“If you’re trying to create a company, it’s like baking a cake. You have to have all the ingredients in the right proportion.”
Elon Musk
Are you cooking up a new business idea and willing to bring it to everyone you know? Would you like to share your love of cooking with as many people as possible? The possibilities of reaching a customer seem endless when you first begin your food truck business and hit the open road. There are just a few things that could prevent you from taking your skill and making a profit from it.
What licenses must you obtain to operate your food truck in different cities, counties, and states? Where do you file your taxes? How do you hire employees? What waivers of liability should you give to your employees if your truck is involved in a collision?
You could spend thousands of dollars in legal fees or rely on what could be misinformation on the internet. Let us guide you to appropriate solutions tailor-made for the food truck industry at a fraction of the cost. As business lawyers we’ve worked to create an affordable way to provide you with the legal information and documents you need to begin your company. Below are some of the issues covered in our course.
SELECTING A BUSINESS ENTITY
Selecting the correct business entity is imperative to the success of your business, regardless of how great your food tastes or how accessible you are to customers. Certain entities allow liability protection for the managers and members of a business by only making the entity itself liable to third parties, while other entities allow liability to rest directly on the personal liability of those that manage and own the business. Similarly, different kinds of entities allow entities to be taxed as a business while others are taxed on the owner’s personal tax return. Your selection really depends on how large you want your food truck business to be, and whether or not you will have multiple trucks and multiple business partners or employees. Regardless of the form of business you select, one way to start your company off with the proper management tools is by drafting a quality agreement between the founding partners. Even if you will be owning and operating the truck on your own the operating agreement defines the parameters of your business.
For someone looking to run their own food truck without any employees or partners, a sole proprietorship is the most basic form of business entity that starts by an individual conducting business. A general partnership allows for each partner to have control over management decisions, sharing of profits, and right to use partnership property while being jointly and severally liable for the debts and obligations of the partnership, which is perfect for those wanting to run a food truck with multiple business partners.
Many states also have limited partnerships (LP), which require at least one general partner and one limited partner, which would allow for your food truck to receive funding from individuals who do not want to be involved in the management or day to day operations of the food truck. There are simple filings and minimal fees required of a LP. Like with a general partnership, the taxation of a LP is passed though to its owners. There are also limited liability partnerships (LLP) offer partners liability protection, meaning partners are generally not liable for the negligence of other partners.
Limited Liability Companies (LLC) offer owners the ability to operate the company without rigid rules associated with a corporation while affording great liability protection and flexible tax options. As with forming a LP, LLP, or corporation, LLCs require a simple filing with the Secretary of State and a filing fee. There are two basic types of LLCs: member-managed and manager-managed. The default rules governing LLCs are statutory. One of the distinguishing features of an LLC is the ability to enjoy liability protection because the LLC is treated as its own separate entity, different from its members. Therefore, an LLC affords its members a layer of liability protection insulating them from the negligence of employees and the debts or contractual obligations of the company, which may be perfect for people seeking to open a food truck with a few individuals willing to be involved with management and operations. LLCs enjoy flexibility regarding taxation, allowing the owners to choose whether it will be taxed as a pass-through entity or at the entity level. Please consult a tax professional on how each choice would specifically affect your business.
The operating agreement of an LLC can be a great tool because it affords flexibility, allowing the members to agree to terms different from the default laws found in a state’s limited liability statute. An operating agreement can be customized to fit the particular needs of the company including, but not limited to, defining management rights of the members, member equity and shares, distributions, dissolution, disassociation, buy-out provisions, transfer of interest, and a number of other important ownership considerations.
TRADEMARKS FOR YOUR BUSINESS
Don’t spend two years traveling and creating goodwill for your food truck before learning your company is infringing on another’s trademark. Do research on the name and trademark your truck is attempting to use. It is highly encouraged that businesses follow through and trademark their mark with the United States Patent and Trademark Office. A trademark is a sign, design, or expression that identifies products or services from a particular source. A registered trademark symbol is ®.
Trademark registration is a great way to safeguard while building a brand that you can protect for years into the future. We encourage all businesses that are building goodwill with their brand to consider taking the steps to register their marks. Even if a company has not registered a trademark, they still have rights associated with their use of the name or slogan. There are a lot of considerations when a business is currently using the mark you desire, so we recommend that you contact an attorney to ensure that your desired mark is available for use and registration.
BUSINESS CONTRACTS
Contracts come in all types. Understanding the underpinning of contract law is vital for all business owners especially those in the food industry. Business contracts include any agreement between two or more people in which something of value is exchanged. Usually one person agrees to perform a service or deliver a good in exchange for valuable consideration, such as money. Regardless of who is on the other side of a transaction, it is prudent to have him or her sign a contract especially when it comes to vendors who supply goods for the food truck. Having a company policy mandating confirmatory memorandum to verbal contract agreements may be a prudent way of enforcing this policy.
OBTAINING AN EIN NUMBER AND OTHER TAX INFORMATION
To obtain an EIN number online, the principal place of business for your entity must be located in the United States or a U.S. Territory and the individual applying must have a valid Taxpayer Identification Number. These are necessary if your food truck intends on hiring employees who will operate the truck and cook food. EIN numbers are limited to one person who exercises ownership control per day. Employer Identification Numbers are issued for the purpose of tax administration and are not intended for participation in any other activities. EIN numbers may be obtained through IRS.gov and take less than fifteen minutes with all the proper information.
Publication 15 provides information on employer tax responsibilities related to taxable wages, employment tax withholding and which tax returns must be filed. Publication 15 can be found on IRS.gov as well. More complex issues are discussed in Publication 15-A and tax treatment of many employee benefits can be found in Publication 15.
WEBSITE TERMS OF USE
If your food truck is going to have a website to show people where your truck will be at on specific days, “Terms of Use” are a simple way to setup rules for the visitors to your business’s website. It prospectively limits the liability of your business if a visitor were to allege a claim against your business. There is no definite requirement for a business to define the terms of use for its website, but it gives an extra layer of legal protections with essentially no cost to the business. Limiting the business’s liability for statements on their website is similar to a disclaimer. Your business will most likely want to state that the business is not responsible for any errors on the website. Your business will want to address the use of your fonts, text, or logos by unaffiliated third parties. Lastly the terms of use should set out the governing state law of your entity.
BUSINESS LICENSES
Every city and state dictates the terms by which business must operate. All businesses, storefront, virtual, and home and otherwise, must comply with local ordinances and laws. Most of the time, it is a matter of registering, paying local taxes, and having a fire marshal approve the premises. Contact your local government for further information.
CONCLUSION
Food truck businesses are fantastic for many reasons. Don’t let legal snares spoil your fun. Look to Drafted Legal for the guidance you need to get cooking.
