Should I Start an LLC for My Carryout Restaurant?

Starting a limited liability company (LLC) for your carryout restaurant 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 carryout restaurant, lawsuits can arise from things like food poisoning allegations (e.g., as a result of a customer claiming that they got ill after getting food from your business, etc.).

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

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

Do I Need an LLC for a Carryout Restaurant?

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

You should form 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 Carryout Restaurant

By starting an LLC for your carryout restaurant, 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.

Carryout restaurants will benefit from liability protection because food and beverage businesses face the risk of product liability, burns and scalds, trademark infringement, workplace accidents, and financial data breaches.

Example 1: A customer orders food from your carryout business and gets food poisoning. The customer decides to sue your business for their medical expenses. If found liable, the compensation would only be imposed on your company’s assets and not your personal assets.

Example 2: An employee of the carryout business accidentally causes damage to a customer's car while delivering food. The customer decides to sue the store for the damages to their car. Limited liability protection will ensure that your personal assets are protected from the lawsuit.

Example 3: A customer slips and falls on a wet floor at the carryout business, sustaining injuries. The customer decides to sue the store for damages, alleging that the store was negligent in maintaining a safe environment. Limited liability protection will ensure that the store owner's personal assets are protected from the lawsuit.

Example 4: When a customer comes to collect a carryout order, your staff accidentally spills a hot drink on the customer, resulting in burns. The customer sues your business for the medical damages.

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 Carryout Restaurant

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 carryout restaurant 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

Carryout restaurants 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 trusted 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?

Yes, all businesses need insurance. As a business entity, an LLC may be exposed to various risks and potential liabilities that can impact its operations and financial stability. To safeguard against these potential losses or damages, it is advisable for LLCs to obtain insurance coverage.

Common Situations Business Insurance May Cover for a Carryout Business

Example 1: When a customer comes to collect a carryout order, she trips on some broken pavement in your parking lot, breaks an arm, and decides to sue your business. General liability insurance would pay for your legal defense fees and any required settlement.

Example 2: While rushing to the front of your restaurant with an order, an employee fails to see a customer and knocks him to the ground. The customer sustains a concussion and asks you to pay for his medical treatment. General liability insurance would cover the injured customer’s medical bills.

Example 3: As you move soft drinks on a dolly through the restaurant to a storage area in the back, you fail to see a customer’s bag on the floor and accidentally run it over — breaking the expensive laptop and other equipment within. General liability insurance would cover the cost of replacing the customer’s damaged property.

Other Types of Coverage Carryout 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 carryout businesses should obtain.

Product Liability Insurance

When you sell products to the general public, there’s always a chance one of your customers could decide your product caused them harm. In the event of a lawsuit, product liability insurance would cover your legal defense fees and any required settlement.

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 covers an employee’s medical bills and lost wages if they need time to recover, and also any disability or death benefits stemming from a work-related accident.

Commercial Property Insurance

You made a major investment in the equipment and supplies needed to run your carryout restaurant. In the event of a fire, theft, or natural disaster, commercial property insurance would cover the cost of repairing or replacing your business-related property. This includes structural damage to your building as well as the business materials you store there.

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 property insurance.

Read our Business Insurance article for more info.

Starting a small carryout restaurant can be done on a budget, with costs ranging from $10,000–$15,000 if you purchase used equipment and secure affordable rental space. However, you will need other items, including a stove, hood, cooking utensils, cooking equipment, countertops, food, and supplies.

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

Operating expenses for a carryout restaurant include rent, equipment maintenance, food and supplies, payroll, and insurance.

Learn more about running a carryout restaurant.

Carryout restaurants make money by selling customers food to go.

Learn more about starting a carryout restaurant.

Carryout restaurants offer customers meals to go. These restaurants do not have dining areas and instead focus on delivery-only strategies.

Because they often don’t need a large space to operate, the startup costs are much lower than a regular dine-in restaurant. This can lead to higher profit margins.

Learn more about starting a carryout restaurant.