:

Sponsors:

Audible

Download a free audiobook.

Audible. Download a free audiobook. http://microbrewr.com/audible

Support MicroBrewr

Help keep MicroBrewr on the air. CLICK HERE for ways you can help.

Subscribe on iTunes             Listen to Stitcher