What to Look For When Looking at Restaurant Incorporation

Restaurant incorporation is a must when you are considering opening a new restaurant. There are several different

types of ways and structures you can operate under, but by far the most simple and easiest ways is by forming a Limited Liability Corporation (LLC). I am not a lawyer nor accountant but I do know the ropes from the food and beverage side of the issue.

I strongly suggest not operating under a simple partnership or sole proprietor agreement for the same reasons I advocate a LLC. The first and most important factor is liability. When you set up your entity as a LLC, as the name suggests, it limits your liability. In this structure the LLC becomes an individual entity with its own tax id number, and social security number (federal identification number). This is important as it keeps the business and you personally separated. It means that if the business gets into trouble and you have to close or go through a bankruptcy it will just affect the business and not you personally (unless you have signed personal guarantees or in tax issues).

Another very good reason to separate you from the business is in legal issues that may arise from the operation of your business. A perfect example is alcohol related lawsuits. I was sued for a drunk driving accident at one of my establishments a few years ago. A man had come in to my restaurant and had two drinks at happy hour then left and proceeded to spend the rest of the night drinking throughout the city. At the end of the evening he

crashed his car and caused a good deal of damage to another car and the driver. As you know with lawsuits everyone down the line gets named in the suit so I was no exception. Granted I defended the suit and was released from any judgment, and I had insurance in the case I was at fault, but if things had been set up differently I could have faced a lot of trouble. For instance if I were to have lost the suit and the judgment was for more than what my insurance coverage was for and my legal entity was a partnership or sole proprietor they could have come after monies from me personally. If I were set up as a corporation such as a LLC, they could not come after me personally.

I also suggest that each and every business you may have interest in operate under their own separate corporate entity. If you are going to open or have two or more restaurants make sure that each is under their own restaurant incorporation structure. Operating more than one unit under a corporate structure opens both up to each other’s debts and one failure can easily bring down the others. If you operate them separately if one fails you can still keep the other units separate and operating.

I am not a lawyer and I certainly do not represent this as legal advice, but I am in food and beverage and I am not a lawyer nor accountant. I say this again to be sure you do not take this as legal advice, although if you do your research as I strongly suggest you will find this very important advice when looking at restaurant incorporation.

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