What Type of Business Entity is
Best for a Restaurant?
Did Gordon Ramsey or another famous chef inspire you to set your own restaurant business? That’s great to hear!
But have you considered what type of entity you’ll be choosing for your business? If not, you should. Because business entity formation structure is as important as in restaurant business, as it is in any other. In fact, setting it up correctly can mean a great deal in the long run.
Without further ado, let’s check and see which corporations would fit best for a restaurant:
The Usual Suspects
A restaurant is a business just like any other business, meaning you can pick one of the following usual business entities:
- An LLC
- A corporation
- A sole proprietorship
- A partnership
So, which one is a better fit?
Well, let’s see.
If you pick a sole proprietorship or a partnership with maybe your spouse or friend, you’ll expose yourself and your partners to potential risks. And having a restaurant is a risky business. What if someone eats something and gets sick? Do you really want their lawyers to come after your personal assets? Definitely not!
That being said, sole proprietorships are still a pretty hip choice for lone wolves who want to set up a restaurant business on their own. Family businesses are usually founded under this specific entity. Even though a sole proprietorship is pretty easy to set up, it doesn’t offer a legal separation between your business and your personal assets. Neither do partnerships, while we’re on the subject.
Therefore, an LLC could be a great choice, especially if you plan on opening more than one business. Because if one of them goes down, the rest will still be there and your personal assets will not be under attack in either one, meaning you’ll only lose whatever you have invested in the business.
Plus, LLCs are much easier to form, and will spare you the headache of meetings, and boring formalities.
What About Taxes?
There’s one of two ways you can set up your LLC for taxation: a C Corp (corporate entity) and an S Corp. Under either entity, you can go around paying taxes on your personal income, as well as whatever profit you generate as a business.
Some people opt for an S Corp which is pass-through. But many also go for C Corps, which is money-saving because you can inject all of your profit back into your business, free of taxes. On top of that, because the underlying entity is an LLC, your personal assets will be protected in case your restaurant falls under debt, or gets hit with a lawsuit.
All in all, it is up to you which type of business you choose to operate your restaurant under. It’s all relative, really. Are you opening it by yourself? How many investors you have, if any. All of these matter.
If you are willing to set up your restaurant, and need more advice on how to do so, just give us at Prestige Auditors a call. With our resources, we can give you guidance on which business entity to choose, and form your business correctly from the get-go. And hey, we might even show up and try your recipes! You never know! We can even help you with a Michigan business entity search, in case you want to know whether someone in Michigan has had your idea before you did!