Starting a restaurant in Texas has its own set of legal considerations that are specific both to the restaurant industry and to the State of Texas. 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
With extremely limited exceptions, the Texas Department of State Health Services (DSHS) requires all food establishments to obtain a permit from the appropriate health authority. This either will be a city or county health department, or, in those cases where there is no local authority responsible for issuing the permit, the DSHS itself. There are three types of food establishment permits: fixed establishment, mobile food unit, and temporary establishment. Permits are issued for two-year terms. Permit fees vary based on the gross annual volume of sales and range from $250 to $750.
You will also be required to obtain a sales tax permit, a facilities permit, and have at least one on-duty employee who is a certified food manager. The sales tax permit is obtained through application to the State. The facilities permit is generally obtained through your local building and zoning authority. In order for a person to become a certified food manager, he or she must pass a DSHS-approved certified food manager examination, which can be taken as part of a certification training program, at a test site, or online. The certification is valid for five years.
In addition, if you intend to serve alcohol at your restaurant, you will need to obtain the proper liquor license. In Texas, liquor licensing is handled through the Texas Alcoholic Beverage Commission (TABC). Licensing information is available online at the TABC’s website; there you will find multiple categories of licenses. 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.
General information about food establishment licenses and permits is available on the DSHS Food Establishments Group website.
Health and Safety
Because restaurants are all about people eating food, they are subject to significant regulations regarding food health and safety. One version of the DSHS’s field inspection manual for food service establishments runs approximately 200 pages. Just a few of the many matters covered by the DSHS food establishment rules are:
- employee cleanliness issues, such as procedures for employee hand and arm cleaning
- employee health issues, such as reporting on employees who have certain illnesses
- standards for cooking, freezing, and reheating food
- standards for construction of utensils, temperature-measuring devices, and similar equipment
- cleaning and sanitizing food-contact surfaces, utensils, and equipment
- water supply, plumbing, and waste
- garbage storage and disposal
- physical facilities, such as construction of floors, walls, and ceilings, and
With the food establishment rules in mind, you can expect regular monitoring from your local health department (or, if there is no local inspection authority, from the DSHS). Health inspection 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 DSHS 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 many 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.
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.
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.
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, as well as rules regarding various training and exams related to food establishment personnel.
Limited information about both federal and state regulations in such areas as equal employment, safety, wages, and labor posters for Texas employers is available on the Texas Wide Open For Business website.
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.