Research Paper on "Opening a Restaurant: How the Law Impacts"

Research Paper 12 pages (5551 words) Sources: 14

[EXCERPT] . . . .

Opening a Restaurant: How the Law Impacts Small Business

This paper discusses opening a restaurant in two locations: Clarksville, Indiana, and Louisville, Kentucky. There are a myriad of concerns involved in opening a small business. Opening a small business requires a tremendous amount of preparation, and failure to prepare can often equate to failure in the business world. There are practical things that small business owners need to do to open a business, and the first thing is to honestly assess whether or not one has the wherewithal to be a small business owner. Once that determination has been made, it is important to write a business plan. This helps flesh out ideas for the business and determines whether or not a business is viable. For a restaurant, viability is based on a number of factors including the population of the local areas, restaurant experience, market saturation, demand, economic factors, and the legal requirements of opening and maintaining a restaurant.

One of the concerns with viability is the ease of establishing and maintaining a business. The more difficult a business is to establish and maintain, the lower the profit margin and the greater the likelihood of failure. Restaurants are actually one of the most highly regulated of all small businesses, because food service comes with a high degree of health and safety responsibility for customers. Furthermore, because restaurants are part of the hospitality industry, even small business owners must be very aware of civil rights legislation impacting hospitality providers. Therefore, small restaurant owners must be very aware of laws in order to remain in business. In addition, they must be aware that they are impacted by laws at virtually every level of the statutory process. Federal laws legislate civil rights, federal income tax obligations, and some worker safety issues, state laws cover state sales and income tax and the sale of alcoholic beverages, and local laws cover important issues like whether or not a building can be used as a restaurant.

Federal Requirements

Like all employers in the United States, restaurants are responsible for meeting federal legal requirements. These federal legal requirements may seem onerous, but the system for obtaining them is actually very streamlined, so that even small businesses can simply go online to IRS.gov and obtain the appropriate paperwork. Restaurants need to get taxpayer identification numbers, so that they can pay income taxes as a business, and employer identification numbers in order to pay income taxes for their employees. The Employer Identification Number (EIN) form can be obtained from the U.S. Internal Revenue Service (IRS), and is known as the Employer Tax ID and Form SS-4.

In addition to meeting their own tax requirements, restaurants must ensure that all of their employees are also in compliance with federal law. This does not require extraordinary efforts on the part of employers, who are allowed to accept evidence at face value, but they must obtain some proof of identification. First, employers must verify that employees are eligible to work in the United States, which is accomplished with an I-9 form from the IRS.

In addition to having an employee complete the I-9 form, the employer must get a copy of the employee's social security card or other paperwork indicating an ability to work in the United States and an identifying number for income tax purposes. Next employers have to worry about complying with applicable federal income tax laws. This can be accomplished by having employees fill out IRS forms w-2 and w-4, and saving the appropriate amount of income-tax from the employee's paychecks. For a general overview of federal withholding requirements, one may look at 26 U.S.C.S. § 3402.

A further complicating factor is that there are numerous federal laws that speak to the rights of employees in business. However, these laws may or may not apply in the small business environment, so that it is impossible to determine whether or not they would be applicable without knowing the number of projected employees at the restaurant, whether the restaurants would be part of a franchise or wholly independent of other restaurants, how close the restaurant would be located to other restaurants in the chain, and other factors that can help determine the applicability of federal statutes. That is because, while employees have a number of rights under federal laws, many of those laws do not apply to small businesses. For example, small businesses are generally exempt from coverage under discrimination laws, at least as far as oversight by the Equal Employment Opportunity Commission (EEOC), because small businesses may not have 15 employees. While it would be important to strive to respect the values reflected in anti-discrimination legislation, whether or not the business would be covered by these laws does depend on the number of employees.

Without knowing the particulars of the restaurant, it would be impossible to detail all of the federal laws that might impact its opening and operation. However, there are a handful of federal laws that impact many working environments. One of these laws is Title VII of the Civil Rights Act of 1964, 42 U.S.C.S. § 2000e, which prohibits discrimination based on race, gender, color, sex, or national origin.

The Equal Pay Act of 1963, 29 U.S.C.S. § 206(d) prohibits paying one gender more than another for the same pay.

The Age Discrimination in Employment Act of 1967 prohibits discrimination against people over the age of 40.

The Americans with Disabilities Act prohibits employment discrimination based on disabilities and requires employers to make reasonable accommodations for employees with disabilities.

While other laws may apply to employment discrimination, these are the ones that a small business owner is most likely to encounter. Furthermore, employers will likely encounter family and medical leave issues, and should be familiar with the Family and Medical Leave Act, particularly as it relates to issues of pregnancy and childbirth.

State

Once a business has satisfied its obligations under Federal law, it must look at its obligations under state law. In addition to complying with federal tax requirements, a small business must also comply with state tax requirements. This business is going to be operated in two different states. Therefore, this paper must examine the legal requirements in both Indiana and Kentucky. This business is going to be a sole proprietorship. How a business is held is critical, because if a business is established as a form of partnership or a corporation, those entities must be registered in the applicable state. Determining which state to choose for incorporation is a complex decision and one might even decide to choose a state other than Indiana or Kentucky because of the tax and legal benefits of incorporating in another state. If one anticipates opening a large number of restaurants in a wide variety of locations, then incorporation in a favorable state would be a critical step prior to opening the restaurants. While that issue is not applicable in the current scenario, it is important for any small business owner to understand that there are a wide variety of benefits associated with incorporation, and that those benefits are determined by state of incorporation.

While these restaurants will be operated as sole proprietorships, one will still need to ensure that I can use a business name for the restaurants, because many states prohibit the use of an unregistered business name, which frequently requires filing a Doing Business as (DBA). Obtaining a DBA is done on the state level. Additional state laws apply to the operation of a restaurant as well. For example, restaurants must comply with state tax and employment laws. Restaurants also generally have to pay sales tax, as well as special taxes on the sale of food and alcoholic beverages. Because these laws vary by state, they will be addressed on a state-by-state level.

Indiana

In Indiana a restaurant needs to comply with the following state laws: tax registration, business licenses, incorporation filing, doing business as, employer requirements, withholding taxes, new hire reporting, insurance requirements, and displaying the appropriate workplace posters.

There is some leeway in the order of accomplishing various requirements, but some things must be done before others. Because of that, the first thing that a small business owner in the state of Indiana should do is file a DBA. The DBA gives the business owner the right to establish insurance, bank accounts, and other business-related issues in the business's name; therefore, establishing the DBA at the beginning will streamline the process. In Clarksville, Indiana, one would file this at the County Recorder's Office in Clark County, which would be the primary place of business within Indiana. The requirements for a DBA are found in Ind. Code § 23-15-1.

One would also need to learn the requirements for the Indiana sales tax and determine whether or not food and beverage establishments in Indian pay sales tax. They do, and the requirements for the sales tax in Indiana can be found in Ind. Code Ann. § 45 art. 2.2. In addition to a sales tax,… READ MORE

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