02: Starting the Business
Business Incorporation and Licenses
Alright, so you decided on a business structure, great! But hold on—before you can get those delicious snacks or refreshing drinks on the shelves, you need to navigate the wonderful world of business licenses. Think of this as the not-so-glamorous backstage work that makes the magic happen. We’re talking federal, state, and local health department permits. Let’s break it down.
State Licenses
State Business License:
First off, businesses are incorporated at the state level. This means you need to register your business with the state where you’ll be operating. This initial step establishes your company legally and lays the groundwork for all other licensing and regulatory requirements.
Find Your State Incorporation Requirements
Seller’s Permit: This allows you to collect sales tax from your customers. Yes, taxes are annoying, but this permit is non-negotiable if you’re selling tangible goods. The permit process varies by state, and some states have additional requirements for specific types of goods. This also allows you a tax-exemption for buying products used in your manufacturing process that you will resell to the end consumer, where tax will be collected.
Alcoholic Beverage Licenses: Selling alcohol? Your state’s alcohol control board has you covered with the necessary permits. These are on top of your federal permits, and they can get pretty specific depending on what you’re selling. Some states require separate permits for different types of alcohol and for different stages of the production and distribution process.
Health Department Permits and Inspections
If you’re producing product out of a rented or shared commercial kitchen you’ll likely need to receive a health inspection as part of the business license process. These ensure you’re maintaining proper food handling, storage, and sanitation practices. Inspections can be random or scheduled, and they cover everything from pest control to temperature controls for perishable items.
Cottage Food License: If you’re starting small and making products from your home kitchen, some states offer cottage food licenses. These come with specific rules about what you can produce and sell. Typically, they limit the types of food you can sell and where you can sell them (e.g., direct to consumers at farmers markets or online).
Specialty Food Production: Making organic, gluten-free, or other specialty foods? You might need additional certifications. These often involve stricter standards and more frequent inspections. For example, organic certification requires compliance with the USDA’s National Organic Program, which includes specific practices for growing, processing, and labeling organic products.
Federal Licenses
These are your big-picture, Uncle Sam-approved permits that keep your business on the right side of the law.
Employer Identification Number (EIN): The primary thing your business will need from the federal government is an EIN. Think of it as your business’s Social Security number. You’ll use it for federal tax filings and to open a business bank account. It’s quick and easy to get through the IRS website, and you’ll need it for pretty much everything you do.
Food Facility Registration: If you’re making, processing, packing, or storing food for sale in the U.S., you need to register with the FDA. This isn’t just a bureaucratic hoop to jump through—it’s about food safety. No one wants to be the brand responsible for a foodborne illness outbreak. You’ll need to renew this registration every two years, and failure to comply can result in severe penalties, including a shutdown of your operations.
Alcohol Permits: Thinking about adding a line of craft beers or artisanal spirits? The Alcohol and Tobacco Tax and Trade Bureau (TTB) has a permit for that. Whether you’re manufacturing or importing, you need a Federal Basic Permit. And yes, it’s as official as it sounds. This involves a detailed application process, including background checks and a review of your business plan.
Getting your business licenses sorted isn’t the fun part of starting a CPG brand, but it’s absolutely necessary. Think of it as the foundation of a house—you don’t see it, but everything else depends on it being solid. Take the time to get it right, consult with experts, and stay compliant. Your future self (and your customers) will thank you.
Articles of Incorporation, By-Laws, and Operating Agreements
Setting up the legal framework for your CPG brand fundamentally defines your relationships with your business partners —it needs to be strong, clear, and well-structured to support everything that comes after. Again the information below is not to be considered legal advice. I am not a lawyer. Please discuss your unique situation with a business lawyer.
Starting out your business is worth nothing, and I see a lot of founding teams avoiding difficult conversations because the immediate impact is low. But these agreements are also the one that will be in place when conflicts arise, and once your business is potentially worth millions.
Let’s dive into the essentials: Articles of Incorporation, By-Laws, and Operating Agreements. These documents might sound like dry legalese, but they’re crucial for defining how your business operates and protecting your interests as you grow. Here’s what you need to know.
Articles of Incorporation
What They Are: Articles of Incorporation are the official documents you file with your state to legally establish your corporation. This is the birth certificate of your company, laying out the basics of your business.
Key Components:
- Business Name: Make sure it’s unique and doesn’t infringe on any existing trademarks.
- Purpose: A broad statement of what your company will do. For CPG brands, this could include manufacturing, marketing, and selling consumer goods.
- Principal Office Address: The primary location where your business operates.
- Registered Agent: A person or entity designated to receive legal documents on behalf of your corporation.
- Stock Details: Information on the types and number of shares the corporation is authorized to issue.
CPG Considerations: Ensure that your business name and purpose are flexible enough to allow for expansion into new product lines or markets. For example, if you start with energy bars but might branch out into beverages, keep your purpose broad.
Work with a lawyer to draft and file your Articles of Incorporation. This step might seem straightforward, but any mistakes can lead to delays or legal complications down the line.
By-Laws
What They Are: By-Laws are the internal rules that govern the management of your corporation. Think of them as the user manual for your business’s operations.
Key Components:
- Board of Directors: Roles, responsibilities, and the process for electing and removing directors.
- Meetings: Guidelines for how often and how meetings of the board and shareholders should be held.
- Voting Procedures: How decisions are made and what constitutes a quorum.
- Officer Roles: Definitions and duties of key positions like the CEO, CFO, and Secretary.
- Amendment Procedures: How to make changes to the By-Laws in the future.
CPG Considerations: Given the dynamic nature of CPG businesses, ensure your By-Laws allow for flexibility in decision-making. You might need to pivot quickly based on market trends or consumer preferences, so streamlined voting and meeting procedures can be beneficial.
Don’t just copy boilerplate By-Laws. Customize them to fit the specific needs and culture of your company. Discuss the draft with your board members and key advisors to make sure everyone is on the same page.