Do you ever feel like all these restaurant LLCs you set up for your restaurant group are more formality than function? If so, keep reading, because simply organizing your restaurant, holding company, management company, and real estate as separate LLCs doesn’t necessarily protect you from liability. To get the real benefit, you have to follow specific protocols that treat each LLC in a Multi-Unit Restaurant Group as a truly separate entity in the eyes of the law.
We’re not attorneys, so please don’t accept this as legal advice, but we’ve seen enough restaurant operators cross-pollinate their entities or personal transactions to know this is a common problem. Many owners set up LLCs under state law, then immediately ignore their existence, commingling intercompany and personal transactions and unintentionally blurring the lines between businesses. Whether you’re managing one location or several, understanding how to maintain each LLC in a Multi-Unit Restaurant Group correctly is essential for protecting your assets and ensuring long-term growth. Although these are general tips, it’s best to consult your attorney to determine whether these formalities and requirements apply to your structure. The comingling of personal expenses with LLC funds is always forbidden; however, the comingling of intercompany transactions may be completely acceptable depending on your legal and tax structure.
How to Keep Each Restaurant LLC Truly Separate
The specific protocols that must be followed to preserve limited liability are typically outlined by the law of the state in which the LLC is registered. Here are some quick pointers to keep your restaurant’s LLC compliant, legally distinct, and avoid costly mistakes:
- Maintain a separate bank account for each LLC (yes, even for your real estate).
- Separate the accounting for each LLC (class/location tracking should suffice for the most part).
- If there are intercompany transactions, they must be documented and explained. For example, if you have a commissary as a separate LLC, you’ll want a system that tracks transfers. An open note (without interest) from a sister company that continuously funds losses is probably not a good idea unless a reasonable repayment plan and/or loan agreement exists.
- Ensure the LLCs are adequately capitalized with actual revenue, especially if you take distributions and/or incur personal expenses directly from the LLC bank account.
- Don’t pay personal expenses directly from the LLC’s bank account, even if you classify it as a distribution or loan.
- Don’t hold personal assets under the LLC name.
- Always follow the operating agreement! If you’re issuing a loan or distribution to members, make sure you’re following the agreement. Otherwise, you’re hinting that the LLC is a mere formality and the agreements don’t mean anything.
When to Bring in Professional Help
Keeping your restaurant’s LLCs separate and compliant can be complex, especially as your group grows. A dedicated accounting and controllership partner can help you implement systems and processes that maintain clear separation between entities, protecting you from risk while giving you real visibility across your entire operation.
Check out this article from Dennis Monroe, chair of Monroe Moxness Berg, a law firm focusing on M&A, taxation, and other business matters for multi-unit restaurant businesses.
If you’re serious about tightening up your systems and protecting your restaurant’s financial future, don’t stop here. Download Fork’s Ultimate Guide to Financial Success in a Restaurant, a practical roadmap to building a strong foundation, increasing profitability, and scaling with confidence.
