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What business type is a restaurant?
The business type of a restaurant falls under the "food and drink" category within the hospitality industry. It may be helpful to think of restaurants as a sort of Russian doll. Restaurants and other places that serve food sit in the "food and beverage" category of the hospitality industry. In turn, the hospitality industry sits in the broader service industry.
While this classification is broadly correct across the world, different countries will have different codes and business standards set in place. Although it may not be as exciting as putting together the menu, choosing a business structure is just as vital to your success in the industry.
In the hospitality industry, restaurant business owners have five basic legal structures [3]. These are:
A sole proprietorship: A business structure for self-employed people. This is best suited for smaller restaurants and food trucks.
A partnership: A partnership is similar to a sole proprietorship shared between two or more people. In the US, the partners also have the option to form a Limited Liability Partnership (LLP). An LLP formalizes the relationship and means that each partner's liability is limited to the amount they initially invested into the restaurant
A Limited Liability Company (LLC): A limited liability company (LLC) is a very popular option with small to mid-sized restaurants. In terms of a restaurant, an LLC is a legal entity that separates the owners and the business in a similar way to a corporation.
S Corporations: If you're already an established business and have an ambition to grow at a sustainable rate, it may be a good idea for your restaurant to become an S Corporation (or S Corps). These businesses are corporations that are owned by up to 100 people. These shareholders share in the losses and profits of the corporation depending on how much they invested.
C Corporations: Many restaurants will never reach the level of a C corporation but it is useful to have knowledge of what they are. C corporations could be thought of as an upgraded S corp in that they can have an unlimited number of shareholders. Almost every publicly traded restaurant company is a C corp for that exact reason
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