Top 6 Legal Considerations for Opening and Running a Restaurant

With the independent food industry rapidly developing in Detroit, we thought we would touch on some legal considerations that restaurant and food industry clients should be aware of as they tap in to the metro Detroit market.

1.  Get Organizational Documents in Order. Choose a business entity under which to operate and have the proper documents drafted by legal counsel. There are several options in business start-up, and anyone can create a “DIY” corporation or LLC. But when there is more than one owner, an investor, a passive investor, and/or an owner-operator of the business, details and expectations need to be flushed out at the outset. A Shareholder Agreement or Membership Operating Agreement with buy-sell provisions to address deadlock among the decision-makers, akin to a pre-nup in the business world, is highly recommended. The last thing any successful business wants is to prematurely end because the founders cannot agree on the direction of the business.

2.  Location, Location, Location. Location is often one of the key factors for a successful business. The lease for retail space and/or purchase of real estate will be among the most important documents you negotiate and execute, and should be reviewed thoroughly and negotiated with assistance of counsel. Moreover, you will need to ensure that your use is allowed under the Zoning Code. Don’t assume that you’ll be allowed to do a certain activity simply because the previous tenants did it. Review the City’s Land Development Code to see how the City has zoned the property. The real estate documents may also require personal guarantees that should be reviewed completely.

3.  Licensing and Permits.  In addition to Zoning approval, the business will likely require other permitting and licensing, depending on the City, including business licenses, liquor license, certificates of occupancy, and approvals from building department, fire marshal, etc.

4.  Equipment Leases. The purchase or lease of equipment may require additional contracts that the operators should review and completely understood. Often the equipment is leased, in other cases equipment is purchased from third parties and held as a security interest. This may include financing and security agreements that should be understood prior to being agreed upon.

5.  Employment.  Once the business is up and running, employment issues will often be at the forefront and one of the biggest challenges of operations.  Be sure to have all necessary employment documents in order, including applications, employment agreements for management, non-compete agreements where applicable, and employee handbooks. Employee retention and employee satisfaction are key to a successful operation.

6.  Trade Names and Branding.  Trademark application for new unique names is essential to create and preserve a brand. For established brands, trade name licensing will be especially important once the operation becomes successful.

The attorneys of Dalton & Tomich have firsthand knowledge and experience in advising restaurant industry clients developing a business plan, obtaining liquor license, complying with safety regulations, mergers, acquisitions, providing referrals in advertising, marketing, and funding.  And of course, we are always willing to taste test the new menu.