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By Fred Steingold
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Fred Steingold, a business lawyer in Ann Arbor, MI, is the author of
Legal Guide for Starting and Running a Small Business, The Employer's Legal
Handbook, and How to Get Your Business on the Web (all published by Nolo Press).
Q. A friend and I are planning to open a small restaurant. We want to take all the right legal steps. What do you recommend?
A. First, decide what kind of legal entity you want to be. Since there are two of you, your choices are to form a partnership, a corporation or a limited liability company (LLC). With a partnership, each of you will be personally responsible for all business debts. With a corporation or LLC, you can limit your personal liability.
Next, get your business relationship in writing. Include how much each of you will put into the business, how you will share the work and the profits, and what will happen if one of you wants, or needs, to leave the business.
You'll also need to get a tax ID number from the IRS. You'll find IRS Form SS-4 and its instructions at the IRS site. You may be able to use the same tax ID for your state tax filings. Check with your state's Revenue Office for the necessary tax registration forms.
Since you're starting a restaurant, you should look into required licenses and permits. You may, for example, need a Health Department license for your restaurant. You'll require building permits if you plan to re-model. And you may need a general business license as well.
Finally, study your lease carefully. Hidden charges may lurk in the fine print. For example, check to see who is to pay for taxes, utilities, repairs, maintenance and insurance. Also, ask if the landlord will grant you the right to renew the lease. This assures that you can keep your place if your business starts doing well. And remember: Always consult a lawyer before you sign on the dotted line.
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