Before you churn out the marketing plan, draft your social media page name, or buy your domain, this is crucial question to ask– “How to register my cafe /bakery business?”
Starting a business comes with different hurdles, and getting your business registered is difficult, but the most important question is understanding which business structure is best for your business.
So, let’s make that hurdle easier. The US government allows startup owners to incorporate their business in different ways. Plus, you’ll need a different permit based on the type of business and your products and services.
Importance of Registering Your Cafe/Bakery Business
We’ll discuss how to register your cafe/bakery business. But first, let’s discuss why a legal structure is important.
Maintain Legal Compliance: as a small business, it’s crucial to comply with federal, local, and state government regulations. If you are to operate legally under the U.S. government, you must comply with the state, local, and federal laws. Negligence to incorporate your business can result in big penalties filed against your business.
Gaining Consumer Trust: Whether you are a U.S. resident or a non-U.S. resident, the importance of legal incorporation of your cafe business is the same. Plus, when your business is registered under a legal structure, customers trust it.
Business liability protection: legal structures for business help you keep personal, and business liabilities separate. You can keep your personal assets safe from business liabilities through several business structures. LLC and S Corp are good examples to consider.
Get funding: your investors would want to know your business structure when you pitch them for funding. Having a business structure to back up your business plan is essential.
Permits, Licenses, & Taxes: Registering your business also includes getting necessary permits. For cafe and bakery businesses, you may be required to get health permits and food service licenses. Plus, your business structure works as a prerequisite for tax payments.
Your choice of business structure for the cafe business determines your tax obligations, growth potential, other legal liabilities, and operations.
Remember to consider your business location when choosing your legal structure. The local or state laws might require certain businesses to obtain specific permits.
Register Your Cafe Business: Choosing a Business Structure
Here are the most popular business structures with which you can register your cafe business . You can choose from any of these structures to meet your business goals.
1. Sole Proprietorship
The first and simplest form of a business structure is sole proprietorship. As a sole proprietor, you get to keep all the business profit. But you are also personally liable for the business debts and other risks.
Plus, the business tax liabilities also fall on the owner under a sole proprietorship business model. you can go for sole proprietorship If it’s just a small streetside cafe, . Given that you aren’t partnering with other stakeholders, it’s the proper small cafe business structure to follow.
Here’s how you consider if a sole proprietorship is what you should go with –
- What’s the amount of your business risk tolerance?
- Do you have the investment to set up and operate the legal structure?
- What is the tax advantage?
- Consider the liabilities if your business were to go bankrupt.
- Assess the capital required to set up your business (including incorporation).
Before you settle down on sole proprietorship, know your risk tolerance. The business and the owners don’t have any legal boundaries, meaning you’ll be responsible for the risks and enjoy the rewards. Plus, sole proprietors struggle a lot to get funding for their businesses.
2. General Partnership
A general partnership is basically sole proprietorship with two or more members. Each business partner is supposed to contribute to the business.
Their contribution includes investment, expertise, connection, etc. In return, they enjoy the profit and must share the loss responsibilities. Their profit, loss, and tax liabilities are measured as per their stakes in the business.
You can consider the following question before choosing a general partnership as your preferred business model.
- Are you comfortable sharing the profits and losses of your business with others?
- Do you want more than two people heading the business front?
- Would you consider others to invest in your business as business partners?
Usually, having business partners helps you loosen up lots of responsibilities and stress. Plus, disagreement between business partners can often cause crisis. It’s best to decide the different aspects of the business you and your partner will handle.
A general partnership can be a good business structure for a small cafe that’s not small enough for a single owner.
3. Limited Liability Company (LLC)
You can also register your cafe under an LLC or Limited Liability Company. Owners have several benefits, like liability protection, simplified management, tax advantages, and so much more.
Owners can combine the benefits of a corporation and a partnership Through a limited liability company. LLC cafe structure sets it up as an independent business entity.
So, the owners can protect their personal assets safely. It’s a combination of the limited personal liability feature of a corporation and the tax liabilities of a partnership.
The paperwork involved in an LLC is relatively less. Plus, the startup costs for LLCs are also not too high.
However, before you choose your cafe startup as an LLC, evaluate the benefits and the risks. Here are a few questions to help you understand its feasibility.
- Do you want the liability protection advantages that come with an LLC?
- Are you willing to have a cafe business structure with the benefits of a corporation?
- Do you want to separate your business and personal liabilities?
However, there are some cons to an LLC as well. When some of the business members leave, the remaining ones are left to fulfill their obligations before closing the business. Also, the business must pay self-employment tax on the income of an LLC.
Consider all these aspects before choosing an LLC as a preferred structure for your cafe business.
4. C Corporation
Since we are talking about small cafe businesses, a C corp generally isn’t the business structure you should go for. A C corp has different shareholders who get stocks when they invest. Under C corp, businesses and owners have separate tax liabilities.
Plus, a C Corp requires an immense level of paperwork and compliance with intricate regulations. In addition, the regulations require businesses to have a minimum of $10 million in assets to file for a C Corp structure. So, if you are just opening a small cafe in your town, you won’t need a C corp structure.
But, if it’s a chain of cafes/ or bakeries, then a C corp might be worth the choice (provided your business meets all the regulations).
As a corporation, a business enjoys several benefits, such as –
- The owners can keep their personal and business liabilities separate.
- It’s easier to raise funds by selling stocks.
- Tax filing can be done separately.
Cafe/bakery businesses with chains across states can be incorporated as C corporations. It’s crucial to note that the cost, time, and expenditure needed for a C-corp incorporation are immense. Plus, in some cases, C corps must pay taxes twice (taxes on dividends).
Consider all these points before choosing C Corp for your cafe business.
5. S Corporation
S corporation is another legal business structure for small businesses and is popular for small cafes. Entrepreneurs in the cafe industry can benefit from the several features of an S Corp.
An S corp brings you the potential for tax savings.
Owners can avoid double taxation by forming an S corp. Plus, you can avoid double taxation for C corporations and enjoy different deductions like health insurance premiums.
Plus, the level of flexibility available in an S corp business allows owners to shift between structures if needed. They can change their business structure into a C Corp or an LLC without changing ownership. In addition, they also don’t have to pay taxes on their capital gains. Plus, you enjoy the liability protection of an LLC through an S Corp.
Final Thoughts
The business structure for your cafe dictates the risks, benefits, tax liabilities, and more for a cafe business. If it’s a small cafe operated by you, you can choose sole proprietorship. But ambitious entrepreneurs with dreams of expanding can choose an S Corp thanks to its flexibility. If you want fewer hurdles and better liability protection, an LLC for the cafe business would be the right choice. Consider all your options well before finalizing a structure for your business. It’s best to get help from business counselors or accountants.
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