Starting a Restaurant Business in New York

What you need to know before you decide to open a restaurant business in New York.

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Starting a restaurant in New York has its own set of legal considerations that are specific both to the restaurant industry and to New York State. These include choosing the proper business entity, obtaining proper state and local licenses and permits, dealing with state and local health and safety regulations, getting adequate insurance, reviewing franchising issues, and dealing with employees.

Choosing the Business Entity

While you could operate your restaurant as a sole proprietorship or partnership, you should probably consider using a legal form that protects you from personal liability, such as a corporation or a limited liability company. Unlike some other types of business, such as certain professional or consulting offices, restaurants have a significant number of customers coming through every day, and in many cases also a significant number of employees engaged in a lot of physical activity. This increases the likelihood that a person could be injured, or his or her property damaged, on the premises—in which case you would want the business, not you personally, to be responsible for any liability.

Learn more about choosing a business structure.

Licenses and Permits

The New York Department of Health requires all food service establishments to obtain and display a permit from the appropriate local health authority. Generally, this will be a health commissioner or health officer of a county or large city. You must apply for the permit at least 21 days before opening your restaurant. The maximum amount of time for which a permit may be valid is two years; the fee is generally several hundred dollars.

Other state-, county-, or city-issued permits and licenses are also necessary, and will vary depending on exactly what kind of restaurant you want to open. The State of New York has an online system called “Online Permit Assistance and Licensing” or “OPAL” that takes you through a series of questions about the details of your restaurant, such as how many people you expect to employ and whether you expect to sell beer or other alcohol, and then provides you with information about the necessary permits and licenses.

Examples of some permits or licenses you may need, apart from the food service establishment permit, are:

  • certificate of authority to collect sales tax
  • restaurant wine license
  • alcohol dealer registration, and
  • on premises liquor license

In New York, liquor licensing is handled by the New York State Liquor Authority’s Division of Alcoholic Beverage Control. Licensing information is available online at the Liquor Authority’s website; there you will find multiple categories of licenses, such as for eating place beer, restaurant wine, and club liquor. Keep in mind that the liquor licensing process can be complicated and you may require outside legal assistance.

If your restaurant will be serving large numbers of people you may have crowd control issues and, therefore, need to obtain a license or permit from a fire or police department. Similarly, you probably will also need a permit or license from a local building department relating to adequacy of exits from the restaurant and related emergency issues.

The New York State Restaurant Association has prepared a helpful list of required signs and permits for restaurants, including where each needs to be displayed. Among the many items on the list are exit signs, wash hands signs, department of health permit, department of health letter grade, commercial recycling regulations, federal and state labor notices, and choking poster.

Health and Safety

Because restaurants are all about people eating food, they are subject to significant regulations regarding food health and safety. One portion of the New York Department of Health’s regulations for food service establishments contains several dozen sections. Just a few of the many matters covered are:

  • employee cleanliness issues, such as employee handwashing
  • employee health issues, such as prohibiting employees from working if they have certain illnesses
  • washing of fruits and vegetables
  • reheating food and thawing food
  • construction of utensils and similar equipment
  • cleaning and sanitizing utensils
  • water supply, sewage, and plumbing
  • garbage storage and disposal
  • construction of floors, walls, and ceilings, and
  • ventilation

The Department of Health has a brief guide that can help you ensure you are meeting regulatory requirements.

With the food establishment regulations in mind, you can expect regular monitoring from your local health department. Local health authorities generally have a lot of latitude regarding what they can inspect, and health department inspections can cover a wide array of items in your restaurant. As suggested by the DOH regulations, inspections may cover not only the food itself, raw and prepared, but also refrigeration systems, cooking equipment, waste disposal, and many other areas. Be aware that, in many localities, you are not only required to display your current inspection grade, but the local health authorities publish the results of their inspections online.

Apart from state regulations regarding the health and safety of restaurant workers, the federal Occupational Safety & Health Administration (OSHA) also has a variety of regulations relating to, among other things, eye and face protection, hand protection, and walking-working surfaces.

Insurance

There are particular risks associated with operating a restaurant, such as customers or employees slipping and falling on the premises, someone getting hurt from hot liquid or broken glass, or someone becoming seriously ill from the food itself. These are on top of more generic business risks such as fire, theft, or other sources of property damage or personal injury.

Try to work with an insurance agent who has previous experience writing policies for restaurants. For property coverage, try to make sure that everything of importance, from plates to stoves, is fully covered. For injuries to people, make sure you have an excellent general liability policy. This should cover not only a patron who slips at your restaurant’s front door, but also one who becomes gravely ill from eating the restaurant’s food. And, if you do outside catering, make sure you have proper vehicle insurance, as well.

Franchising

If you’re thinking of opening a restaurant that is part of a franchise, keep in mind that you will have to operate under far more restrictions than if you opened your own independent restaurant. You will be subject to a franchise contract which you should expect to favor the franchisor, and which likely will give the franchisor rights to:

  • decide where other competing restaurants will be located
  • block sale of your franchise to a particular prospective buyer
  • choose the geographic location where any disputes will be resolved, and
  • require you to buy all of your goods and services from the franchisor.

Along with the restrictions contained in the franchise contract, you should keep in mind the additional financial costs of a franchise. In exchange for being given a preexisting business plan, getting certain help as needed when running the restaurant, and benefitting from group marketing, you will be required to pay out a substantial amount of your profit to the franchisor. More specifically, apart from a large initial franchise fee, expect to be required to pay the franchisor:

  • a percentage of your profits as a royalty
  • an above-market cost for equipment, goods, and supplies purchased from the franchisor
  • finance charges on those same purchases
  • training fees for you and your employees, and
  • contributions to a fund for group advertising.

If you are considering starting a restaurant as part of a franchise, investigate the franchise as thoroughly as you can, including reviewing closely the federally-required franchise disclosure statement.

Employees

Most restaurants have employees and, in many cases, there can be relatively frequent turnover, particularly among waitstaff, bussers, and similar positions. You should inform yourself about basic employment law issues such as illegal discrimination, workers compensation, and how to handle the hiring process. With regard to hiring in particular, learn how to:

  • create a useful job application that does not include illegal questions
  • check references or make other preemployment inquiries -- again without violating privacy laws or otherwise seeking illegal information, and
  • ask interview questions that are both useful and legally permissible.

Keep in mind that there are some employment laws that are specifically relevant to restaurants, such as minimum wages for tipped employees (in New York State, $4.65 per hour), as well as local rules regarding various training and exams related to food establishment personnel (for example, the New York City Health Code requires that a supervisor with a Food Protection Course certificate be present at all times that a restaurant is open).

A good resource for general employment issues is The Employer’s Legal Handbook, by Fred Steingold (Nolo). Also, many key employment laws are administered through the Department of Labor, and there are a variety of informative webpages within the Department of Labor website.

by: , Contributing Author

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