Do I Need an LLC for My Pop-Up Restaurant Business?

By starting an LLC for your pop-up 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.

Pop-up restaurants will benefit from liability protection because of the relatively high risk involved with handling food, workplace accidents, and trademark infringement. 

Example 1: One of your customers requests that you make one of the dishes allergen-free, which the server forgets to relay to the kitchen. As a result, the customer has a severe reaction to the dish and requires medical attention. If he sues, your business will be affected, but your personal assets will be safe.  

Example 2: A customer comes to complain that she suffered food poisoning from eating your food. She claimed she had spent the week seeing a doctor and insisted you pay her medical bill. If she sues you for it, your business may pay compensation, but you will remain safe.

Example 3: While your new employee is cooking, she makes a mistake, and there is a fire outbreak. The fire causes damage to some parts of the restaurant before it is eventually put off. The property owner demands you fix his property, or he sues. If he sues you, your business may pay damages but not you as the owner.

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 Pop-Up 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 pop-up 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

pop-up restaurant 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.