The two standard incorporation models for restaurants are: limited liability companies (LLC), and sole proprietorships. Because restaurants historically were family-owned and operated businesses, most chose the sole proprietorship model. It feels cheaper and it feels as if there is more control over the business. This model also came from a time when Americans were less litigious, regulations fewer, and start-up costs were less prohibitive to marketplace entry.
Because a sole proprietorship makes the owner and his or her restaurant the same legal entity, if the restaurant is sued or if it fails to make payments and accrues debt, the owner is left with his personal accounts and assets on the line. This is why most restaurateurs choose the LLC model, which creates a separate legal entity. Depending upon the type of food service or restaurant, the sole proprietorship may still be an option.
If the “restaurant” is a vendor truck with stools, something that can be purchased outright without large debt, if it is not making large purchases of food and inventory, then a sole proprietorship may, in fact, be a workable and better model for business. Tax-wise it would be simpler, and with very little legal risk, this is certainly an approach to be considered. However, a brick and mortar location involves leasing or purchasing space, inventory, different insurances, more regulatory issues to consider, and has a larger debt burden. In short, the risk is far greater on a brick and mortar restaurant.
While it might be nominally cheaper to choose a sole proprietorship, if you own a restaurant with a fixed location that cost is usually minimal in the larger scheme of things. The reason restaurant owners choose LLCs is because they protect the owner’s assets from debt burdens and legal suits. Should the restaurant fail or be sued, no one can come for the owner’s personal assets like their home, vehicles, or savings.
With very few exceptions it is much safer to go the LLC incorporation route over the sole proprietorship, however, make sure you get any questions answered that you may have should you still not know which model suits your business best.