How to form an S-corporation for Restaurant


You’ve been dreaming of opening your own restaurant for years. You know the food you’ll serve, and you want to create a dining experience that will make your customers’ mouths water. But how do you set up your business? If you’re considering an S-corporation, this article will help guide you through the process of starting an S-corporation and getting it ready for success!

“S” Corporations

An “S” corporation has made a special election with the IRS to be taxed as a pass-through entity. That is, the income and losses from the business are passed through to shareholders and reported on their personal tax returns. S corporations can only have one class of stock and that class must consist exclusively of common shares. The shareholders must be individuals, trusts or other businesses that have elected to be taxed as an S corporation.

  • A shareholder may not own more than 20% of the outstanding stock in an S corporation at any time. In addition, if you own any stock in another company which is also treated as an S corporation, then you may not own more than 50% total combined voting power (with your spouse) or value (without your spouse). For example: If John owns 25% voting power in ABC Corporation because he has more than $50k worth of shares but also owns 25% voting power in DEF Corporation because he had purchased shares directly from them without using his IRA money then he cannot own more than 30%.

Tax Advantages for Restaurant Owners

One of the main benefits of forming an S-corporation is that it affords you the ability to pass on your business to your heirs. Unlike other types of businesses, there is no double taxation in S-corporations; therefore, dividends are not taxed when they are paid out to owners and shareholders.

This means that after you’ve worked hard building up your company, your beneficiaries will be able to inherit its assets without having to pay any more taxes on them than they would if they were simply inheriting money (or other property).

Deciding on the Business Entity Type

If you’re opening a restaurant, then you’ll want to form an S-corporation. An S-corporation is the best business entity for most restaurants because it:

  • Is taxed as a pass through entity
  • Has fewer restrictions on ownership, management and structure than C-Corporations.

Choosing a Name for Your S-Corporation

  • Choose a name that is not too similar to another company’s name. A name that is too similar to an existing company or person can make it difficult for people to distinguish between the two entities.
  • Choose a name that is not too similar to a government agency or well-known person’s name. You don’t want your business’s initials mistaken for those of a government agency or well-known person, so avoid this by choosing an original and unique acronym for your corporation—especially if you plan on marketing your restaurant in multiple locations, because it will help customers remember where you’re located.
  • Be careful with selecting generic words as names for your corporation—words like “corp,” “incorporated,” “company” etc., are all pre-owned by other companies and businesses and should be avoided unless they are part of the actual legal name of your business (e.g., JK Corp.).

Applying for an Employer Identification Number (EIN)

This is the tax ID number that identifies your company. You can get it by filling out Form SS-4, Application for Employer Identification Number and submitting it to the IRS. Your EIN will be mailed to you within five business days of filing the form.

The federal government charges $5 per applicant for a new EIN; however, many states will charge additional fees for obtaining their own state version of this number.

Preparing Articles of Incorporation and corporate bylaws

Articles of incorporation are the first step in forming an S corporation. The articles should include the name of the corporation, its location, and its registered agent.

The articles must be signed by all shareholders who will own at least 25 percent of the shares after incorporation. If you have more than one owner, each should sign a separate copy; then you’ll need to send all copies to your state’s secretary of state office within 90 days after incorporating.

Holding Organization Meetings and Taking Minutes

At these meetings, you’ll need to record minutes of all actions taken by the board of directors. These minutes must include:

  • The date, time and place of the meeting
  • All actions taken during the meeting (i.e., whether you voted for or against a particular action)
  • The names and initials of all attendees

Keeping Corporate Records

Corporate records are the legal documents that establish an S-corporation and show its existence, such as its charter, bylaws, minutes of meetings and resolutions. You should also keep any other documents related to your business, including contracts for services or products such as food or equipment.

In addition to these specific corporate documents, you should also keep any receipts from purchases made on behalf of the corporation. It would be helpful if you could organize all of these receipts in order.

There will be times when you need access to records pertaining to specific transactions within your company’s history—and having them organized makes this task much easier!

Maintaining the Separate Entity Status of Your S-Corporation

  • Keep separate bank accounts. While it’s tempting to use one account for both personal and business expenses, you should keep all personal and business transactions separate.
  • Keep records of all business transactions. Since your S-corporation is considered a separate entity from yourself, you must maintain its books and records in their own files—they should not be mixed up with your own.
  • Keep separate books for each type of revenue generated by the S-corporation (e.g., restaurant sales vs delivery service sales).
  • Keep separate property and equipment as well as vehicles used exclusively for the business operation. If possible, these assets should be recorded in the name of the S-corporation rather than yours personally; this will help ensure that they remain unaffected by any future lawsuits against the company or liquidation attempts after dissolution or bankruptcy filings.*
  • Maintain an independent workforce with employees who are employed directly by your company rather than being hired through temporary staffing agencies.*
  • The officers who manage daily operations at your restaurant must also be corporate officers rather than family members or friends.*
  • All memberships in professional organizations such as local chambers of commerce should be registered under both names—but if possible use only one set of credentials when attending meetings so that other people don’t become confused about which member belongs where!


You can learn more about how to form an “S” Corporation by visiting the IRS website or hitting our website for more knowledge!

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