Business Law: Starting A Restaurant

Lee Shome & Kennedy’s business law and corporate law attorneys are highly experienced in both opening restaurants and management/operational considerations once your restaurant business is up and running.  LSK Firm has helped our clients in opening and operating multiple large scale groups, ensuring our clients are able to enjoy the business they worked so hard to create.  Starting a restaurant as your business is not an easy task, as there are many business and legal considerations to prepare for.  Below are some preliminary issues and requirements to consider when opening restaurants.

Choosing an Entity

The first step in opening any business, not just a restaurant, is choosing what type of entity is right for you.  Opening a restaurant can give rise to a variety of different scenarios in which the owner may be held liable.    A general partnership is the default entity formed if no formalities are followed, which opens up the business owner to almost unlimited personal liability.  As such, business owners usually prefer an entity that can provide limited liability, such as a corporation or a limited liability company (“LLC”).  Small business owners tend to prefer a LLC, as the LLC has more operating flexibility and less required formalities, as with a corporation.  Should the LLC incur liability under some unfortunate situation, the only assets on the line will be that of the company’s, as opposed to the owner’s personal assets as well.  There are many important considerations that go into choosing an entity, for which LSK Firm’s attorney’s can happily guide and consult you throughout the formation of your entity.

Finding a Location

When starting a restaurant, a major and important consideration is the location.  Marketing, visibility, and other similar considerations aside, a business owner must decide whether to purchase an already existing restaurant or find an empty location for lease.  There are pros and cons to each, such as: (1) when buying an already existing restaurant, you can often purchase the assets of the outgoing restaurant for a discount, saving you money if the assets are in good operating condition; (2) if you open a restaurant on open property, you can avoid the possibility that any poor public opinion of the previous establishment being conveyed to your establishment.    Both courses of action are subject to the will of the landlord of the property, so negotiating a lease (or negotiating the transfer of the lease) with the landlord will be necessary, no matter which path you choose.  Lastly, zoning may become an issue as you have to make sure that the area you are leasing is appropriate for a restaurant.  Both negotiating a lease and zoning issues can be difficult to maneuver though by yourself and it would be wise to work with an attorney that is experienced in these areas.

Bulk Sales Law

California has a provision in Division 6 of the California Commercial Code entitled “Bulk Sales,” (the “Bulk Sales Law”) which applies to all sales that are: (1) outside the seller’s ordinary course of business; (2) a sale of more than half the company’s inventory and equipment; and (3) the seller is located in California and the seller’s principal business is the sale of inventory from stock, which includes a restaurant owner.  There are quite a few requirements to ensure both the buyer and seller conform the sale to the requirements of the Bulk Sales Law, and an attorney should be consulted if you decide to undertake the purchase of an already existing restaurant and its assets.

Permits and Licenses/Health and Safety

Consideration will have to be given to obtaining an Employer Identification Number (“EIN”) issued by the IRS and the state of California and a seller’s permit.  Further considerations should be given to obtaining the necessary permit and licenses in regards to health and safety.  Anyone who handles food must obtain a California Food Handler’s Card, issued after mandatory training and assessment.  There are further requirements such as the Health Operational Permit and Food Safety Certification.  If you desire to sell alcohol at your restaurant, you will also need to obtain a liquor license.  These are a few of the many permits, licenses, and other requirements necessary to start a restaurant.

Please keep in mind the areas mentioned above are just a few of the many areas that need to be covered when starting your restaurant.  While starting a restaurant in San Diego can be difficult due to market saturation, it can be done efficiently and effectively.  By properly taking all steps required in opening a restaurant, a business owner can avoid making mistakes that can sink the restaurant into (further) debt and turn owning the restaurant into a liability rather than an asset. Done right, owning a restaurant can be both invigorating as well as rewarding.