Do I Need an LLC for My Restaurant Supply Business?

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 Restaurant Supply Business

By starting an LLC for your restaurant supply business, 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 supply businesses will benefit from liability protection because of the risk of product liability and general business risks like workplace injuries, property damage, and trademark infringement. 

Example 1: Your business is contracted to deliver fresh seafood to a hotel. Days later, you receive a call that several of their customers reported food poisoning incidents after having consumed seafood dishes. If the hotel sues your business, limited liability protection ensures that you are not personally liable for any liabilities should the case be settled in court.

Example 2: Your supply truck breaks down on the way to deliver a batch of supplies for your client. Your client is unable, in turn, to meet up with orders from their customers and sues you for lost income. In the ensuing litigation, limited liability shields your personal assets from any damages resulting from the incident. 

Example 3: A client claims that the meat you delivered to them depreciated in quality barely one week after purchase. They state that you supplied meat that was not fresh in the first place and file a lawsuit against you. Should the court find the business guilty, only the business’s assets will be used in providing compensation. 

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 Supply Business

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 supply business 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 supply businesses 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.

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.

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 supply businesses need insurance because of issues such as damaged goods, delivery errors, and any accompanying lawsuits. These losses can be covered by business insurance so that you can focus on running your business without any hitches.

Common Situations Business Insurance May Cover for a Restaurant Supply Business

Example 1: A customer is looking through your inventory to find a particular product when she slips and falls, breaking her arm. She asks that your business pays for her medical treatment. Your general liability insurance will likely cover this cost.

Example 2: A visitor trips and falls on a damaged area of the pavement outside of your restaurant supply business and decides to sue you, claiming you should have kept the area in good repair. Your general liability insurance will pay for legal fees, including the cost of a settlement if one is necessary.

Example 3: Another restaurant supply business in the area claims that your new logo is too similar to their own and decides to sue your business. The general liability insurance you carry will pay for your legal defense, including hiring an attorney and paying a settlement if one is required.

Other Types of Coverage Restaurant Supply 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 supply businesses should obtain:

Commercial Property Insurance

You have invested a significant amount of capital in your restaurant supply inventory. If you were to lose most or all of your inventory in an unexpected event, like a fire, you might struggle financially to replace everything. But with a commercial property policy, you can file a claim with your insurer, and as long as the event that caused the damage is covered, you should be able to get financial help.

Product Liability Insurance

The products that you sell to restaurants are safe if used correctly, but that does not mean that a customer will not be hurt or claim to have been hurt by something you sold. Product liability insurance is designed to protect your business if you are sued over a product. It will pay for your legal defense, including a settlement if necessary.

Workers’ Compensation Insurance

If you have employees, your state most likely requires you to carry workers’ compensation insurance. Your policy will provide coverage for employees who are injured performing job-related duties. They can get medical treatment through the policy, as well as help covering lost wages while they recover from their injuries.

Commercial Umbrella Insurance

An umbrella policy provides extra protection beyond a general liability insurance policy. If you are in a situation where your general liability insurance limits are exceeded like if you lose a major lawsuit, the commercial umbrella policy will kick it.

IRS: Limited Liability Company

IRS: S Corporations

IRS: EIN

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