Research Paper on "How Law Effects the Bar Business in North Carolina"

Research Paper 5 pages (1765 words) Sources: 4

[EXCERPT] . . . .

Dream and the Nightmare

Bar Ownership in North Carolina

Bar ownership is a dream many people hold near and dear to their hearts. Some scrimp and save to buy one in retirement; others endure years of menial labor to buy out the boss. The fantasy is always the same and is lived out on television in shows like "Cheers" and "It's Always Sunny in Philadelphia." Would-be bar owners want a place where they can run their own shop how they want, drink when they want, and create a popular hang-out for their friends and patrons. However, the responsibilities that are imposed by North Carolina law and steep competition in the bar and restaurant industry put bar owners in the middle of a nightmare where they must satisfy their patrons, the law, and lastly, themselves.

Legal Issues North Carolina regulates different categories of alcohol separately, such that a bar serving beer, wine, and mixed beverages would require at least three permits. Each permit is subject to different rules, application procedures, and renewal fees, but certain threshold qualifications apply to ensure that retail permits do not fall into the wrong hands.

In order to open an establishment selling alcohol for consumption on site, a person or business must obtain a retail license from the North Carolina Alcohol and Beverage Control Board (ABC). Retail licenses will only be issued to applicants who meet ABC's qualifications: first, the applicant must be at least 21 years old; second, the applicant must be a North Carolina resident; third, the applicant must have a criminal record free of any felonies in the last three years, and any alcohol offenses in the last two years; fourth, the applicant must not have had an ABC permit revoked in the last three years; and last, the applicant must not be liable under a court judgment to an injured minor who was served alcohol.

Permits range in price between $50 and $1,000, though beer and wine on-site licenses run for $400 each, and a mixed beverage license costs $1,000.

In addition to the above qualifications, the ABC takes a holistic approach to the permitting process by considering a number of factors that point to whether a retail permit would be reasonable and appropriate in the circumstances. For instance, the ABC looks at whether there is ample parking for a bar, whether the applicant has a reputation for bad character in the community, and whether the surrounding neighborhood and businesses will be adversely affected by a new bar.

Retail permits are subject to review on a yearly basis to assess whether citations or ongoing problems indicate poor management or threats to public safety. Yearly renewals are otherwise available for 25% of the original permit license, creating a regular and costly expenditure for continued operation.

Bar owners should bear in mind that the organization of their business will have legal implications. For instance, a bar organized as a corporation, limited partnership or limited liability company must submit ABC retail applications from each of their officers, directors or general partners, as applicable, and stockholders owning more than 25% of the entity. Notwithstanding those applications, the manager of every bar must submit to the ABC application as well. These requirements are intended to root out the operation or ownership of any institution by persons with recent criminal backgrounds or who have previously run afoul of ABC regulations. These requirements effectively prevent so-called "clean" applicants from sheltering disqualified co-owners or managers under retail ABC licenses.

Perhaps most importantly, the business organization of a bar comes into play when it is sued, as often happens. A bar owner may operate under an individual ABC permit, meaning that he operates the bar as a sole proprietor. A sole proprietorship means that the bar owner operates as himself and therefore shares personally in all the profits and all the losses. If the bar owner were to lose a court case and be held liable for a patron's injuries, for instance, the patron could reach any of the bar owner's personal assets, such as a home, farm, or personal car, to satisfy the judgment. The same is true for a general partnership arrangement, except that all profits and losses are shared equally among the partners, and their personal assets remain at stake. By forming a corporation, limited partnership, or limited liability company, any owner is shielded from personal liability and only the assets owned by the entity would be at risk in a judgment.

A potential owner should think very carefully about how the bar and the building should be owned before signing anything or applying for an individual ABC permit.

Bar owners are often held liable for the acts of their patrons under so-called "Dramshop Acts." Dramshop Acts exist in almost every state and expose retail establishments to potential liability for negligently serving alcohol to certain patrons.

In most cases, Dramshop Acts impose liability on bars who knowingly serve alcohol to drunk patrons who then cause an injury to a third party. This normally occurs in the context of drunk drivers causing accidents and injuries after leaving a bar. In North Carolina, the Dramshop Act is limited to liability for the acts of minors served at a bar.

While this means that North Carolina bar owners are not exposed to liability for the acts of a majority of their patrons, the administrative penalties are harsh for serving minors at all, and the potential legal risk from their negligent acts far outweighs any benefits.

Day-to-Day Challenges It may take a simple but concerted effort to get a bar started in North Carolina, but the application and permitting process is no match for the daily duties a bar owner must oversee in operation. As hinted earlier, running a bar has myriad responsibilities that will interfere with the owner's social life.

Carding patrons is the first line of defense in protecting an owner from liability and trouble with the law. Bars must uphold carding procedures, either at the bar or at the door, to ensure that no one under the age of 21 consumes alcohol on the premises. Bouncers and bartenders are empowered to withhold a person's identification to determine its authenticity, and they are under a legal duty to confiscate fake identification cards and remit them to law enforcement.

As anyone can imagine, this responsibility comes with the certain risk that arguments will break out at the door between patrons and bouncers, or that some patrons will need to be ejected.

North Carolina law also requires strict adherence to certain rules about how alcohol is served. Most notably, North Carolina prohibits serving more than one drink to one patron at a time.

While this includes selling one shot and one beer to a person at once, it requires bartenders and staff to monitor any situation where a person is ordering more than one drink. If a person orders two or three drinks, it should be clear that the patron is ordering a "round" for other companions. A single person is likewise prohibited from ordering pitchers or buckets as they constitute more than one serving. In certain areas, however, a patron may be permitted to take a drink out of the bar in a "to-go" cup according to local laws.

Bars are also strictly regulated in how they price and market alcohol. Happy hour drink specials are absolutely prohibited in North Carolina, as are "minimum-drink" admission arrangements. "Open Bars" are restricted to certain holidays and must include food or entertainment. Bars cannot advertise prizes associated with ordering certain drinks, offer "ladies' night" drink specials or other discriminatory pricing schemes. Overall, North Carolina's pricing scheme prevents a bar owner from using a creative or competitive pricing scheme.

Perhaps most burdensome to any bar owner are the internal controls required by law that might be subject to surprise inspection. For instance, North Carolina law requires bar owners to open up their books and records to ABC on demand.

In order to be in good standing on any inspection, the bar owner or manager must ensure a daily accounting of receipts, tips, payroll and expenditures. Bar owners are also required to keep a daily inventory by recording the quantities and kinds of alcohol cycling through the bar. North Carolina ABC also has special rules regarding the recycling of used bottles, maintaining the integrity of new bottles, and the proper maintenance of ABC "tax stamps" affixed to bottles to prove their proper origin.

In summary, the logistical requirements of a smooth-running bar that is in compliance with all North Carolina laws is a significant and daily undertaking that must not be taken lightly.

Competition As one of the 18 states with central control over alcohol consumption, bars in North Carolina face an adverse business environment. Such monopolistic alcoholic regulatory regimes limit overall alcohol consumption and increase operational expense, creating questions as to the profitability of any late-night bar venture.

The amount of per capita consumption of alcohol beverages is 16% lower in ABC controlled… READ MORE

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