Once you’ve established that you’re going to establish yourself as an established business establishment, you’ll need to converse with your attorney and your accountant on how to set up the business. There are a few options, including totally solo, setting up a partnership, and incorporating your business. This decision is very important, as it controls how the feds are going to tax you, how you earn an income from the business, what your responsibilities are if the business fails, and a whole lotta other decisions revolving around paper money.
Even if you’re the only one with financial stakes in the restaurant, you may want to incorporate. Incorporating your restaurant and business protects you from creditors if it fails. These are some bad dudes. They can lay claim to your home, cars, savings, Fabergé eggs, and anything else of value.
Here’s a rundown, courtesy of One Fat Frog Restaurant Equipment, of some of the legal details you should be aware of when establishing your business…
• SOLE PROPRIETORSHIPS: This means it’s owned by one single person. A proprietorship can be established by filling out a single form. You keep everything you make, which is nice, but you’re also totally financially responsible if the business goes under.
• PARTNERSHIPS: This is similar to a a sole proprietorship, but with more people. All of the profits and the risk are shared. The details and percentages of the partnerships need to be in writing and each partner should consider hiring separate counsel to ensure the agreement is fair.
• LIMITED PARTNERSHIP: Limited partners are more like investors than partners. They limit their liability since they are not involved in the operation. They invest money into the business based on a predetermined return and a percentage of the profits.
• CORPORATE ENTITY: Creating a corporate entity that owns your restaurant will provide you some protection if (knock on wood) your restaurant ever goes under. Let your attorney set up your corporate entity. You can even be the only shareholder and still own the whole thing.
Being a corporate entity means some serious tax implications. See, there’s a little thing called “double taxation.” The feds are allowed to tax the profits of a corporation and then tax you on them again, as income. Converse with your attorney on different methods of lessening this tax burden.
• THE LLC: A limited liability company (LLC) blends together elements of a sole proprietorship, a partnership, and a corporate entity. This option offers you limited liability and pass-through-income taxation.
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