If you’re looking to buy a business, there is a lot to know before you actually make an offer. This is especially true if you’re looking to buy a business that owns a liquor license, such as a bar or restaurant.
Once you’ve found the bar that you want to buy, the first step is to sign a purchase agreement. The purchase agreement should cover everything that you and the seller have agreed upon – purchase price, payment method (e.g. cash, promissory note, etc.), timing of various steps, all terms and conditions, default provisions, naming rights, etc. (See our article on Merger Clauses for the importance of including everything in one document). The purchase agreement should also provide a date for closing, which will not occur until after the liquor license is transferred.
Note that Michigan law requires that all liquor inventories be purchased in cash. Therefore, if your purchase includes any type of financing (such as a promissory note or loan), the purchase of liquor inventory must be specifically excluded from the purchase agreement and must be done in cash at closing.
The purchase agreement should also include provisions about the liquor license, including the purchase price and a provision covering what will happen if the liquor license cannot be transferred. This is because the license itself cannot be transferred just through a purchase agreement. Rather, the purchaser has to apply to the Michigan Liquor Control Commission (“LCC”) to transfer the license. The purchaser then must undergo a rigorous application process in order to be approved to buy the license. This process can take months, so purchasers must be patient!
While the liquor license transfer is pending, you should conduct due diligence on the operations of the bar. If you plan to keep the bar open continuously before and after the closing, you should plan accordingly for a seamless transition. Once the liquor license transfer has been approved, you can hold a closing and complete the sale.
This article was written by Melissa L. Demorest, Associate at Demorest Law Firm.
