Restaurant LLC or Corporation: Everything You Need to Know

A restaurant LLC or corporation choice will depend on your needs although both business structures have many similarities.3 min read

A restaurant LLC or corporation choice will depend on your needs. Although both business structures have many similarities, a limited liability company offers your restaurant the option to be a separate legal entity. Understanding the differences between a limited liability company and a corporation will help you to select which structure will work best for your restaurant.

How to Run a Restaurant: Legal Structure

When selecting a business structure for your company, there are four main choices:

  • Limited liability company (LLC)
  • Partnership
  • Sole proprietorship
  • Corporation

It is recommended that the majority of small businesses, such as restaurants, choose an LLC.

However, depending on the state and your entity type, your options may vary. Remember that fees, tax considerations, and reporting requirements will influence your choice in business structure. Consider asking an accountant or attorney for guidance if necessary. Choosing to operate your small business as a partnership or sole proprietorship is strongly discouraged, especially in the restaurant industry. By doing so, you may subject yourself to lawsuits, personal liability, and tax issues

How to Run a Restaurant: LLC

Filing your company as an LLC allows for your business to gain the status as a separate legal entity. Additionally, an LLC can protect you from any personal liability. For example, in the event that a customer suffers an allergy attack while dining at your restaurant, your personal assets will be protected. Unlike a partnership or sole proprietorship, only the funds that you invest into an LLC will be at risk.

If your goal is to open a chain of restaurants, be sure that each location is set up as a separate LLC. This is because in the event of a lawsuit only the assets of the individual restaurant are at risk.

Another reason to choose an LLC for your restaurant‘s legal structure is that this business form is often easier and more flexible. Unlike a corporation, an LLC does not require shareholder meetings, a board of directors, or managerial formalities. There are many other additional benefits to form a restaurant as an LLC. They include:

  • LLC owners can divide profits up in any manner that they choose, which is a perk given the risks of opening a restaurant.
  • LLCs allow restaurant owners to entice employees or investors to share in the company's profit, including the individuals who decided not to contribute their own equity in the early stages of the company‘s development.
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