Ohio law is clear that when the Division of Liquor Control (“Division”) issues a liquor permit, only the person/ business entity named on the issued permit is authorized to operate the liquor permit business. Firms and corporations are defined as persons in the Liquor Control Act. Regularly accepted business practices used to create, buy or sell businesses may not be enforceable if done outside the statutory scheme, which regulates a business establishment that holds a liquor permit.
Alcohol is a highly regulated commodity in the United States. The state of Ohio has a substantial interest in knowing exactly who is participating in an industry that sells a “potentially dangerous” product. In furtherance of this interest, each liquor permit application requests information from each applicant to disclose who will operate the premises and who will have a greater than 5 percent financial interest in the liquor permit business. These questions must be answered accurately, under the penalties of perjury.
Failing to disclose any information mandated by statute or fully answering any of the application questions will result in the rejection of the permit application. All applications require the disclosure of the officers of the business entity and that those officers undergo a background check. The applicant must also verify the source of any and all funds used to purchase the business. This usually is done from documents provided from a financial institution. The intent is to keep any persons out of the liquor business whose background indicates that the person is not fit to operate a liquor permit business in this state. All these regulatory measures are thwarted when a permit holder assigns the liquor permit business to a third party without notifying the Division.
It is important for permit holders to realize that signing a “Management Agreement” with a buyer may protect the permit holder’s private business interests, but it does not bring the transaction into accordance with Ohio liquor laws. A transfer application must be OECA Magazine l Summer 2022 9 ALCOHOL ABCS filed with the Division for a buyer to operate under the seller’s permit and to remain in compliance with Ohio law. Neither the Division nor Ohio courts will enforce an assignment of a liquor permit outside the statutory scheme.
If a permit holder intends to sell their business, the Division must be notified prior to the buyer taking ownership and control of the operation. In many cases, filing a transfer application will stand as sufficient notice. It is never lawful for a business to lease a liquor permit like a landlord would lease an apartment. The permit must be transferred to the operator. The application must always be made in the name of the entity that will actually own and operate the liquor permit business. Whenever there is a change in ownership, the Division must be notified.
Courts have upheld revocations and rejections of liquor permits when an undisclosed third party, to the Division, assumes operation of business and utilizes another’s permit. Such evidence tends to establish that the permit holder has little to do with the operation of the permit business and supports the inference that the permit holder has, in fact, assigned, sold or transferred the liquor permit. A permit holder may have a lifetime of investment in their business, and that lifetime investment is put into jeopardy when they do not strictly comply with the laws unique to the regulation of the liquor industry.
For more information, please contact: Dave Raber Partner at Lumpe, Raber, Evans 37 West Broad Street, Suite 1140 Columbus, Ohio 43215-4132 Office: 614.221.5212 Fax: 614.221.6944
Periodically, liquor attorney and policy expert, Dave Raber will provide OECA members with pertinent and timely insight into Ohio liquor law. Dave will cover topics from compliance and regulation to new product offerings. Have a question for Dave? Send it to firstname.lastname@example.org.