Do you want to know how to get a liquor license for your restaurant, bar, pub, hotel or liquor store in New York City and the rest of the NY State? A liquor license application in New York is a fairly complicated matter and it is always recommended to seek the assistance of a qualified attorney. For a basic outline of the liquor license application process, you may read the following article.
Steps to get a liquor license in New York
Major steps in order to get a New York liquor license include:
(a) Determine if you are eligible to hold a NY liquor license
The Alcoholic Beverage Control Law (ABC Law) states that in order to obtain a liquor license, an applicant must be:
- US citizen or green card holder
- 21 y.o. or older
Also, the applicant must not be:
- a convicted felon (unless in possession of a Certificate of Relief from Civil Disabilities)
- a police officer with arresting powers
In addition to the prescriptions of the ABC Law, with respect to the nationality requirement the New York State Liquor Authority Advisory Opinion #2015-21 allows nationals of foreign countries to hold a NY liquor license to the extent that their countries maintain special friendship or commerce treaties with the United States allowing their citizens to obtain a E-1 and / or E-2 Visa. Please note that foreigners need not apply for either E-1 or E-2 visas to be eligible for a NY liquor license unless they are planning to move to the United States and lawfully working in their own business. Click here for an updated list of countries whose citizens are eligible for E-1 and / or E-2 visas.
Also EAD (Employment Authorization Document) holders are eligible to obtain a liquor License in the state of New York. EAD is typically granted when an individual has a pending immigration petition for a green card and it takes only a few months to receive it.
For further information regarding the process to obtain E-1 and E-2 Visas for the United States, read our article: Immigration to USA. E-1 / E-2 Visas United States.
(b) Find a commercial space suitable for your business or find an existing business to purchase
If you wish to start your restaurant or bar business from scratch, you will need to find a commercial space suitable to host your business operations. In doing so, keep in mind that obtaining a liquor license in some New York City areas, especially in Manhattan, might be more challenging than in other areas due to large concentration of establishments already holding a license (such as in Soho, West and East Village, Lower East Side etc).
Further, consider the following: obtaining a liquor license for a space that has never had a liquor license before may be even more challenging, and significantly so if you are applying for a OP license (permit to sell spirits for on premises consumption in addition to beer and wine), commonly referred to as “full liquor license”. Therefore, when choosing your location make sure to ask your prospective landlord to provide records of liquor licenses held by prior tenants at that specific address (which you can also do yourself consulting the LAMP – Liquor Authority Mapping Project- page on the State Liquor Authority – SLA – website here). Even upgrading from a beer & wine license to a full liquor license may be challenging if that location never had a full liquor license before.
Same degree of care is required when you are purchasing an existing business. In any such case make sure that the current business owner already holds the type of liquor license that you wish to apply for and that there are no records of violations in connection with the operation of such license.
As a part of your due diligence, you should also make sure that the building or the commercial space you wish to lease have obtained a valid certificate of occupancy or letter of no objections from the NY Department of Buildings. No liquor license will ever be granted unless and until those documents will be provided to the SLA.
(c) Form your business entity (Corporation or LLC)
Make sure your personal assets are protected when you sign a commercial agreement and you start your business operations. Conducting your business as a corporation or a limited liability company will shield your personal assets from claims and lawsuits brought by creditors of your company. Choose carefully the type of business entity that best suits your needs with the assistance of a business attorney or a certified public accountant. For a quick recap of the most significant differences between a corporation and a LLC, please read our article: US Business Entities. LLC vs. Corporation.
(d) Sign a commercial lease agreement or a business purchase agreement
Whether you are starting an entirely new business or you are buying an existing one, typically you will be required to sign a lease agreement or a purchase agreement (or at least a letter of intent) to start your application for a New York liquor license. Please note that for the license to be issued at the end of the liquor license application process you will have to provide the SLA, among other things, with evidence that your premises are ready to open to the public. For a detailed overview as to how to start your restaurant business in New York you can read How to Start a Restaurant Business in New York (& United States). Bardazzi Law may provide representation in drafting and negotiating any sort of commercial lease agreements or asset purchase agreements.
(e) Send the 30 day-notice to the local Community Board and attend the board meeting
Before filing a liquor license application with the State Liquor Authority, a 30 day-notice must be given to the local Community Board. Following the notice, most likely an appearance before the board will be held. Prior to the meeting you will be required to provide several documents for the board’s review. At the meeting you will have to make a short presentation of your application and then you will be asked a lot of questions, such as, among others, your method and hours of operation, food menu and price point, whether or not you will hire security staff, whether or not you will have a sidewalk café, how many bars do you have, what type of music you will be playing at the premises (recorded, live) etc. In addition, people or representatives of neighborhood associations may be heard and allowed to express their concerns with respect to your application, to which you might be willing to respond. In most cases, at the end of the meeting, you will be asked to sign a stipulation with the Community Board whereby you will assume certain obligations, such as closing to the public by a certain time in the night, play music only in certain hours of the day etc. Following the meeting, the Community Board will issue a non-binding determination recommending to the SLA the approval or disapproval of your application. The SLA will be totally free to take (or not to take) the Community Board’s determination into consideration.
(f) File your liquor license application with the State Liquor Authority
Completed the Community Board phase, it is time to file the liquor license application with the SLA. This application includes a lot of questionnaires requiring disclosure of personal, financial and business-related information (source of funds, method of operation, layout of the premises etc). The application comprises of a lot of different sections, in addition to which voluminous material has to be provided. It is important to stress, once again, that you should be assisted by counsel throughout this entire process: even a clerical error in filling out your application may result in substantial delays in the approval process. While SLA’s review is pending you are also required to publish on two different local newspapers, for a certain period of time, a legal notice stating that your company is applying for a liquor license at a certain location.
(g) Final steps
Depending on several different factors, such as the area where your restaurant or bar is to be located, the type of liquor license being sought, the recommendation of the Community Board etc., two additional steps may be required: the appearance at the 500 foot hearing and a SLA meeting appearance. In both cases, the SLA will notify you whether or not these additional steps are necessary. At the 500 foot hearing (to be held only if you are applying for a full liquor license), you will be asked to make or file a statement of public interest wherein you will have to explain why, based on certain pre determined criteria, it is in the interest of the public that your application be granted. Finally, at the SLA board meeting, you may be required to present your case and state, once again, why your application should be granted in the best interest of the public. People from the community may be heard both at the 500 foot hearing and at the SLA board meeting. Assuming that everything goes as planned, you will be served with a SLA notice stating that your application is approved and which additional documentation, if any, you will have to provide to materially pick up your license (referred to as Conditional Letter of Approval).
Email us if you need assistance with your liquor license application and other legal services for your restaurant or bar. Please fill out the form below and we will get back to you as soon as possible.
In this article, we explore investing in a franchise as a way to obtain a E-2 visa for the United States. A franchise agreement is a contract between a company known as the ‘franchisor’ on the one hand, and a company or individual known as the ‘franchisee’ on the other hand, whereby the franchisor grants the franchisee the right to sell its products and/or services using the franchisor’s brand, structure, know-how and method of operation.
The franchisee is allowed to conduct business under the brand of the franchisor upon payment of a fee, known as a ‘royalty’. The royalty generally constitutes a fixed sum or a percentage of the franchisee’s revenues. The franchisee, also, is required to pay an entry fee when signing the franchise agreement.
The franchisor usually exercises significant control over the franchisee’s business management. This is because a poorly managed franchise may have a negative impact on the overall reputability and goodwill of the franchisor’s brand. Therefore, it is understandable that the franchisor tends to retain a higher degree of control on its franchisees as opposed to other kinds of business relationships (e.g. licensor and licensee).
One major upside of acquiring a franchise is that you don’t need to reinvent the wheel: the franchisor will provide you with everything you need, such as the idea, the concept, the structure and the method of operation. Furthermore, expertise in that specific industry is not required: the franchisee, most of the times, is only required to undergo training courses offered by the franchisor.
Also, it is important that there is a uniformity of appearance amongst the units that make up the franchise. This means that the franchisee will have very little discretion as to, for instance, choosing the décor of the store or the employees’ uniforms, as all these aspects have to strictly comply with the guidelines set forth by the franchisor.
The franchise formula is very popular in the United States. It definitely is the goal of quite every entrepreneur to create a viable business and develop it nationwide through a franchise. Businesses usually take advantage of the United States’ vast territory, large population and cultural similarities: if a product or service performs well on the West Coast, chances are it will perform just as well on the East Coast. As a result, the possibilities of developing a franchise business in the United States are virtually unlimited and if you really want to invest and work in your own business in the United States there are so many franchises to choose from.
Investing in a franchise is a convenient and practical way to obtain a E-2 visa for the United States of America. For an overview of the requirements and characteristics of the E-2 visa for the United States, read our article: Immigration to USA, E-1 visa and E-2 visa. Always keep in mind that not all the countries have the E-2 visa option available for their nationals. For a list of the Treaty Countries which nationals may apply for a E-2 visa for the United States of America, click here.
The good news for those who seek opportunities to invest and work legally in the United States, is that the purchase of a franchise qualifies as a valid investment for the purpose of obtaining the E-2 USA visa.
An undisputed advantage of purchasing a franchise is that the cost of starting the business – e.g. the entity of the investment for E-2 visa purposes – is considerably lower than the cost of starting the same business from scratch. This provides lots of opportunities to make investments that qualify for E-2 visa, which might have been not accessible otherwise due to budget restrictions.
Typically, the consulate in charge of reviewing the application will evaluate whether the investment is substantial, e.g. of a magnitude to support the likelihood that the treaty investor will successfully develop and direct the enterprise (also known as the “proportionality test”). Also, the consulate has to make sure that not only will the proposed enterprise provide a living for its owners, but also, and most importantly, that it will contribute to the creation of employment and business opportunities for Americans companies and individuals (marginality requirement).
The evaluation of the above requirements is usually not as rigorous when the purchase of a franchise is involved, because:
1) The business structure of the franchise is already tested and has proven to work;
2) The purchase price is usually the same for all franchisees. Such price is non-negotiable and has proven to be an investment that meets the proportionality and marginality requirements.
When applying for E-2 visa through an enterprise that is not part of a franchise, the applicant is required to show expertise in a given industry. In a franchise, however, the expertise requirement is not strictly enforced because the franchisor provides the franchisee with the required know how.
Possible challenges in obtaining E-2 visa through a franchise investment
Control by the franchisor
When applying for a E-2 visa in connection with a new business, the beneficiary must demonstrate that he or she will be able to exert a certain degree of control over the business. This requirement is typically met by acquiring at least 50% of a company. However, in the case of a franchise, the U.S. Consulate may object that the degree of control exercised by the franchisor over the franchise business is too high. Responding to this kind of objections may cause delays in the process and may eventually result in the disapproval of the application. For this reason, it is best to have an immigration attorney review the franchise agreement prior to closing the deal.
Typically, marginality does not cause issues in the case of a franchise. However, when purchasing a franchise you should make sure that it is suitable to create employment opportunities for additional workers (mostly americans) other than the applicants.
Contingencies in the franchise agreement.
Foreign applicants seeking to obtain a E-2 visa through the purchase of a franchise are advised to include a specific contingency in the franchise agreement, whereby if the E-2 visa application gets disapproved, the franchise agreement will be terminated. However, many franchisors do not accept this contingency and therefore refuse to do business with foreigners unless they hold a US passport or a Green Card.
The contingency may also create issues with the U.S. consulate in charge of reviewing the E-2 visa application. The reason is as follows: one of the requirements for a successful E-2 visa application is that the investment in the US business must be put “irrevocably at risk”. This means that the funds deposited in the US company’s bank account and invested in the business cannot be recovered should the enterprise fail. Therefore, in case of a contingency which conditions the franchise agreement upon the obtainment of a E-2 visa, the funds invested in the business may not be considered “irrevocably at risk”.
To overcome this obstacle, it is better to enter into an escrow agreement, which provides for the funds to be deposited into a US attorney’s escrow account. Pursuant to the escrow agreement, the lawyer, known as the “escrow agent”, shall disburse the funds to the franchisor should the E-2 visa be adjudicated. This way, once the funds hit the escrow account, the franchisee can no longer exert control over the funds, which may be returned to the franchisee only in the event the visa application gets disapproved.
Email us if you need assistance with obtaining your E-2 Visa through a franchise or for other legal immigration services. Please fill out the form below and we will get back to you as soon as possible.
Signing a distribution agreement with a local distributor in the United States of america is one of the most common ways for foreign companies to enter the American market. It is also a great way to test whether a product can be marketed in the United States, without taking too many risks.
The relationship between distributor and supplier is often such that the distributor acquires ownership of the goods, except in cases of consignment. They will be obliged to pay consideration for the goods even if they are unable to make satisfactory sales. This shields the producer from possible losses. In this situation though, it is natural that if the products do not sell as expected, the distributor will stop making orders.
Working with a local United States distributor also allows the foreign manufacturer avoid the significant costs associated with setting up its business in the United States, such as costs for hiring personnel, buying or renting a warehouse etc. While this will be an inevitable step once a certain volumes of sales have been reached, the more sensible solution prior to that will be to stick with a local distributor.
A hybrid solution, halfway between a distribution contract and direct sales in the United States, may be to enter into a partnership with the American distributor. This represents a way to earn more profits, as well as exercise close control over the distributor’s operations.
Foreign manufacturers that contract with American distributors quickly find that there may be significant risks in the relationship. Issues of distance, linguistic barriers and cultural differences may pose unique challenges. At times, it may even happen that the distributor, confident in the fact that a foreign customer cannot exert a lot of control, may violate the terms of the agreement.
Distributors may violate exclusivity or non-compete provisions, unlawfully appropriate brands, patents or domain names or commit other types of contractual violations. More, the distributor may simply fail to properly promote the product or employ adequate resources to create or enlarge the product market.
Due to this, it becomes essential to regulate the relationship with the distributor through a written agreement that will detail the rights and obligations of the parties, and the remedies available in the event of default. This is appears even more necessary given that the United States do not have a civil code to rely upon in case of gaps in the regulations in place between the parties.
A federal body of law referred to as the Uniform Commercial Code (UCC) may be applied to certain distribution agreements, although such law was enacted to primarily regulate the sale of B2B and B2C goods. Foreign suppliers may find themselves at a disadvantage, as the American courts in some cases have held that the element of sale prevails over the element of distribution (which is ultimately an agreement on future sales), under such code.
Key provisions in distribution agreements in the United States
This clause guarantees the distributor’s right to be the exclusive reseller of the products in a given territory. For obvious reasons, an American distributor will be reluctant to accept to sell suppliers’ products without being protected by an exclusivity provision.
This clause establishes the distributor’s geographic range of action. It is important to be cautious though. Before assigning the American distributor too large a territory, it is good practice to make sure they have the organization means and resources to cover that territory.
In general, it is good to start by allowing the distributor to operate in only one or few states. If the relationship continues satisfactorily for both parties, supplier may then look to extend the activity covered by the contract to additional states.
The possibility of selling via the internet generally conflicts with geographical limitations. As such, online sales must be strictly regulated within the distribution agreement.
Duration and termination
It is necessary to establish the duration of the contractual relationship and the instances in which the distribution agreement may be terminated. It is never advisable to rush into a long-term relationship with the distributor, at least initially. It is often best to start with a one-year duration contract, automatically renewable unless canceled, or with two or more years of contract including a provision which gives the right to terminate without cause, applying from the second year onward.
Likewise, it is crucial to establish the conditions allowing termination due to distributor’s default. For instance, if the distributor is not sufficiently performing, sells competitive products despite a non-compete clause, declares bankruptcy or enters into another insolvency procedure etc., the supplier should have the option to terminate the agreement.
Minimum price, orders and quantities
The price of the products, the method of payment and other payment terms are obviously among the main elements of the distribution agreement in the United States. The supplier must reserve the right to change prices upon appropriate notice to the distributor.
A minimum price per product can be established as per these terms, ensuring that is not considered an anti-competition practice. In some cases, establishing a minimum price can be justified in order to protect the prestige of the product.
It is also possible to establish a minimum quantity of purchase orders that the distributor must make in a given period of time. If orders fall below this threshold, certain remedies may be triggered, including termination of the distribution agreement.
Shipment and transfer of risk
It is particularly important to establish the terms and conditions of shipment in international distribution agreements entered with United States companies. The supplier should try to include an Ex Works clause (incoterm EXW) into the contract.
Based on such provision, shipment of the goods takes place at the expense of the distributor. Also, the risk of damage or destruction of the goods passes to the distributor once the goods are received or delivered at the supplier’s premises ready for shipment.
However, in cross border contracts, the Ex Works clause presents some practical difficulties, given that the manufacturer must somehow remain involved in the customs clearance process once the goods enter the United States.
It is of the utmost importance to proceed with registration of your trademark before entering into any distribution contract in the United States. Countless examples can be cited of American distributors who have unlawfully started to use a trademarks belonging to foreign suppliers who failed to duly register them.
Once the supplier has registered its trademark in the United States, it is possible to limit the use of that trademark by the distributor, both in traditional commercial practice and in online sales. For this purpose, it is necessary to include a clause in the distribution agreement that defines with certainty the ownership of the trademark and also establishes that any display of the trademark must occur with the prior approval of the supplier.
For an overview of the process of registering a trademark in the United States, please read through our articles on How to Register a Trademark in the United States and Trademark Registration in the United State and Likelihood of Confusion.
A distributor in the United States should be prevented from selling products that compete with those of the supplier, as well as starting another business directly or indirectly involved in the sale of competing products both during and after the termination or expiration of the contract, within certain territorial limitations.
However, care must be exercised in drafting non-compete clauses. Certain clauses that are too extensive both in terms of time and geographically may not pass the scrutiny of the court if challenged. They may be deemed to unlawfully limit competition.
For instance, a clause that would prevent the distributor from conducting competing activity throughout the whole of the US for a period of 10 years starting upon expiry of the contract may be considered illegal by an American court.
In certain distribution arrangements, the distributor may come in contact with manufacturing processes, trade secrets, know-how, customers lists etc. that are central to the supplier’s business. It is therefore absolutely crucial to include a confidentiality clause in the distribution agreement to prevent the distributor from misusing or disclosing confidential information.
As a deterrent, it is also appropriate to include a liquidated damages clause in the distribution agreement, pursuant to which, the distributor will be required to compensate the supplier with a predetermined amount of money in the event of breach. The supplier will be not be required to prove the actual amount of damage (but only the breach of the said clause).
Applicable law and jurisdiction
It is also extremely important to provide which law will apply to the United States distribution agreement and which court shall have jurisdiction over disputes arising therefrom. We recommend that the laws of the state in which the distributor is based be applicable. Jurisdiction should be attributed to judges of such state and an arbitration clause, whether national or international, should be included in the agreement.
It is a common belief among foreign manufacturers that the law governing a distribution agreement with a United States’ business partner should that of their country. However, commencing a lawsuit against an American defendant in the supplier’s country of origin makes little sense, from a legal standpoint as well as from a practical one. There are many reasons for this.
Even assuming that your company will be able to secure a favorable judgment, most of the times after several years (during which the American distributor will have probably opened and closed a dozen companies), if the American distributor does not comply voluntarily with the foreign judgment, it will still be necessary to get the decision recognized as valid in the United States and the enforce it. This must be done through a special proceeding that is often lengthy and may not even result in the desired outcome. Overall, you may waste several years and still get nothing out of it.
The best solution is, therefore, to keep jurisdiction in the United States where lawsuits, although more expensive, are also faster, more effective and can be immediately enforced against the defaulting party.
If you need a consultation regarding a distribution agreement in the United States or if you have any other questions, get in touch with us at Bardazzi Law by filling out our contact form.
Retail licenses may be “on-premises” or “off-premises”. If you hold the former, you may only serve alcohol to patrons for consumption at your premises. If you hold the latter, you may only sell alcoholic beverages to be consumed somewhere else.
Once a liquor license is obtained, is it necessary to file other applications with the State Liquor Authority?
Even when you already in possession of your license, you may be required to file new applications with the SLA under certain circumstances, such as:
- Alterations: if you are planning on making changes to the premises, you may need to notify, and in certain cases obtain the approval, of the New York State Liquor Authority (SLA). In case of minor alterations – those that do not materially affect the structure or character of the premises and do not involve expenditures in excess of $10,000 – only the notification to the SLA is required, but not the approval. In case of substantial alterations – those that involve a cost in excess of $10,000 and that materially affect the character and / or the physical structure of the premises, such as relocating an entrance or a bar, installing a stage or a dance floor, closing an existing entrance or opening a new one etc. – you must obtain the SLA’s prior approval. In case of substantial alterations, if you have an on-premises license and you are located in New York City you must notify your local Community Board before applying with the SLA.
- Corporate Changes: New York State Liquor Authority’s approval is typically required prior to a change to the ownership structure of the corporation or limited liability company, or prior to a change in the stock held by any of the shareholders or members. Approval will not be required if there are ten or more shareholders or members and: (i) the change involves less than 10% of the interest in the business; (ii) none of the existing shareholders or members with less than a 10% interest increase their interest or shares in the company to 10% or more. If the license is held by a corporation or limited liability company, the SLA approval is also required prior to adding or removing an officer or director of the corporation; or adding or removing a managing member of the limited liability company. If you hold an on-premises license in New York City (Manhattan, Brooklyn, Queens, Bronx and Staten Island), the local Community Board should be notified prior to filing any application to make a “substantial corporate change”, which means a change of 80% or more of the officers and/or directors and or managers of the company, or a transfer of 80% or more of shares of a corporation or membership interest in a limited liability company.
- Changes in method of operation: method of operation includes hours of operation, type of music played at the premises, presence of security personnel etc. If anything changes as to the foregoing, licensees must seek SLA’s prior approval.
- Removal or Change of Location: if the location of the licensed business changes, the license cannot be used at the new location without SLA’s prior approval. The so-called removal application is basically a brand new application, which also requires the usual 30 day notice to the Community Board. Refrain from moving to a new location before you have obtained a new license or a temporary permit – if allowed.
- Renewals: each time your license is subject to renewal (every year, every other year or every three years depending on the type of liquor license), approx. 20 – 30 days before expiration you must file a renewal application with the SLA. The application is quite straightforward. If your license is an on-premises you must also notify the Community Board with the typical 30 day notice.
- Upgrades: if you wish to upgrade your license class (for instance from RW to OP), you will need to file an upgrade application with the SLA and, prior to that, notify the Community Board. Basically, an upgrade application is a brand new application that will undergo the same process and will take the same time as the initial application.
Must food be available to patrons if you hold an on-premises license?
Yes. Either you operate a restaurant with a full kitchen or a pub or tavern or lounge with a limited kitchen, you must be able to serve food to your patrons, whether it’s a full meal or simply sandwiches, soups or similar (but snacks is not sufficient). Food should be prepared at the premises, no food from the outside is allowed. In case of a hotel license, a food establishment should be present in the building although it is not required to be operated by the same hotel owner, as it may also be operated by a third party.
Are there restrictions regarding hiring employees?
Felons: typically, on-premises licensees are barred from hiring people with a prior felony conviction, unless they obtain the prior approval of the SLA, or they can show a civil relief certificate from liabilities and the like.
Minors: the general rule is that underage persons (younger than 18 y.o.) cannot be hired to sell, serve or handle alcohol. Exceptions include on-premises licensee employing minors under the direct supervision of an 18 y.o. person or older.
Police Officers: on-premises licensed businesses cannot employ police officers, as well as wine stores. In a few instances a police officers may work under permission of his/her precinct.
Are there restrictions regarding hours of operation?
Yes, ABC law provides that package or wine stores must close at certain times of the day depending on the day of the week. For more details check ABC Law § 105 (14) here. On-premises licensed businesses will be typically subject to stipulations entered with the Community Board or the SLA at the time of the initial application.
Where and from whom can I buy alcohol as a retailer?
A New York licensed retailer may buy alcohol only from wholesalers or manufacturers licensed in the state of New York. Alcohol cannot be bought from a business located in a state other than New York. A retailer is not permitted to purchase alcoholic beverages from another retailer except when the retailer is selling the entire inventory under a liquidator’s permit.
What about payments and prices?
Payments for purchased alcohol may be in cash, checks or electronic transfers, while credit cards are not permitted. However, payments on credit may be offered by wholesalers. Failure to pay on time when the sale is on credit will result in your business being placed on the delinquent list maintained by the SLA until the debt is repaid in full, during which time you can only purchase alcoholic beverages in cash. Wholesalers and manufacturers may only sell wine and liquors at the prices they have previously posted with the SLA.
What is a Surety Bond?
A surety bond is required each time a new liquor license is issued and then upon each renewal thereof. Bonds are issued by specialized bonding companies and are used to guarantee payments of penalties imposed upon licensed businesses by the SLA for violations of the ABC Law. The validity of the bond must be for the entire term of the license. In case of retailers, the amount insured by the bond is $1,000; however the fee the retailer will pay as a premium for the issuance of such bond is approx. $50.00 per year.
No, you may not, except if you are an on-premises licensee and you have obtained a caterer’s permit for special events. If you are an on-premises licensee, you shall not permit off-premises consumption nor shall you allow customers to leave the premises with an alcoholic beverage, unless you have a RW license, in which case you may allow customers to leave the premises with their unfinished bottle of wine after the meal. Off-premises licensees, to the contrary, may not allow consumption inside the premises, unless during an authorized tasting event.
What other rules should I be mindful of as a licensee?
- Bookkeeping: a licensee is required to keep track of all the transaction regarding the business and to keep records of all its full-time and part-time employees
- Stipulations: it is very likely that before a license is granted stipulations have been entered with the Community Board and/or with the SLA regarding method and hours of operation and similar. A licensee is required to comply with said stipulations and conditions at all times unless and until SLA authorizes otherwise.
- Disorders: a licensed business should never allow disorder (such as fights, altercations, excessive noise etc.) within the premises. Police should be call as soon as something like that occurs.
- Minors and intoxicated patrons: persons under the age of 21 or persons that are visibly intoxicated should not be permitted to purchase alcoholic beverages at the premises, whether you hold an on-premises license or an off-premises license. As to minors, it is a good practice (although not dictated by the ABC law) to request a valid form of identification. Selling to a minor or to those who are intoxicated is a disciplinary violation and may result in penalties imposed by the SLA.
- Storage: alcohol may be stored at the premises within the licensed area, or outside the premises in a storage with a warehouse permit.
- Extension of premises: alcohol may be served and/or sold only on the licensed portions of the premises. If you want a portion of your premises to be included in the licensed areas, you have to include that portion in the floor plans that are being submitted to the SLA at the time of the original application. If you have a sidewalk café and you want to be able to serve alcohol in it, make sure you include it in the floor plans. The SLA will not license your sidewalk café area unless you have obtained – and can actually produce – a sidewalk café permit from the NY Department of Consumers Affairs. If you decide to add a patio or a sidewalk café after your original license has been issued, you will be required to file an application for alteration with the SLA, notifying the community board if your licensed business is located in New York City.
If you want to keep reading about liquor license topics, check here our article New York Liquor License FAQs – Part 1.
If you are seeking information on how to start a restaurant business in New York, check here our article How to start a restaurant business in New York (& United States).
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A liquor license application in New York is a lengthy and difficult process. Click here for a free consultation with our liquor license attorneys at Bardazzi Law Pllc.
The New York State Liquor Authority (commonly referred to as the NYSLA) and the Alcoholic Beverage Control Law (commonly referred to as the ABC Law) allow for the following basic types of liquor licenses:
- On-Premises Liquor: it is the standard bar and restaurant license. Allows on-premises consumption of liquor. Food must be served at the premises and at least one customers’ bathroom is required.
- Grocery Beer/Wine: allows grocery stores to sell beer for off-premises consumption. Food should account for more than 50% of the inventory. Alcoholic beverages cannot be more than 25% of the inventory.
- Catering Permit: authorizes currently licensed on-premises retailers to provide alcoholic beverages at specific, private events located off the premises. Only active on-premises retail licensees can apply for this type of license.
- Liquor Store License: allows for the sale of cider, liquor and wine (no beer) for off-site consumption. Only one license is allowed per person (corporation, partnership, etc.).
May a New York Liquor License be sold, transferred, assigned to another owner?
Contrary to other states such as Florida and New Jersey, New York State does not allow for liquor licenses to be sold, transferred, given or assigned from one person or company to another. Whether you are buying a business that already holds a license, or you are setting up a brand-new establishment that is not currently licensed, in both cases, you have to go through the same application process.
Do you need to notify the NYSLA if you want to sell your business? Do you need NYSLA approval?
New York State Liquor Authority’s approval is required any time prior to changing the ownership structure of the corporation or limited liability company, or prior to any change in the stock held by any of the shareholders or members. Approval will not be required if there are ten or more shareholders or members and: (i) the change involves less than 10% of the interest in the business; (ii) none of the existing shareholders or members with less than a 10% interest increase their interest or shares in the company to 10% or more.
If the license is held by a corporation or limited liability company, the New York State Liquor Authority approval is also required prior to adding or removing an officer or director of the corporation; or adding or removing a managing member of the limited liability company.
If you hold an on-premises license (meaning any type of license that allows consumption of any kind of alcohol on-site) in New York City (Manhattan, Brooklyn, Queens, Bronx and Staten Island), the local Community Board should be notified prior to filing any application to make a “substantial corporate change”, which means a change of 80% or more of the officers and/or directors and or managers of the company, or a transfer of 80% or more of shares of a corporation or membership interest in a limited liability company.
What are the Community Boards?
Community Boards are autonomous neighborhood committees that represent a certain local district or community and are required to provide their opinion on several matters in regard to permits or licenses to be granted by other authorities, such as applications for new liquor licenses, upgrades of existing ones and corporate changes. The opinions issued by the Community Boards, though, are not binding, i.e. the New York State Liquor Authority retains the ultimate decision regarding the approval or disapproval of a liquor license application. However, typically NYSLA is not inclined to depart from the Community Board’s recommendation. Therefore, obtaining a favorable opinion from your local Community Board is crucial to the successful outcome of your NYC liquor license application and you should be represented by specialized attorneys such as Bardazzi Law Pllc.
What is the 500 foot rule?
The application of the “500 foot rule” may result in the rejection of your application. It is therefore essential to know whether or not the rule applies to your specific case.
Typically, under the 500 foot rule no more than three on-premise full liquor licenses (those that allow to sell spirits in addition to beer & wine) are permitted within 500 feet of each other. The restriction dictated by the 500 Foot Rule, however, is not absolute and may be overcome by showing, at a special hearing referred to as the 500 foot hearing, a specific public interest that may allow more than 3 premises in possession of a full liquor license to coexist within 500 feet of each other.
The New York State Liquor Authority will consider the following factors when determining whether or not a “public interest” exists in connection with a given application: (i) type of establishment the applicant is seeking to operate (restaurant or bar or pub etc.), (ii) number, classes and types of businesses licensed within 500 feet of the proposed establishment; (iii) applicants’ prior violations or complaints at same or other establishments; (iv) issues relating to quality of life in the neighborhood, such as anticipated increased traffic, parking problems and increased noise level.
Arguments in favor and / or against the existence of a public interest in connection with a given application may be heard at the 500 foot hearing, held at the New York State Liquor Authority, where people and groups may appear on behalf of their neighborhood to raise questions and /or oppose or support the granting of a license.
What is the 200 foot rule?
The “200 Foot Rule” prohibits liquor licenses from being issued to establishments located “on the same street and within 200 feet of a building that is used exclusively as a school, church synagogue or other place of worship.” The 200 Foot Rule applies to wine stores, but it does not apply to establishments that are licensed for on-site consumption of wine and beer only.
How long does it take to obtain a liquor license in New York?
If the application involves the sale of liquor, the 500 foot rule applies and the proposed establishment is located in Manhattan, it may take up to 8-10 months for the license to be granted.
Is it possible to obtain a temporary permit to sell alcohol while the application is pending?
Yes, it is possible to obtain a temporary permit while the main application is pending, but only outside New York City, unless you are buying an existing business which is already licensed at the time of the purchase and has been operating within 30 days prior to the date of your application. A temporary permit is granted at NYSLA’s sole discretion for a period up to 90 days subject to extension.
Is BYOB (customers to bring their own bottles of wine or other alcohol) allowed in New York while the application is pending?
The BYOB practice (Bring Your Own Bottle) is not allowed in the State of New York while the application for the liquor license is pending.
Is there a way to speed up the NYC Liquor License application process?
Yes, via the Attorney Self-Certification Program. This program allows attorneys filing retail applications to certify that statements and documents provided in the application are true and accurate and that the application meets all statutory requirements. The attorney self certification speeds up the review of applications, as the New York State Liquor Authority will rely on the information certified by the attorney, so that the review of each single document submitted will not be necessary. The Attorney Self-Certification program is limited to attorneys. Thus, expeditors or any other kinds of representative may not self-certify an application on behalf of the applicant.
Does the license expire once the licensee’s establishment ceases to exist?
Yes. If the establishment ceases to operate the New York State Liquor Authority needs to be alerted and the license certificate must be returned. Prepaid licensing fees may be refunded to quitting licensees for their unused portion.
How does a NY liquor license get renewed?
In order to renew a liquor license in New York State a renewal application must be filed with the New York State Liquor Authority at lest 20-30 days before the expiration date. If the premises are located in New York City, the local Community Board must be notified in advance.
What are the annual fees to maintain a liquor license in the State of New York?
As of 2018, a Restaurant Wine (RW) licensee pays $960.00 every two years to maintain its liquor license. If the license is to sell spirits in addition to wine and / or beer for on-premises consumption (OP), the tax amounts to $4,352.00 every two years. Outside New York City, the above fees are considerably lower.
In order to obtain a liquor license, an applicant must be:
- US citizen or green card holder.
- 21 or older.
- not a convicted felon (unless in possession of a Certificate of Relief from Civil Disabilities)
- not a police officer with arresting powers.
May citizens of foreign countries obtain a liquor license in New York?
Yes, to the extent that their country maintains special friendship or commerce treaties with the United States, those that allow the citizens of a certain country to apply for an E-1 or E-2 US Visa for international traders or investors. However, a citizen of a foreign country who does not plan on residing and working in the United States need not apply for an E-1 or E-2 visa in order to obtain a NYC Liquor License (the only requirement, as said, is just to be a citizen of a country which nationals are allowed to obtain an E-1 or E-2 US Visa). See New York State Liquor Authority advisory opinion #2015-21. For further information regarding the process to obtain E-1 and E-2 Visas for the United States read our article: Immigration to USA. E-1 Visa and E-2 Visa.
For more information on how to start a restaurant business in New York read our article: How to start a restaurant business in New York (& United States).
Keep reading about liquor licenses applications in New York in our next article New York Liquor License FAQs – Part 2 here.
Being represented by specialized liquor license attorneys such as Bardazzi Law throughout the process of obtaining a liquor license can make the difference between the approval and the rejection of your application.
Email us if you need assistance with your liquor license application and other legal services for your restaurant or bar. Please fill out the form below and we will contact you as soon as possible.
This article is a quick guide to starting a restaurant or a bar business in New York, that reviews the most important legal and bureaucratic aspects of this process. Once you have developed your concept, found the desired location and drafted your business plan, you can move on to dealing with the technicalities associated with restaurant business or similar in New York. This article can also be useful advice to start a restaurant or bar elsewhere in the United States.
Corporation or Limited Liability Company (LLC)
Forming a business entity under the American laws is the first step towards starting a restaurant business in New York and United States. Conducting a business as a legal entity allows its shareholders or members to protect their investment and keep it separate from their personal assets. Thus, the company’s creditors may only go after the company’s assets and the shareholders’ personal assets will be shielded against their claims or actions.
Forming an entity under the American laws is also essential to enter most of the commercial agreements required to get the business started, such as, for instance, lease agreements, assets purchase agreements and various insurance policies. The best suited legal entities to operate a restaurant or similar are the corporation and the limited liability company. For further information regarding the differences between these two types of entities read our article: U.S. Business entities. LLC vs. Corporation.
Employer Identification Number and Sales Tax Certificate
Once the company is formed, the first step is to obtain the Employer Identification Number (EIN) and the Sales Tax Certificate. The EIN, somehow similar to the european VAT number, allows the United States tax authority (Internal Revenue Service – IRS) to identify a business for tax payment purposes.
The Sales Tax Certificate is the permit to collect the sales tax from customers on certain transactions. The sales tax must be paid to the State approx. every four months. The sales tax only applies to certain types of purchase, including meals consumed in a restaurant.
Currently, in the state of New York the sales tax is approximately set at 9% of the transaction value. EIN and Sales Tax Certificate are a prerequisite to obtaining the majority of the administrative permits and licenses necessary to operate a restaurant in the United States, including food establishment permits and liquor licenses.
Location & Commercial Lease
If you are planning on starting a brand new restaurant in New York or in the rest of the United States, it is highly recommended to hire a real estate broker specialized in commercial spaces for lease. The broker will select a wide range of options in line with your needs and budget. Once the right location has been found and an offer has been placed, the landlord will perform the due diligence on the financial standing of the prospective tenant, as well as on the tenant’s business experience in the food and hospitality industry.
A landlord, indeed, will not be inclined to start a long-term business relationship with a tenant who doesn’t show sufficient financial standings and experience in this field. Commercial lease agreements in the United States, and especially in New York, are lengthy documents (approx. 60 to 100 pages including attachments) containing lots of technicalities that require the attention of a specialized attorney. Lease agreements are always subject to intense negotiations before the parties can close the deal. For more details on this topic, see our post Affitti Commerciali negli Stati Uniti.
Purchasing an Existing Business:
Another option is to purchase an existing restaurant, as opposed to building it from scratch. First thing is to determine whether your company is allowed to take over the lease agreement in place between the landlord and the legal entity from which the business will be purchased. Assigning the lease agreement to a new tenant is always subject to landlord’s prior approval.
If the prospective tenant does not show adequate financial standing or sufficient experience in the hospitality industry, the landlord will most likely disapprove the assignment. If the landlord’s consent to the assignment is obtained, the current tenant and the prospective one may move forward with the sale of the business: the most commonly used legal instrument to achieve this result is the Asset Purchase Agreement, a contract whereby the buyer only purchases the assets, but not the liabilities, of the business up for sale.
Restructuring the Premises
In most cases, some construction and remodeling activities will be required before opening the premises for business. Hiring an architect at this stage is crucial. The architect will design the premises according to your specifications and will submit the renovation plans to the Department of Building and other city departments for approval. Once this step is completed, the General Contractor will take care of the actual build-out of the space.
Like everywhere else in the world, the relationship between the business owner and the General Contractor is never an easy one. Therefore, it is of the utmost importance that this relationship be regulated by a written contract. The most commonly used version of the agreement between the business owner and the General Contractor in the United States is provided by The American Institute of Architects (AIA). The owner should protect its own interests including in the agreement a liquidate damage clause in the event the delivery of the space ready for business gets postponed as a consequence of delays imputable to the General Contractor. Such provision allows the business owner to get a monetary compensation that will offset the losses resulting from a delayed opening.
Food Service Establishment Permit
Before opening your restaurant to the public, a Food Service Establishment Permit is required. Such permit is issued by the Department of Health (DoH) of the city of New York. Initially, the DoH will conduct a preliminary inspection of the premises, in which any violations of the food safety regulations will be reported and corrected at no charge for the owner. At this point, the Food Service Establishment Permit will be issued and the food may be served at the premises.
Later on, without any prior notice, the DoH will conduct a new inspection in order to assign a “grade” to the restaurant based on its hygienic conditions and compliance with food safety regulations. Grades range from the letter “A” (perfectly in compliance with law) to the letter “C” (which means that one or more violations to the said rules have been found). The grade must be displayed on the storefront for the customers to see it. The DoH conducts periodic inspections, generally on an annual basis, in order to confirm or change the grade previously assigned.
The DoH requires that at least one employee in possession of the Food Protection Certificate be attending the restaurant operations at all times. A good rule of thumb, for obvious reasons, is to have at least two or three employees in possession of such certification.
NYC Liquor License
Obtaining a permit to sell alcohol (commonly referred to as liquor license) in the state of New York is a quite complex and time-consuming process. The authority in charge to issue new liquor licenses in New York is the New York State Liquor Authority (NYSLA) The ABC Law (Alcohol Beverage Control Law) governs the liquor license process and sets forth the general policies of the State of New York with respect to the sale of alcohol. The first step toward obtaining a liquor license for your restaurant or bar in New York is, in most cases, to appear before the local Community Board, which will review your application and issue a non-binding opinion of denial or approval to be later submitted to the NYSLA for the final decision. Community Boards in New York City may be more or less inclined to issue a favorable recommendation depending on the area of the city in which the restaurant or bar is set to operate.
In the State of New York, unlike other states, the number of liquor licenses that may be issued is not contingent upon the number of people residing in a given area, instead the matter is regulated by another set of rules, such as the 500 Foot Rule, according to which, typically, no more than three on-premise full liquor licenses (those that allow to sell spirits in addition to beer & wine) are permitted within 500 feet of each other. The restriction dictated by the 500 Foot Rule, however, is not absolute and may be overcome by showing, at a special hearing referred to as the 500 foot hearing, a specific public interest that may allow more than 3 premises in possession of a full liquor license to coexist within 500 feet of each other.
Being represented by a liquor license attorney throughout this entire process can make the difference between the approval and the rejection of your application. For further details on liquor license application please read through our articles: New York Liquor License FAQs – Part 1 and New York Liquor License FAQs – Part 2.
You can enter the United States on a ESTA or on a B-1 visa to carry out the activities required prior to the starting your restaurant business, such as researching the location for your restaurant, attending meetings with brokers, attorneys and other professionals, negotiating and executing commercial agreements. However, if your intention later on is to move to the United States and work in your restaurant, a non immigrant visa such as the E-2 visa will be required.
This visa may be issued to those who make a substantial investment in a commercial enterprise in the United States. Also, the E-2 visa may be granted to citizens of those countries, such as Italy, that maintain specific commercial treaties with the United States. The investment made in the American commercial enterprise must be “substantial”. It should also be proportionate and sufficient to support the type of business that you are willing to conduct.
While there is no minimum investment threshold, it’s unlikely that an E-2 visa application will be approved unless the investment is equal to or in excess of $80,000 – $100,000. Beneficiaries of the E-2 visa can be both the investors and their employees, provided the employees have the same nationality as the investor and are hired to cover executive or managerial positions.
The E-2 visa has a duration of 5 years, but can be extended without limitations as long as the initial conditions continue to exist. The spouse and minor children may accompany the E-2 visa holder and reside legally in the United States. The spouse may be authorized to work wherever he / she wishes, while the children may only attend school. For more information regarding the E-2 visa and other visas available to reside and work legally in the US, please read our article Immigration to USA. E-1 Visa and E-2 Visa.
Hiring Employees in the United States
The employment relationship in the United States is strictly “at will”. This means that the law allows the employer to discharge an employee (and, similarly, an employee to resign) without cause or prior notice. As a result, hiring and discharging restaurant staff in New York and in the United States is a relatively simple operation. As it’s equally simple for employees to resign without notice, having replacement staff always ready when needed is essential to maintain an unchanged level of workforce.
For 2019 the minimum hourly basic pay of a waiter in New York City is set at $14.50, of which $4.50 may come from tips. Overtime work must be paid 1.5 times the basic hourly rate excluding tips. Tipping does not constitute a legal obligation for the customers, but restaurant owners and employees typically expect the customers to tip 15-20% on the price of the meal.
Registering Your Trademark
Before developing the trademark that will identify your restaurant business in the United States, it’s highly recommended to conduct a preliminary research for trademark clearance purposes to prevent conflicts and confusion with other existing similar marks in the near future. In the United States it’s absolutely common, even for small to medium businesses, to protect their own trademarks filing an application for registration with the United States Patent and Trademark Office (USPTO).
Registering a trademark is not strictly required in order to obtain legal protection against third party infringements (a trademark in the United States is protected by the mere fact of using it in commerce before anyone else does) but it is extremely recommended to enjoy the extended legal protection afforded by the registration with the USPTO. For a general overview of the trademark registration process in the United States see our article on the topic: How to Register a Trademark in the United States.
Email us if you need assistance with starting your restaurant business in New York or with your liquor license application and other legal services for your restaurant or bar. Please fill out the form below and we will contact you as soon as possible.
How to get E-1 Visa for the United States
E-1 and E-2 Visas are non-immigrant visas available to citizens from countries that maintain a friendship treaty or a treaty of commerce and navigation with the United States. A list of treaty countries is held by the US Department of State, and the nationals of certain countries may be eligible for either E-1 or E-2 visa status, or both.
E-1 Treaty Trader Visa
E-1 visas allow a national of a treaty country (treaty trader) to work and reside in the United States when engaging in international trade with his / her country of origin.
E-1 visa status may be granted if:
- The treaty trader is a national of a treaty country
- The treaty trader carries on “principal” trade with his / her country of origin
- The trade must be “substantial”
For individuals, it’s easy to prove they are a national of a treaty country by enclosing a copy of the individual’s passport to the visa application. However, business is generally conducted under the umbrella of a corporation or a limited liability company. Because of this, it becomes essential to understand how the nationality requirement works in case of a business entity.
E visa regulations state that a business entity, although created in the United States, is deemed to be a national of a treaty country if at least 50% of its ultimate individual members or shareholders are nationals of such country. The applicants are required to prove they are a national of a treaty country and can do so by locating the ultimate individual shareholders at the very end of the company’s chain of ownership and providing the US Consulate with evidence of their citizenship.
For example, if the trader is a US entity wholly owned by a UK company, with at least 50% Italian ultimate individual shareholders, the US entity will be deemed to hold Italian nationality. The Italian shareholders (or their Italian employees) will be eligible to obtain an E-1 visa as long as the U.S. entity is engaged in principal and substantial trade with Italy.
E-1 Visa Trade requirements
Definition of Trade: An exchange of goods or services for a profit. It may include commercial goods, services, insurance and banking, data exchange, consulting services, tourism and much more.
Substantial Trade: Trade is required to be continuous (i.e. consisting of numerous transactions over a certain period of time) and of a certain monetary value. No minimum value requirement is set for each transaction. The volume should not be insignificant and the more that can be shown, the better.
Principal Trade: Trade conducted with the treaty country should account for at least 50% of the total revenues deriving from international commerce. Revenues from trade within the United States should not be taken into consideration in order to calculate such 50%.
E-1 Visa Treaty Trader’s Employees Requirements
E-1 visa status may be granted if:
- The employee holds the same nationality as the treaty trader
- The employee is employed in an executive or managerial position or in a position that requires special skills or qualifications
Status of a E-1 Treaty Trader and Its Employees
A Treaty Trader or a Treaty Trader’s employee may work exclusively for the trading company or its parent or subsidiary company. The relationship between parent and subsidiary company should be well established.
E-1 Visa Duration and Length of Stay
E-1 Visa has a 5 year duration and may be renewed indefinitely as long as the above described requirements, as to nationality of the company and international trade, are still being met. The initial period of stay is a maximum of 2 years. The stay may be automatically extended for periods of up to 2 years by departing and returning to the United States.
E-1 Visa Holder Family Members
Treaty traders and their employees may be followed by their family members, i.e. spouses or underage children. The spouse of an E-1 may obtain authorization to work in the United States without limitations by filing form I-765, while the children may only be enrolled in school. Typically, family members are granted the same period of stay as the treaty trader or their employees.
How to register a trademark in the United States?
Trademarks often are the most important and valuable assets for a business, in that they identify the origin of the products or the services put in the stream of commerce by a certain company.
Through the trademark, the customer is able to associate certain products with a specific company, and to distinguish them from those sold by the competitors. Customers rely on a trademark to identify a product and to understand its general characteristics, such as value, quality, price, durability, reliability etc.
A trademark confers upon the owners the exclusive right to use such trademark in connection with a product or a service. In the United States generally trademark rights belong to the person who first uses the mark in commerce, as opposed to other countries where trademark rights arise upon registration.
In the United States, at the federal level the United States Patent and Trademark Office (USPTO) is the federal agency that regulates the trademark registration process and enforce the trademark rights together with the Courts, even though in different ways.
As noted above, since in the United States trademark rights belong to the first one using the mark in commerce, registration of the mark is not mandatory to protect same from third parties’ infringements. However, the registration of a trademark with the USPTO provides significant benefits to the owner, such as:
- Prima facie evidence of ownership of the mark
- Nationwide use of the mark
- Strong remedies for infringement such as treble damages and attorney’s fees
- Incontestability of the use of the trademark after five years of the registration
- Right to use ® in connection with the mark
- Basis to register the mark in other countries
- Right to prevent the import of infringing goods via the US Custom
REQUIREMENTS FOR TRADEMARK REGISTRATION AND LEGAL PROTECTION
Use in commerce. A trademark is granted protection if it is used in commerce. However, it is allowed to apply for registration of a trademark even though the trademark is not yet used in commerce at the time. In this case, within 6 months of the Notice of Allowance issued by the USPTO, the applicant is required to provide evidence of the use of the mark in commerce by submitting a specimen of use (see infra). This six-month deadline can be extended for five times for a period of six month each, then if no evidence of use in commerce is provided, the application will be disapproved.
Distinctiveness. A mark cannot be generic but must be distinctive enough to identify the product as coming from a specific source. If a mark is distinctive, it can be registered in the Principal Registry of the USPTO and benefit from full statutory protection. Perfect examples of distinctive marks are made up words that cannot be found in the dictionary, such as Kodak, Nikon, Exxon, Pepsi, Xerox. These kinds of marks enjoy full and immediate protection from the USPTO. Another category is represented by words of common meaning that have no relation whatsoever with the products or goods for which the registration is sought. The most popular instance of these types of marks is “Apple”, which associates a fruit to personal computers, phones and other similar products. If a mark, instead, is merely descriptive, it may be registered in the Supplemental Registry and acquire full protection after a certain period of time during which such kind of mark acquires distinctiveness (so called “secondary meaning”) as a result of intensive advertising etc. A mark is descriptive when it only describes the characteristics of a product. Examples of merely descriptive marks are “Cold & Creamy” for an ice cream, or “Beef and Beer” for a restaurant. If a mark is simply generic, it cannot be ever entitled to protection. Examples of generic marks are “orange” for oranges, “shoes” for shoes etc. Such marks will never be capable of being registered. A trademark may also become generic over time and thus lose legal protection. This happens when a mark has become so popular that its name, with the time going by, has started to identify the product itself rather than its source. Typical examples of marks that became generic are Xerox, Velcro, Aspirin, Jet Ski, Thermos and so on. When a mark becomes generic, it can no longer enjoy legal protection from infringement even if registered. A company which trademark became generic cannot prevent other entities to use the same trademark in commerce for their products. In such cases, it is up to the company to put in place an intensive advertising campaign so that the customers may go back to associate that certain mark not with the product itself but with a product manufactured by a specific company.
Likelihood of confusion. Two identical or similar marks in the same class of products or services cannot coexist nor can they be registered with the USPTO at the same time. Two trademarks are considered “confusingly similar” if there is a good chance that a customer may be led to believe that the products associated with them come from the same source. There is no likelihood of confusion if the two conflicting marks distinguish products belonging to two different industries. A mark may be similar to another in many ways: (i) similarity as to the words; examples: Hypnotiq for liqueur and Hopnotic for beer. Woody Stout, Woody Wheat, and Woody Brown Ale for beer. Frickin’ and Flip’n Chicken for restaurant services. Alair for medical devices for the therapeutic treatment of pulmonary diseases and Holaira for medical devices for the treatment of obstructive lung diseases. (ii) similarity in appearance and design; (iii) similarity in sound: examples, Seycos vs. Seiko, Entelect vs. Intelect; Cana vs. Canya; Kresco v. Cresco; (iv) similarity in meaning. Examples: Mr. Clean vs. Mr. Rust; Thirty Forty Fifty vs. 60 40 20; Pledge vs. Promise.
Deceptive Marks. A deceptive mark improperly conveys a misleading description of the good or services. Example: the trademark TITANIUM was refused registration for vehicles that do not contain titanium. SILKEASE was deemed deceptive for clothes not containing silk.
Person’s Names. A living person’s name cannot be registered as a trademark except with the person’s written consent.
MARKS. DIFFERENT TYPES
A mark may consist of words, phrases, symbols, designs and combination thereof. A trademark may also include sounds, smells, colors, shapes. A trademark may be a domain name and a trade name, as well as a trade dress (feel of the product, its packaging and labeling).
Service Marks. Service marks refer to trademarks which identify a service rather than a good. There is no difference between service marks and other types of marks as to registration process and legal protection.
Certification marks. Certification marks certify that a certain product meets specific requirements or standards set forth by the certifying entity. The mark is not used by the certifying entity itself, but only by third parties to sell products or services that meet the requirements established by the certifying entity.
Collective marks. Collective marks belong to an organization and may be used by the members to distinguish the products of the members from those of the non-members. Similarly to the Certification Marks, however, the collective mark shows that the members are in compliance with certain specification established by the organization.
THE USPTO REGISTRATION PROCESS
Trademark clearance should be conducted by the owner before the commencement of the registration process and consists of a search of other marks that are potentially conflicting with the prospective mark in the same industry. One first light search should be conducted, at minimum, on the USPTO database and on Google. As the case may be, a more thorough search should be conducted on existing registrations or applications for similar marks to better evaluate the risk connected with the registration of a certain trademark.
Once the trademark clearance is completed and the results show that a mark may be eligible for registration, this is when the application process with the USPTO starts. If the mark meets the main requirements described above (distinctiveness, no likelihood of confusion, no deception etc.) it should be eligible for registration in Principal Register. Registration in the Principal Register confers upon the owner of the mark full legal protection and all the benefits previously discussed.
If a mark is deemed to be descriptive, it may still qualify for registration in the Supplemental Register, which grants the owner of the mark a limited legal protection compared to the Principal Register. In presence of a merely descriptive mark, the examining USPTO attorney may propose to amend the application and register the mark in the Supplemental Register, otherwise the application may be disapproved. According to some opinions, the continuous use of the mark for a period of five years should be considered automatic evidence of acquired distinctiveness, even though in most cases the examining attorney will require additional evidence of acquired distinctiveness, such as evidence of notoriety, advertisements of the mark, and statements from third parties certifying that the mark has become popular enough to identify the goods or services at hand.
A trademark application may be filed on line visiting the USPTO website. Paper applications are still permitted but they are highly discouraged, also in terms of the higher fees associated with them.
The application includes, first, the general information regarding the applicant. Then the description of the mark should be provided. As noted above, typically a mark consists of words, designs or a combination thereof. If a trademark is a combination of words and design, a jpg file containing the drawing of the mark should be uploaded to the website. Otherwise it will suffice to just type in the words that represent the mark. If the words contained in the mark are not in the English language, a translation should be provided no matter the language in which any given word has a meaning. This is not a secondary aspect, because if the applicant fails to indicate the translation an additional fee may be charged on the applicant upon the examining attorney’s review.
At this point, the applicant is required to indicate the class of goods or services which the mark is supposed to cover. There are 45 standard categories of goods and services pursuant to the Nice Classification, and it is up to the applicant to choose the preferred classification for the goods or services which the mark refers to. The same good or service may be included in multiple classes. For each class under which the registration is sought a minimum fee of $225.00 will be charged by the USPTO.
After indicating the classes under which the mark should be registered, the applicant is required to choose the filing basis for his application. As previously noted, while the USPTO requires that the owner provide evidence of the use of the mark in commerce, it is however possible to file an application based on the intent to use the mark in the near future (i.e. intent-to-use application). In any such case, after a 6 month period from the issuance of the so called notice of allowance by the USPTO, the applicant is required to provide evidence of use in commerce filing a specific form containing one or more specimens relating to the goods or services for which registration is being sought (so called Statement of Use).
Accepted specimens could be tags, labels, images of the goods where the mark is displayed, advertisements, web pages, business cards and much more. Of course, any of those specimens have to clearly display the mark at hand, which should match the mark displayed in the original drawing.
Another basis for filing is an existing application or registration of a mark in a foreign country under Section 44. In any such cases USPTO does not require evidence of use, at list in the beginning. The foreign country must be a party to the WIPO Paris Convention.
Examination by the assigned trademark attorney
Typically, after three months of the filing, a USPTO examining attorney assigned to the case will review the application and will issue his/her determination as to the eligibility of the proposed mark for registration. The examining attorney will check whether the application meets the requirements, whether the mark is distinctive and if any likelihood of confusion may exist.
If the examining attorney has objection to the registration of the proposed mark, he / she will issue a response to the applicant (Office Action), typically via email. At this point, the applicant has a six month strict deadline to respond. Certain office actions, mostly those based on failure to meet formal requirements, may be quite simple to respond to and generally a quick amendment to the application will be enough. Other office actions, specifically those based on descriptiveness and likelihood of confusion, require that the issue at hand be addressed by an attorney’s formal response containing legal arguments in order to overcome the examining attorney’s objections. Before serving a response, it is a very good practice to reach out to the examining attorney over the phone and try to understand what he / she is exactly looking for and to get helpful tips as to how to draft the document. Once received the applicant’s response, after a certain time the examining attorney will issue a final determination which could result in the approval or refusal of the application. In case of refusal, the applicant is entitled to file an appeal with the Trademark Trial and Appeal Board (TTAB), and, if he outcome doesn’t change, with the US Federal Courts.
Publication and Opposition
If the examining attorney approves the application, the mark for which the registration is sought will be published in the Official Gazzette of the USPTO. At this point, within 30 days of the publication any interested party may file an opposition which most likely will be brought by owners of other marks claiming likelihood of confusion. The opposition proceeding will be administered by the TTAB. In the majority of cases the parties will reach an agreement to settle the dispute before the opposition proceeding comes to an end. Most typically the parties will enter into a Trademark Coexistence Agreement which will allow both parties to use their confusingly similar marks with certain reciprocal limitations.
If no opposition is filed within 30 days of the publication, the trademark can be registered and an official Certificate of Registration will be issued to the applicant.
As previously noted, in case of intent-to-use based applications, if no opposition is filed the USPTO will issue a Notice of Allowance, which must be followed by the Statement of Use as previously described. If the Statement of Use is accepted by the office, the application may proceed to registration.
In order to keep the registration alive, the owner is required to file with the USPTO: (i) a Declaration of Continued Use or Excusable Nonuse or a combined Declaration of Continued Use and Incontestability, between the fifth and the sixth anniversary of the registration (the latter is permissible only for marks included in the Principal Register); (ii) a renewal application every 10 years (the first time between the ninth and the tenth anniversary of the registration). Each of these filings must be accompanied by a fee.
U.S. Business Entities Corporations they are many, each with its particularity and specificity. But which one would fits better your business needs? Let’s have a wider look into the world of U.S. Business Entities Corporations:
General. Like in the Italian “societa di capitali”, the shareholders of a U.S. Corporation would not be held personally liable for corporate debts should the business be unable to pay its creditors: the shareholders, typically, will risk only up to the value of their capital contribution. The creditors of the Corporation, likewise, may only collect on their debts by going after the corporate assets, being prevented from resorting to the personal assets of the shareholders. The Corporation, indeed, constitutes a legal entity separate from its shareholders, and, as such, it will be allowed, inter alia, to execute contracts, sue in court and be sued in its own name.
Capital Contributions. The U.S. Corporation features no minimum capital contribution by its shareholders at the time of incorporation, and additional capital increases may be achieved by simply issuing new shares.
Governance. The governance of a U.S. Corporation is structured on three different layers: (i) the shareholders, that have certain rights towards the Corporation, including the right to vote on certain matters (Corporations, like the LLCs, may also consist of a single shareholder) ; (ii) the directors, who are called upon to make the most relevant decisions for the life of the company and to establish the general policy of the company; (iii) the officers (typically CEO, Treasurer and Secretary) who deal with the day-to-day management of the Corporation and report to the board of directors. Especially in small and medium-sized companies, the same person may cover all of the aforementioned positions at once.
Benefits of Forming a U.S subsidiary. Opening a subsidiary in the USA in the form of a Corporation is the most suitable choice for foreign companies that intend to do business in the United States on an ongoing basis creating a stable organization. By establishing a subsidiary company in the United States (Corporation or Limited Liability Company), a foreign business will be allowed to:
- Hire employees
- Open a U.S. bank account
- Enter into certain commercial agreements that are typically barred to foreign companies (e.g.: commercial lease agreements)
- Apply for working visas for investors, employees and their families
- Contract insurance policies
- The cost of opening and maintaining a U.S. company is rather insignificant.
- The presence in the USA of a foreign company through a U.S. subsidiary generates a sense of trust and reliability in the American customers and business partners: should a commercial dispute arise, the American customers feel more protected having the foreign company a stable organization in the US territory, to which any lawsuits, complaints or requests may be addressed without venturing overseas.
- A U.S. subsidiary typically shields the foreign parent company from potential liabilities, such as lawsuits for injuries resulting from marketing defective products.
- It is not required to be a US citizen or a resident of the United States to set up a Corporation, nor is it required to split equity with American citizens. Furthermore, physical presence in the US is not required to form the company, as the formation of a US company can be completed by mail or online, and it is typically taken care of by an attorney.
Italian companies should form a corporation (not a LLC). Unlike the Limited Liability Company (LLC), which is treated as a disregarded entity from a tax standpoint, the Corporation is taxed independently of its shareholders. This characteristic exempts the foreign parent of a U.S. subsidiary from filing a U.S. tax return, as opposed to the foreign parent of LLC that is required to do so, thereby reporting income generated in its own country as well, pursuant to the worldwide taxation rule. Not only filing a U.S. tax return does represent an additional cost for the foreign company, but also subjects such foreign parent to IRS audits for the income generated in its country of origin.
Furthermore, according to the Italy-US treaty against double taxation, US dividends distributed to the Italian parent company are taxed at a rate of 12.5% in the first year of existence of the company and at a rate of 5% from the second year onwards. Foreign members of LLCs receive a far less favorable tax treatment.
Conclusion. For the foregoing reasons, the Corporation is the preferred vehicle for Italian (or non-US) companies to come and do business in the United States.
Startups Funding and Capital Raising are two concepts closely related.
Raising capital is crucial to the life of startup companies, that often make the choice to be unprofitable at inception and, therefore, crave regular injections of cash to survive and continue to grow. These companies, in fact, strategically choose not to focus on profitability, instead they prefer to use their resources to grow the business as quickly as possible, to attack large portions of the relevant market.
Seed round. Seed financing is the first round of startup financing, typically known as a seed round, which generally occurs when the product is at the idea stage, or a very first version of such product has been delivered. Seed round investors are typically friends & family and angel investors. The legal financing instruments for this round are convertible notes and simple agreements for future equity (SAFEs).
Convertible Promissory Notes. Commonly referred to as Convertible Notes, CPN are structured as regular debt instruments, except that they are subject to conversion into preferred equity should a “conversion event” occur at some point in the future. Basically, investors rather than getting repaid with principal plus interest at the note maturity date, may choose to receive equity of the company instead. Most important events that trigger conversion into equity are:
- A subsequent financing round (next equity financing conversion);
- Sale of the company or its asset (corporate transaction conversion);
- Note maturity date (maturity conversion). The most attractive feature of the CPN is that the noteholders may receive equity at a price lower than the price paid in the next investment round, based on a discount rate or a valuation cap. In simple words, the lower conversion price works as a reward for investors who took the risk of financing the company at its early stages.
SAFEs. Simple Agreements for Future Equity are debt instruments featuring, a structure identical to the CPNs except that:
- there is no maturity date, therefore the SAFE will remain outstanding until a conversion event occurs;
- interest will not accrue. Resorting to SAFEs rather than CPNs, startups will not bear the risk of repaying a promissory note, if the note maturity date occurs before the next investment round, leaving the company without funds.
Series A Financing.
When startups succeed in proving that their product is marketable, what comes next is raising a more substantial round of capital. This round often occurs when companies enter the building phase of the product and Series A investors typically are represented by venture capital funds that purchase convertible preferred stock. Terms and documents of a Series A round are largely standardized so that the process may move forward quickly and funds don’t leave the company in the form of lawyers’ fees.
Most relevant Series A terms are as follows:
- Liquidation Preference: the Series A holders must first receive a liquidation preference equal to the original purchase price of their preferred shares, before any proceeds from a sale or liquidation of the company can be distributed to the common stock holders.
- Dividends: typically, common stock cannot be paid a dividend unless the preferred stock receives the same amount on a per share basis.
- Conversion: Shares of Series A Preferred Stock are convertible into shares of common stock on a 1:1 basis (subject to adjustment in case of certain dilutive events) at the holder’s option at any time. Conversion is generally automatic in case of IPO.
- Price-Based Anti-Dilution Protection: right to downward adjustment to the purchase price of the preferred shares if the company later issues common or preferred equity at a price below the Series A price to give the Series A investors more than one common share for each share of Series A preferred stock they hold, if and when the Series A stock converts to common.
- Protective Provisions: Series A investors may be entitled to veto rights on crucial company actions, such as: (i) actions that adversely affect the rights, preferences, or privileges of the Series A holders; (ii) amendment of certificate of incorporation and bylaws; (iii) Issuing senior securities; (iv) Declaring or paying dividends; (v) Increasing or decreasing the size of the company’s board of directors.
- Board Matters: The lead investor is typically entitled to one seat on the board of directors.
- Registration Rights: demand, piggyback, and shelf registration rights.
- Financial Information and Inspection Rights: investors may be entitled to receive certain financial information regarding the company.
- Rights of First Offer: right to purchase new securities offered by the company, allowing investors to maintain their proportional ownership of the company.
- Rights of First Refusal: right to purchase the shares of common stockholders in the event that such stockholders are planning on selling their shares to a third party.
- Tag Along: Should (the company and) Series A holders fail to exercise their rights of first refusal in a certain proposed transfer, the Series A holders have the right to sell their preferred shares in proportion together with the common stockholders on the same terms.
- Drag-Along: smaller stockholders of the company may be forced to agree to a sale of their shares if the majority of the common stockholders and a majority of the Series A investors are willing to move forward with the sale.
Series B Financings and Subsequent Rounds
Through post- Series A rounds, startups continue to raise increasingly large amounts of capital focusing on fast growth. These ensuing rounds of financing are typically named by progressing through the alphabet (Series B, Series C, and so on).
The amounts raised in these rounds go from $5 million to $10 million in a Series B round to up to $100 million in a Series E. In these stages, investors are mostly represented by Venture Capital funds and sometimes corporate strategic investors, mutual funds and hedge funds.
Financing Instruments: also in these later rounds investors receive convertible preferred stock. After issuing Series A preferred stock, startups generally continue issuing same type of stock with different terms on top of the existing Series A documents by amending and restating them.