For entrepreneurs entering the beer industry, one of the earliest structural decisions is how — and where — your beer will be produced. Two common models dominate the conversation: alternating proprietorship and contract brewing.
While both allow brands to avoid building a standalone brewery from day one, they are legally and operationally distinct. Choosing the right model can affect everything from licensing and compliance to tax liability and long-term brand control.
What is an Alternating Proprietorship?
An alternating proprietorship (“AP”) is a TTB-recognized arrangement in which two or more brewers share the same licensed premises but operate as separate, independent businesses.
Under this model:
- Each brewer holds its own federal Brewer’s Notice
- Each brewer maintains separate ownership of its beer
- Each brewer keeps separate records and tax filings
- The parties alternate use of the facility’s space and equipment
In other words, a tenant brewery is operating its own brewery — just inside someone else’s building.
Key Characteristics of an AP
- The tenant brewer is the brewer of record
- Each brewery is responsible for its own TTB compliance and recordkeeping
- Each brewery files and pays its own federal excise taxes
- The tenant brewery name may appear the producer or bottler/canner on the label
This structure gives brand owners greater operational control and regulatory independence, but it also carries more compliance responsibility.
What is Contract Brewing?
In a contract brewing arrangement, a licensed brewery produces beer on behalf of a brand owner pursuant to a contract. The contract brewer is generally the brewer of record and operates under its own Brewer’s Notice.
Under this model:
- The contract brewer holds the federal permit
- The contract brewer generally produces the beer
- The contract brewer typically reports production and pays excise tax
- The brand owner focuses on marketing and sales
The brand owner may or may not need its own federal permit, depending on the structure and activities (e.g., whether it takes title to the product, engages in wholesale activity, etc.). For more information, see our article, “Does a Beer Brand Owner Need a TTB Permit?”
Contract brewing is often simpler from a compliance standpoint but offers less direct operational control.
Regulatory Differences: Why It Matters
The distinction is not just semantic — it affects federal and state compliance obligations.
Under an Alternating Proprietorship:
- Each party must qualify separately with the TTB and obtain its own permit
- Separate bonds (if required) and tax filings apply
- Beer must be segregated for ownership and reporting purposes
- Operational control must be clearly defined
Under Contract Brewing:
- The host brewery is generally responsible for production compliance
- The agreement must clearly allocate tax and compliance responsibilities
- State licensing requirements may differ for the brand owner
Failure to structure these arrangements properly can create exposure under federal law, including misreporting production volumes, excise tax miscalculations, or improper label representations.
Pros and Cons
Alternating Proprietorship
Pros
- Greater control over production
- Independent brewer status
- Clear ownership of product
- Stronger brand autonomy
Cons
- More regulatory responsibility
- Separate federal and possibly state licensing
- Administrative burden
Contract Brewing
Pros
- Lower regulatory burden for the brand
- Operational simplicity
- Reduced startup costs
Cons
- Less production control
- Reliance on host brewery’s compliance
- Potential brand attribution limitations
Strategic Considerations Before Signing
Before entering either structure, brands should carefully consider:
- Who will hold the title to the beer at each stage?
- Who is paying federal excise tax?
- Who is responsible for recordkeeping?
- How are trademarks and brand ownership protected?
- What happens if the relationship terminates?*
*Not an exhaustive list.
The answers to these questions should be clearly reflected in written agreements and regulatory filings.
Final Thoughts
Both alternating proprietorship and contract brewing can be effective pathways to market. The key is aligning your business model with your compliance posture, risk tolerance, and long-term growth strategy.
Launching a beer brand is exciting — but choosing the right production structure at the outset can prevent costly regulatory and contractual issues down the road.
How Lindsey Zahn P.C. Can Help with Your Contract Brewer or Alternating Proprietorship Setup
At Lindsey Zahn P.C., we regularly advise breweries and emerging beer brands on structuring both contract production arrangements and alternating proprietorships. From evaluating the appropriate federal permitting strategy with the TTB to drafting and negotiating production agreements, allocating excise tax responsibility, and addressing state-level licensing and distribution considerations, we help clients build compliant, scalable frameworks from the outset. Whether you are launching your first product or refining an existing production model, we work to ensure your agreements protect your brand, clarify regulatory obligations, and position your business for long-term growth.
If you are considering a contract brewing or alternating proprietorship relationship, we encourage you to contact us to discuss your project.
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