A restaurant is one of the most risky small businesses. Restaurant owners should take steps to protect themselves from these risks.
Important Tip A small amount of planning can provide big protection down the road

A restaurant is one of the most risky small businesses. This liability is created by the following factors:
  • Restaurants have significant capital needs that increase their need for financing and financing agreements and security interests create liability.
  • Restaurant host thousands of guests and have enhanced liabilities as a public hospitality venue.
  • Restaurants provide food to people which can affect people’s health through allergies, food poisoning and other means
  • Restaurants often provide liquor to people which can create liability
  • Restaurants have multiple employees, which means more people can potentially create liabilities and the restaurant has many legal obligations to its employees.
As a result, it is essential that restaurants find ways to protect against liabilities that can impact its operations and assets, as well as the assets of the restaurant owners. We believe the following steps should be considered for every restaurant:
  • Limited Liability Entity. It is important to form a limited liability entity for the restaurant. We believe that in most cases the entity of choice in Colorado should be the limited liability company or LLC. It provides maximum flexibility, is cheapest and easiest to maintain and allows the owner to choose the desired taxation (whether corporate, partnership or Subchapter S). The most common reason for another entity (whether a partnership or a corporation) is demands from the investors who are providing the financing for the restaurant – sometimes they may be looking for certain rights which are only available in one of the other forms.
  • Multiple Limited Liability Entities. Whether it is your first restaurant or you are adding another restaurant to an existing group of restaurants, it is important to have a new entity for each separate restaurant. 
  • Separate Entities. If the restaurant owns significant assets – like a building or expensive fixtures or equipment, consider putting these assets into a separate entity as well to protect them from creditors of the restaurant operations.
  • Formalities. For more certain protection, keep the limited liability entity up-to-date. File annual reports, record minutes, keep track of shareholders, etc.
  • Awareness. Make sure people who deal with the restaurant know that it is a limited liability entity. Sign things in the name of the entity and use proper titles. Include the name of the entity (LLC, Corp, etc.) in documents, signs, websites and advertisements. Resist requests to sign things in your personal name or guarantee the liabilities of the restaurant.

Additional Information
Important Tip: 
A small amount of planning can provide big protection down the road
Marketing copy: 
Limited Liability Entities