Do I Need an LLC for My Restaurant Delivery Service?

Starting a limited liability company (LLC) for your restaurant delivery service can provide several benefits.

Most importantly, an LLC structure offers limited liability to its owners, which can protect their personal assets from lawsuits and creditors.

For a restaurant delivery service, lawsuits can arise from things like property damage (e.g., as a result of an employee causing an accident with a company vehicle, etc.).

LLCs are also affordable, highly flexible (from a tax point-of-view), and can make your restaurant delivery service seem more credible.

Recommended: Use Northwest to form an LLC for $29 (plus state fees).

Should I Start an LLC for My Restaurant Delivery Service?

LLCs are a simple and inexpensive way to protect your personal assets and save money on taxes.

You should start an LLC when there's any risk involved in your business and/or when your business could benefit from tax options and increased credibility.

LLC Benefits for a Restaurant Delivery Service

By starting an LLC for your restaurant delivery service, you can:

Protect your savings, car, and house with limited liability protection
Have more tax benefits and options
Increase your business’s credibility

Limited Liability Protection

LLCs provide limited liability protection. This means your personal assets (e.g., car, house, bank account) are protected in the event your business is sued or if it defaults on a debt.

Restaurant delivery services will benefit from liability protection because of the risk of being sued for personal injuries, product liability, and trademark infringement.

Example 1: A customer places an order on your website for 100 pizzas for a corporate event. When they are delivered, he complains that the order he received was incorrect. Should he take further action in this instance, your liability to pay damages would be limited to the assets owned by your business and will not extend to you personally.

Example 2: One of your new drivers has an accident while delivering some items to your customers on his first day and has to be hospitalized for three months. He sues you, claiming improper vehicle maintenance. If found liable to pay the injured party damages, this requirement will only be levied against your business’s assets.

Example 3: A handful of clients sue you for false advertising, claiming poor service that ultimately led to lost customers on their part. In this scenario, the LLC structure helps to safeguard your personal assets even if the business is found guilty.

An LLC will also protect your personal assets in the event of commercial bankruptcy or loan default.

To maintain your LLC's limited liability protection, you must maintain your LLC's corporate veil.

LLC Tax Benefits and Options for a Restaurant Delivery Service

LLCs, by default, are taxed as a pass-through entity, just like a sole proprietorship or partnership. This means that the business's net income passes through to the owner's individual tax return.

The business’s net income is then subject to income taxes (based on the owner's tax bracket) and self-employment taxes.

Sole proprietorships and partnerships are taxed in a similar way to LLCs, but they do not offer limited liability protection or other tax options.

S Corp Option for LLCs

An S corporation (S corp) is an IRS tax status that an LLC can elect. S corp status allows business owners to be treated as employees of the business (for tax purposes).

S corp tax status can reduce self-employment taxes and will allow business owners to contribute pre-tax dollars to 401k or health insurance premiums.

The S corp status requires that the business pay the employee-owner(s) a reasonable salary for the work they perform.

In addition, the business might need to spend more on accounting, bookkeeping, and payroll services. To offset these costs, you'd need to be saving about $2,000 a year on taxes.

We estimate that if a restaurant delivery service owner can pay themselves a reasonable salary and at least $10,000 in distributions each year, they could benefit from S corp status.

You can start an S corp when you form your LLC. Our How to Start an S Corp guide will lead you through the process.

Credibility and Consumer Trust

Restaurant delivery services rely on consumer trust. Credibility plays a key role in creating and maintaining any business.

Businesses gain consumer trust simply by forming an LLC.

A growing business can also benefit from the credibility of an LLC when applying for small business loans, grants, and credit.

Northwest will start an LLC for you for just $29 (plus state fees).

Get Started

How to Form an LLC

Forming an LLC is easy. There are two options for forming your LLC:

You can hire a professional LLC formation service to set up your LLC for a small fee
Or, you can choose your state from the list below to start an LLC yourself

Select Your State

For most new business owners, the best state to form an LLC in is the state where you live and where you plan to conduct your business.

Do LLCs Need Insurance?

All businesses need insurance to protect their business assets — even LLCs. This is because the limited liability protection from an LLC protects your personal assets, not your business assets.

Restaurant delivery businesses need insurance because of the liability that comes with running a food delivery business. Allergic reactions and failed deliveries are events that can arise and which an insurance plan would help to mitigate.

Common Situations Business Insurance May Cover for a Restaurant Delivery Business

Example 1: A competitor claims your new commercial includes damaging statements about their company and files a defamation lawsuit. General liability insurance would cover your legal fees and any damages awarded in a settlement.

Example 2: While visiting your office to claim a prize they won in a social media contest, a customer accidentally trips on a computer cord and seriously injures themselves. General liability insurance would cover the customer’s medical bills and your legal fees in the event of a lawsuit.

Example 3: As a delivery driver unloads office supplies at your receiving dock, the ramp malfunctions and damages the delivery van, your office supplies and the rest of the driver’s packages in the van. General liability policy would pay to repair the van and replace all of the damaged inventory.

Other Types of Coverage Restaurant Delivery Businesses Need

While general liability is the most important type of insurance to have, there are several other forms of coverage you should be aware of. Below are some other types of insurance all restaurant delivery businesses should obtain:

Commercial Auto Insurance

Any vehicle you use primarily for business requires commercial auto insurance because personal auto policies typically don’t cover work-related accidents. This coverage protects your vehicles, drivers, and others on the road in the event of an accident by covering accident-related vehicle repair costs as well as medical treatment for anyone injured.

Workers’ Compensation Insurance

Most states require businesses to carry workers’ compensation insurance for their part-time and full-time employees. This coverage protects your employees if they become injured at work or fall ill after a work-related accident. It not only covers an employee’s medical bills and lost wages if they need time to recover but also any disability or death benefits stemming from a work-related accident.

Home-Based Business Insurance

If you operate out of a home office, check with your homeowner's insurance provider to ensure your policy protects you against liability from business-related accidents. If not, consider adding home-based business coverage to your business owner’s policy (BOP) or your existing home insurance policy.

Commercial Umbrella Insurance

While your general liability insurance policy covers most claims, some accidents or lawsuits may be so catastrophic that they threaten to exhaust the limits of your primary coverage. Commercial umbrella insurance protects you from paying out-of-pocket for any legal fees and awarded damages that exceed your primary policy.

Should I Start an LLC FAQ

Choosing the right business structure depends on your business’s unique circumstances and needs. However, unless your business is very low risk (like a hobby), an LLC is likely the better option.

Visit our LLC vs. Sole Proprietorship guide to learn more.

At a minimum, you’ll need general liability insurance, workers’ compensation insurance, and commercial auto insurance.

Read our Business Insurance for a Restaurant Delivery Business article for more info.

You can set up a restaurant delivery business for between $3,000 and $25,000. The initial investment includes dispatch space, insurance, delivery vehicles, computer, telephone system, business licenses, and high-speed internet. You'll also want to get a website professionally designed for your business as well as software and other marketing materials.

Visit our How to Start a Restaurant Delivery Business guide to learn more about the costs of starting and maintaining this business.

Restaurant delivery service owners should expect to incur a number of ongoing costs including payroll, insurance, marketing, rent, utilities, and business management software systems.

Learn more about running a restaurant delivery service.

Money is made by charging participating restaurants a commission for the delivery of their food. Additionally, restaurant delivery services can make money by charging customers an additional delivery fee on top of the cost associated with covering the price of the food.

Learn more about starting a restaurant delivery service.

Restaurant delivery services offer individuals the option of ordering food from a restaurant and having the food delivered to them.

While it may take some time to grow your business, well-established restaurant delivery services are able to profit as much as several million dollars a year.

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