skip to Main Content

The best way to find a good lawyer is to ask for recommendations from trusted and respected colleagues. Whoever hires you must have extensive experience working with the specific type of restaurant you want to open. For example, a lawyer who has 50 restaurant clients that are all fast food chains may rightly claim that they have a lot of restaurant experience, but if you plan to open a little closer to The French Laundry, this is not a good choice. Starting a business for your restaurant also requires the submission of various incorporation and financial documents, including those listed below. Keep in mind that different states have different policies, so always check your secretary of state`s office for more information. However, as a sole proprietor, you can take steps to mitigate your responsibilities. It is important to separate your real personal finances from those used in the operation of the restaurant. This will help you simplify your accounting when you are audited. The type of structure you choose is an important decision when opening your new business. This will depend on where you want to get financing, how you are legally linked to the business, and your tax structure.

This, in turn, determines how personally responsible you are when it comes to debt and legal matters. Below are some of the basic types of business structures and some possible pros and cons of each. It is also highly recommended that you seek advice from a law firm or professional accountant to ensure you make the best decision given your personal situation. Better yet, LLCs allow entrepreneurs to share profits at will, as opposed to corporate shareholders, which they must divide in proportion to their percentage stake in the company. This is a nice advantage, given the risks inherent in running a restaurant (see “The 10 Riskiest Businesses to Start”). With an LLC structure, restaurateurs can attract investors or employees with a share of the profits – even if these people didn`t raise their own equity in the beginning (or were too scared). Since they are considered investors, limited partners have restrictions on the degree of personal involvement they can have in the operation of the restaurant. An LLC restaurant or business choice depends on your needs. While the two business structures have many similarities, a limited liability company offers your restaurant the opportunity to be a separate legal entity.

Understanding the differences between a limited liability company and a company can help you choose the structure that best suits your restaurant. Limited partnership: In a limited partnership, there must be at least one general partner and the rest of the limited partners may be limited partners. Two things you need to know here: If someone is a sponsor, they cannot actively participate in the operation of the restaurant and cannot accept a salary. They assume no personal responsibility for company debts that exceed the amount of money they invest. With a C-Corp, you no longer own your restaurant. You own shares in the company. The group owns the restaurant. This is how a company functions as a shield against personal liability. Keep in mind that choosing an LLC isn`t just an option for small local restaurants. It`s even a smart and safe choice for franchise or restaurant chains. Every company is unique and has its own goals and priorities.

As a restaurant owner, only you can decide which business unit is best for your business. Be sure to look at all the options and get a thorough understanding of the tax implications of each option so you can choose the right business unit before you open your restaurant. There is also no formal action or paperwork required to enter into a partnership. You can create one by simply agreeing to do business with someone else, according to Nolo Legal`s website. However, there are a few steps you should take before proceeding. This typically includes choosing a restaurant name, creating and signing a partnership agreement, obtaining licenses and permits, and obtaining an EIN. This guide on choosing a restaurant business structure is part of a free series on starting a restaurant provided by Rezku. Rezku is a state-of-the-art restaurant management technology developer that helps restaurant owners like you do more. Our systems include reservations, home façade management, point of sale, customer loyalty and more.

When choosing a business structure for your business, there are four main options: Many restaurants start as sole proprietorships, which means that the owners work as individuals without separation between personal and professional finances. Partnerships are similar, the main difference being that each partner is responsible for the debts and obligations of all other partners. Work with your lawyer and accountant to find out which depreciation conditions are best for your business and how your ownership structure will collapse. Don`t be afraid to ask questions as you solidify those details. The more confident you are in navigating the restaurant`s conditions, the more confident potential investors will be in the project. Choosing a restaurant LLC or a business depends on your needs, although the two business structures have many similarities.3 min read Deciding how to structure a business can be overwhelming and confusing. Hiring a lawyer is the best way to deal with the pros and cons of each structure, as there is no way that works best. A sole proprietorship is the simplest business structure you can form. It consists of an owner who is responsible for both the assets and liabilities of the restaurant.

In this scenario, you pay your investors 90% of your $200,000 ($180,000) profit until you have paid $500,000 + 25% ($625,000). So, in this scenario, it would take about 3.5 years for your investors to be repaid. Once that`s done, the profit allocation would go back to the 70/30 ownership structure you`ve put in place for the life of that business. As an LLC, owners are protected from a variety of potential liabilities. Consider, for example, the unfortunate event where a customer has an allergic reaction while eating in a restaurant. The company would be legally liable for all damages, but the owner would most likely avoid any personal liability. This makes an LLC a favorable choice for a restaurant, because if someone tries to sue the business, the owner`s personal assets must be protected. Liability – Companies offer the greatest liability protection to people who own a business. Unlike most other types of businesses, shareholders and the corporation are separate legal entities. If you`re thinking of opening a restaurant chain, create a separate LLC for each location, says Stan Smith, an attorney at Womble, Carlyle, Sandbridge & Rice.

In this way, in the event of a lawsuit, only the assets of a single restaurant are threatened. LLCs are established at the state level. Many small businesses, such as restaurants, choose to form an LLC because it is cheaper to file it. An LLC is also subject to fewer regulations than a company, but it has personal liability protections similar to those of a company. LLCs are best described as a private corporation such as a sole proprietorship or partnership with limited liability and tax benefits enjoyed by businesses. The tricky part of LLCs is that they are regulated by your specific state policy, so be sure to be aware of that. For example, one state may require an LLC to have one or more members, while another may require 2 or more. Some states also require an LLC to dissolve when a member leaves the corporation, while others treat it as a separate entity (such as a corporation). Another advantage of SARLs is the flexibility of tax treatment. The profits of an LLC can be taxed as a business unit (a C company) or as a pass-through entity (an S company), which means that the company avoids paying taxes on the company`s profits and on the personal income of the owners. Most LLCs choose the transmission option. However, in some cases, LLCs can choose a C corporate tax structure and save money by returning profits to the company tax-free.

Taxes – A partnership does not pay taxes as a unit. Instead, each partner pays personal income tax relative to their share of restaurant ownership. Once you, your lawyer, and accountant feel comfortable with the accuracy of each estimate in your capital needs budget, you have your fundraising goal. As a best practice, you should be wrong to overestimate your expenses. “The restaurateur wants all contracts or agreements – whether with the seller of a restaurant you buy or with an owner or investor – to be associated with the business unit and not with the restaurateur himself to protect them from any liability,” explains Economidis.

What Viewers Are Saying...

Back To Top