This post discusses general legal issues, but it does not constitute legal advice in any respect. This post is not a substitute for legal advice and is intended to generate discussion of various issues. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel. Cara Stone, LLP and the author expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this post. The views expressed herein are personal opinion.

Restauranteurs or restaurant groups should consider a couple key decisions as they get their business formed and start operations. Knowing the restaurant’s long-term goal and getting good advice at the offset will help restauranteurs set themselves up for success down the road. Below is an overview of some of the key questions restauranteurs should ask themselves.

What Type of Entity Should My Restaurant Be?

The first consideration for a restaurant or restaurant group is what kind of entity the group should form. The choice between an LLC or C corporation is going to be driven by the desires of the group over the long term. In the short term, there are certain factors that lay in favor of structuring as a partnership or S-Corp because of taxation. If the group is setting up a one location restaurant that plans to cash flow immediately to the founders as their primary source of income, then an LLC most likely makes sense.  If the restaurant is setting up a group that is designed to be multi-location from the start and is more geared toward exit, it might suggest a different form may make the most sense. Other factors should be taken into consideration such as the management structure of the entity, voting rights and who has the ultimate authority in the entity. Talking with experienced counsel can help restaurants think through the implications of all of these issues before they run into problems.

Where will Funding for the Restaurant Come From?

The second thing that people want to think about is where the funding for a restaurant will come from. Whether the restaurant is self-funded by the founder or founders or the restaurant is raising outside money, owners will want to ensure the proper structure is in place to protect the business and the investors. Restaurants should also seek out advisors who know the common terms that people see in the industry. This can range from how much of the company is typically sold to investors to the protective provisions investors (or owners self-funding) will typically see in an operation agreement.  

How Do I Incentivize Management or Others?

The third thing that restaurant owners typically want to consider is how can the business incentivize key management level employees to help the restaurant grow. Again, this can include owners, managers, business operations, or others. It’s common to want to incentivize those with a high level of involvement in the business without giving up management power or placing heavy information rights on the company.

Who Should Own Key Assets?

The final topic most restaurants should think about as they open is who will own their key assets. This can include property ownership, IP ownership, key recipes, trade secrets and more. As with all of the items in this post, it depends on the restaurants key objective. For restaurant owners (especially if/when they go to raise money), ensuring that the correct entity owns these key assets can protect the business.

When it comes to owning the real estate in which the restaurant operates, restaurant owners will have many considerations to determine if that is the best course of action.

Find out more about the topics above on our blog and YouTube channel. We’ve worked with several restaurants on formations, fundraising, IP issues, exits and more. We’d love to work with you.