Starting a Small Restaurant: Legal Ingredients for Your Food Business

Any time you launch a new business enterprise, it’s important to fulfill all the relevant legal requirements. While regulations can sometimes seem burdensome, they ultimately exist to protect the consumer, to say nothing of you, the business owner.

This dynamic is especially important when it comes to restaurants that serve food, and thus have an outsized impact on the health and safety of their clientele.

When you’re starting a small restaurant, consider the following legalities, including restaurant business structure, licensing, and permits, to build long-term success.

Choosing the Best Legal Structure for Your Restaurant

One of the earliest decisions you’ll make about your business is how you wish to structure it, legally speaking. We’re talking about restaurant ownership types. There are a couple of options to consider here.

Sole Proprietorship

When you start generating a business income on the basis of self-employment, the law considers you by default to be a Sole Proprietor.

In other words, if you set up a hotdog stand at a busy street corner and get a significant revenue out of it, you’re automatically functioning as a Sole Proprietor.

The good thing about this legal structure is that it’s easy; in fact, it’s automatic! But there are also some downsides.

One is that bringing on employees is complicated, especially come tax time. So, once you start enlisting a front-of-house staff or a kitchen crew, the Sole Proprietorship restaurant option becomes less appealing.

The other downside is that, as a Sole Proprietor, you do not enjoy any separation between personal assets/liabilities and business assets/liabilities. In other words, if your restaurant doesn’t succeed, you’re personally on the hook to creditors (and to potential litigation).

Limited Liability Company (LLC)

As your restaurant becomes more established, it may be best to register it as an LLC. A restaurant LLC provides you with plenty of flexibility about how you manage the business and how you allocate profits between you and any partners you bring on.

And, because it establishes your food business as a separate legal entity, you also enjoy personal health protections.

The steps required for registering an LLC can vary from state to state. For example, here is a guide for forming an LLC in California. Generally speaking, though, the steps are:

• Choose your business name.
• Select a Registered Agent (someone who can receive tax and legal documents on your company’s behalf).
• File Articles of Organization with your state, paying any relevant fees (usually very minor).
• Be sure you have an employer identification number (EIN) and a business bank account.
• Consider drafting an Operating Agreement (sort of the constitution for how your business is run).

Ensuring Licensing and Permitting

As you’re starting a small restaurant, the next legal consideration is acquiring the necessary restaurant licenses and permits. There are several of these for restaurant owners to be aware of.

Business License

Virtually every municipality requires a license in order to run a business. To find out more about how to get a business license in your area, reach out to the licensing center of your city or county.

While stipulations can vary, you’ll likely need to supply some very basic information about your business and pay a nominal licensing fee.

But how much does a restaurant license cost? The average price point for a restaurant license in the United States is $50.

Certificate of Occupancy

Before you open your doors to patrons, you’ll naturally need to have your building inspected, simply to ensure your facilities are safe and hygienic.

Once your inspection is complete, you will receive a certificate of occupancy, which basically tells you how many customers you can safely welcome into the restaurant. This will be an important data point for you as you think about configuring your dining area.

Sign Permit

To attract customers to your restaurant, you’ll surely want to erect some kind of signage. Most cities require you to have a permit before you hang a sign. As you apply for your signage permit, you’ll also receive information about the acceptable size, location, and lighting for your sign.

Note that, if you’re leasing your commercial space, it’s smart to get your landlord’s written consent before you put up any kind of a sign.

Food Service License

When you’re starting a small restaurant, you also need a food service license. As you might imagine, this provides legal authority to serve food to your patrons. It is generally administered by your city or your county.

Before granting a food service license, most licensing boards will require a health inspection, verifying sanitary conditions throughout your facility. The food service license cost varies from place to place and may fall anywhere between $100 and $1,000.

Food Handler’s Permit

Your food service license is not to be confused with a food handler’s permit. The former applies to your facility, simply denoting that it is a safe and clean space for serving cuisine. The latter is something that can be applied to individual employees.

So, what is a food handler’s permit? Also known as an employee health permit, this is a certification provided to employees who have completed a course related to food safety.

When your employees all receive this permit, it signifies that the entire team is prepared to carry out the highest standards of care in food prep and storage.

Costs for food handler’s permits are variable but usually run around $100.

Liquor License

While a food service license allows you to serve grub, it won’t entitle you to serve alcohol. To do that, you’ll need to apply for a liquor license. (Naturally, if you don’t plan on offering any alcoholic beverages at your restaurant, you can skip this step entirely.)

Every state has its own Alcohol Beverage Control (ABC) Board. That’s the organization you’ll need to contact about securing your liquor license.

Be aware of the distinction between on-premises and off-premise liquor licenses. The former is needed if you’re going to serve alcohol for people to drink at your place of business, which means it’s the one best suited for the typical restaurant.

Off-premises licenses are needed if you’re going to sell alcoholic drinks for people to drink elsewhere, typically meaning grocery stores and the like.

Live Entertainment License

This won’t apply to every restaurant, but if you do plan on hosting live music or other forms of entertainment at your venue, you’ll probably need a license for it.

You’ll also need to obtain a license to legally stream music from streaming services in your restaurant.

Sales Tax License

Many states impose sales taxes on food and beverage products. If you live in one of those states, you’ll need to acquire a license to collect sales tax from your patrons.

Dumpster Permit

Most states will require you to have a permit if you’re going to have a big dumpster outside your kitchen, for chefs to discard food waste.

Costs can vary depending on a range of factors, including location, dumpster placement, size of dumpster, and more.

Valet Parking License

Planning on offering a valet parking service to your patrons? As you might imagine, there’s a permit needed for that.

To get your permit, you’ll likely need to supply a detailed plan for how your valet parking service will work, including clearly denoted drop-off and pickup locations.

Permitting for Food Trucks

The food truck is a fairly unique type of business, and it comes with some specialized permitting requirements. Specifically, you’ll need a mobile food vendor permit if you’re going to operate out of a food truck.

Starting a Small Restaurant: What About Insurance?

In considering the legal ramifications of launching a food service business, it’s critical to think about insurance.

Having adequate insurance coverage is a critical way to mitigate business risks, and for restaurants, there are a few particular types of insurance that are mission-critical. These insurance types include:

• Property insurance, which covers all of the physical assets inside the building itself.
• Liability insurance, which provides coverage for any accidents or injuries that occur on your property.
• Worker’s compensation insurance, which most states require if you have any employees.

The specific amount of coverage you need will depend on the size of the business. However, these three basic types of coverage are great for starting a small restaurant.

Establish the Legal Foundation for a Successful Restaurant

As you prepare to open the doors of your new dining establishment, it’s only natural to feel a rush of excitement about your menu, your dining space, and your soon-to-be clientele.

However, don’t neglect these key legal considerations, as well, including your legal structure, licensing and permitting, and insurance coverage.

Additionally, as you’re starting a small restaurant, don’t hesitate to reach out to reputable business attorneys, preferably someone with experience in the restaurant space, if you have any questions.

This article is a guest post.

Author Bio:

Amanda E. Clark is a contributing author for LLC University. She has contributed as a subject matter expert on panels about content and social media marketing.