What is the Best Legal Structure for a Restaurant?
Are you opening a restaurant? Chances are that you have spent a lot of time thinking about the name, menu, and location, but have you considered yet what the best legal structure for your new restaurant will be? If not, we don’t blame you. It’s far more fun to daydream about possible restaurant names and menu items than LLCs and sole proprietorships. However, registering your restaurant as a business and filing for the appropriate legal structure are two of the first things you will need to do to ensure that your business has the foundation and legal footing that it needs to succeed. What is a legal structure, and which one is best for your business? Read on to find out.
Legal Structures for Restaurants in the Bay Area
The legal structure of your business determines how it will be treated legally and taxed, as well as how decisions will be made internally, who has control, and whether shares of your business can be sold. The kind of legal structure that you choose can determine whether your personal assets will be seized or safe in the event that your business fails. For this reason, this decision should not be taken lightly. Below are four of the most common legal structures used for restaurants, as well as some key considerations for each.
1. Sole Proprietorship
A sole proprietorship does not require any effort to establish. Instead, you and your business will be indistinguishable legally. You will use your social security number for your business. While this may seem easy enough, there are also some serious risks when it comes to running your business this way. The biggest drawback is that there is no liability protection. Because you and your business are indistinguishable, any lawsuit or claim against your business can also be collected from your personal assets. This means that if your business fails, your personal assets may go down with it.
2. Partnership
Partnerships are common in restaurants, and can allow you to get up and running fairly quickly with another family member or investor who wants a role in how the business is run. It will be important to have a thorough partnership agreement and, as with a sole proprietorship, there is generally no protection against liability. For this reason, an LLC, described below, is usually a better option.
3. Limited Liability Corporation (LLC)
This option is not difficult to establish and helps to ensure that if your business is sued or goes bankrupt, your personal assets will be protected. If you have a restaurant, this will likely be the best option for legal structure when you are starting out. Experts recommend that if you have a chain or multiple locations, you incorporate each restaurant individually as its own LLC. This helps to ensure that if one restaurant is sued or fails, only the assets belonging to that business will be at risk.
4. Corporation
This is the most involved option and will take the most work to establish, however, it is the only option that allows you to sell shares of your company (stocks). For this reason, many restaurants start out as LLCs and convert to a C-corporation if they later become successful and want to go public.
Contact Coepio Legal, Inc. Today
If you want help getting your Bay Area restaurant off of the ground and to ensure that you choose the best legal structure for your business, contact the experienced attorneys at Coepio Legal, Inc. today to schedule a consultation.
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