Last Updated: May 13, 2024, 8:20 am by TRUiC Team

Should I Start an LLC for My Fast Food Restaurant?

Starting a limited liability company (LLC) for your fast food 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 fast food restaurant, lawsuits can arise from things like wrongful termination claims, food poisoning allegations, and landlord-related disputes.  

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

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

Do I Need an LLC for a Fast Food Restaurant?

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 Fast Food Restaurant

By starting an LLC for your fast food 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.

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

Example 1: One of your employees mistakenly serves a customer deep-fried chicken with raw eggs on them. While eating it, the customer notices and decides to sue for negligence. Limited liability will protect your personal assets from the financial fallout of the lawsuit.

Example 2: A former worker has filed a lawsuit against you, alleging that his appointment was wrongfully terminated. If you are found guilty and given a fine by the court, liability protection will prevent you from having to pay through your private assets.

Example 3: After eating at your fast food restaurant, one of your customers experienced severe stomach trouble. She has consequently sued you for having subpar food safety standards. In the event of a guilty verdict, liability protection will limit the impact of paying for the damages to just your business assets.

Example 4: An employee incorrectly makes a meal for a customer, putting an ingredient that they’re allergic to on it. The customer has a reaction and asks you to cover the resulting medical expenses.

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 Fast Food 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 fast food 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

Fast food 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 loansgrants, and credit.

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

How to Form an LLC

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

  • You can hire a dependable 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.

Fast food businesses should also have insurance to safeguard their property against disasters like fire breakouts, earthquakes, and other events that could threaten the business's success.

Common Situations Business Insurance May Cover for a Fast Food Restaurant

Example 1: A customer comes into your restaurant while an employee mops the floor. The employee forgot to display a “wet floor” sign, and the customer slips, fracturing their wrist. General liability insurance would cover the customer’s medical expenses and any other damages in the event of a lawsuit.

Example 2: While potential investors review your kitchen operations, one investor reaches for a top shelf and accidentally knocks several large boxes down on everyone. Your general liability coverage would cover any related medical costs and other potential damages stemming from the accident.

Example 3: Your restaurant recently added hot drinks to its breakfast menu. As your staff learns to use the new espresso machine, some drinks come out hotter than others. Unfortunately, a hot chocolate order burns a customer as they sample the drink. General liability insurance would cover the customer’s medical bills and any other damages in the event of a lawsuit.

Other Types of Coverage Fast Food Restaurants 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 fast food restaurants should obtain:

Business Interruption Insurance

While you can quickly resolve most accidents at your restaurant, a fire, break-in, or severe weather could force you to temporarily close for repairs. In such situations, business interruption insurance can help cover some of your financial losses until you’re ready to open again.

Workers’ Compensation Insurance

Most states require restaurants to carry workers’ compensation insurance for their part-time and full-time employees. This insurance option covers medical costs and other expenses if an employee becomes injured on the job. Workers’ compensation insurance also covers disability and death benefits stemming from work-related incidents.

Commercial Umbrella Coverage

Operating a fast food restaurant poses numerous risks, and certain situations could lead to a lawsuit that exhausts your primary insurance limits. Commercial umbrella insurance provides coverage beyond your current policy limits in the event of an expensive accident or lawsuit. 

Commercial Property Insurance

If you own the building in which your restaurant operates, you should consider investing in commercial property insurance to protect against common accidents caused by fire and severe weather. This type of coverage not only protects your building but also the business-related contents housed inside, like specialized kitchen equipment, computers, and furniture.

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.

A sizable sum of money is needed to establish a fast food business. This capital will be used to purchase cooking utensils, bulk food purchases, spices, labor, and, most importantly, a place to cook and serve. Depending on your location and how much money you have, these costs can easily add up to $100,000.

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

Some of the typical operating expenses for a fast food restaurant are payroll, rent or mortgage payments, inventory, and utilities.

Learn more about running a fast food restaurant.

Fast food restaurants make money by selling food and drinks to customers.

Learn more about starting a fast food restaurant.

Opening a fast food restaurant requires a significant investment, but there is great profit potential.

The industry is dominated by large national and regional chains, but there is also room for smaller businesses to grab a piece of the market. There is also the option to buy an existing fast food franchise.

A successful fast food restaurant can typically earn between $50,000 and $100,000 per year.

Learn more about starting a fast food restaurant.

Related Articles

Article Sources

IRS: Limited Liability Company

IRS: S Corporations


SBA: Small Business Guide

SBA: Choose a Business Structure Guide

US Census Bureau: Small Business Statistics

SBA Office of Advocacy: Data on Small Business

FRED: SBA Data for Small Business