Before you open the hot new restaurant...
Mark A. Borenstein is an associate attorney in the Worcester office of law firm Seder & Chandler LLP.
These days, everyone seems to be talking about the Worcester Dining Renaissance. With good reason, too, from new concept restaurants like Kummerspeck on Water Street and simjang on Shrewsbury Street to Worcester gastronomic staples like the Boulevard Diner and George's Coney Island, there seems to be endless, delicious restaurant options throughout Worcester. But before you jump into the sizzling Worcester restaurant scene or establish the first foodie destination in your neighboring town, take a step back to think about key legal ingredients.
1. Permitting and licensing
A restaurant will require specific licenses and/or approvals to operate. If you intend to start a restaurant with alcohol service, at a minimum, you will need a common victualer license to serve food and an on-premises liquor license to serve alcoholic beverages. However, there may be additional approvals required related to the zoning district in which your restaurant will be located and/or the amount of parking on site. The opening of your restaurant will be driven in large part by the time frame for the permitting and licensing.
2. Entity formation
You should form a limited liability entity – either a limited liability company or corporation – for the operation of the business to protect you and your business partners. You and your business partners will likely be the shareholders, directors and officers of the corporation or members/managers of the limited liability company. Make sure you have organizational documents explaining the rights and responsibilities of each of the business partners. It is generally easier to hash out the financial details in the beginning before you hit a rough patch and the chef knives start flying.
3. Asset purchase agreement
If you are purchasing an existing business, you will likely be entering into an asset purchase agreement for certain assets used in connection with the prior restaurant. You should clearly identify which assets are being purchased and which are excluded. The assets will likely include all equipment, inventory, goodwill, intellectual property rights, leasehold interests, and the liquor license. You want to ensure you only close on the purchase of the business if you have a well-defined lease and all the necessary approvals to operate.
4. Lease
If you are leasing property, you need to understand all of the terms of the lease agreement. In particular, you should evaluate your maintenance responsibilities as you do not want to be surprised with a large service bill during the lease period. Are you responsible for maintenance of the refrigeration unit? HVAC unit? Who is responsible for plowing and sanding the parking lot?
5. “Closing time”
Before you close on the transaction, the municipality's department of health and related divisions will need to inspect the property. If you are obtaining a liquor license, these inspections will likely occur after the liquor license is approved on the state level by the Alcoholic Beverages Control Commission. You will need to obtain the necessary insurance for the business, contact vendors, and engage a payroll company and an experienced accountant to create systems to pay meal taxes and other regular obligations.
Once you have completed these pre-closing administrative tasks, you will be good shape to serve your hungry restaurant patrons for many years.
Stay hungry, my friends.
Mark A. Borenstein is an associate attorney in the Worcester office of law firm Seder & Chandler LLP.
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