At a Glance
Why does entity structure matter for restaurant owners?
Choosing the right entity helps balance liability protection, tax efficiency and long-term growth goals, especially in an industry exposed to claims, tip and overtime rules and expansion complexity.
Which entity types are most common for restaurant businesses?
LLCs, partnerships, S corporations and C corporations each offer different advantages related to liability protection, taxation, ownership flexibility and capital raising, making the right choice highly fact specific.
How can entity selection affect payroll and self-employment taxes?
Certain structures, such as S corporations, can reduce self-employment tax exposure by separating reasonable wages from profit distributions, while others, like partnerships, generally subject earnings to self-employment tax.
Should multi-unit restaurant groups operate under one entity or several?
A single LLC can reduce administrative costs, while separate LLCs for each location can better isolate legal risk and provide cleaner unit-level reporting, though at higher compliance costs.
How do recent tax law changes influence entity decisions for restaurants?
Provisions under the One Big Beautiful Act, including permanent QBI deductions and 100 percent bonus depreciation, can meaningfully impact the tax efficiency of pass-through and corporate structures through 2028 and beyond.
Restaurant owners know food service, but choosing the right entity structure can often be supported by experienced accounting and tax guidance. The restaurant industry brings unique considerations beyond standard tax planning: liability exposure (such as slips, falls and foodborne illness claims), the tax treatment of tips and overtime and the complexities of multi-unit operations and franchising, among others.
In July of 2025, passage of the One Big Beautiful Act (OBBB) changed and extended several tax provisions that can affect the after-tax outcomes of different entity options, adding another layer to an already nuanced decision. Given the number of factors involved, now may be an ideal time to consult an experienced accounting professional who can help you align your structure with your long-term growth and profitability goals.
Choosing an Entity Type for Your Restaurant Business
Restaurant owners can structure their business in several ways. There are two layers of determining the best structure for a restaurant. First, the owner must decide how to structure the entity from a legal perspective. While many restaurant entities are structured as a Limited Liability Company (LLC), please consult legal counsel on all options, including but not limited to LLC, general partnership, limited partnership, or limited liability partnership.
- Sole Proprietor: A sole proprietorship may be a good fit for owner-operators (or franchisees, as long as the franchisor does not require another entity type). By default, a sole proprietorship is treated as a pass-through entity, with gains, losses, credits and deductions flowing through directly to the owner on schedule C of their personal tax return form 1040.
- Partnerships: A partnership is generally a pass-through structure with two or more partners (including partners that file a joint personal form 1040), with self-employment tax typically paid on net earnings through the partners’ personal returns. One advantage is flexibility: it can be easier to admit a new partner or change ownership percentages compared to other entity types.
- S corporations: An S corporation may provide savings by limiting self-employment tax exposure: owners are paid wages (subject to payroll taxes) based on a reasonable salary, while additional profits may be distributed. An S corporation is limited to a certain type and number of shareholders (generally no more than 100).
- C corporations: Shareholders of a C corporation generally do not pay self-employment tax. However, C corporations are subject to corporate income tax, and shareholders may also pay tax on dividends or wages paid (often referred to as “double taxation”). C corporations must have a board of directors and comply with more formal requirements than other entities. That said, C corporations may find it easier to raise capital and are often preferred by franchisors and investors. For that reason, they can be a common fit for larger restaurant groups or businesses planning to expand or seek outside investment.
Restaurant Groups with Multiple Units
Restaurant owners should also consider the implications for multi-unit groups, particularly whether to operate under a single LLC or to form a separate LLC for each unit.
- Single LLC: Multi-unit restaurant groups that operate as a single LLC can benefit from one payroll system and a single set of books and tax returns, which can reduce accounting costs. Potential drawbacks include complexity when bringing investors into a single location, challenges with selling a single unit (although an asset sale can be straightforward), and broader exposure if a liability claim arises at one unit. In some cases, a holding-company structure, one LLC that owns the assets of multiple subsidiary LLCs, can help mitigate risk.
- Multiple LLCs: Using a separate LLC for each unit can help isolate risk, protecting the broader group from a legal issue at a single location. Separate entities can also provide cleaner unit-level profit and loss reporting for investors and can simplify location-specific vendor relationships, leases and loans. A significant downside, however, is increased accounting and compliance costs associated with multiple tax returns and annual filings.
OBBB Implications for the Restaurant Industry
While we have already written about the changes brought by OBBB, an overview can still be helpful for owners evaluating entity options. Several provisions relevant to restaurants originated under the Tax Cuts and Jobs Act of 2017 (TCJA) and were extended under OBBB.
- Qualified business income (QBI) deduction: The 20% QBI deduction for owners of pass-through entities became permanent. This lowers the effective tax rate for qualifying businesses operating as a sole proprietorship, partnership or S corporation.
- 100% bonus depreciation: Regardless of entity type, the OBBB makes 100% bonus depreciation permanent for qualifying property—often including major restaurant investments such as ovens, refrigerators and other equipment.
- No Tax on Tips: Workers such as servers and bartenders can deduct up to $25,000 in qualified tips from their federal income tax each year through 2028 (subject to an income threshold). However, deducted tips remain subject to FICA.
- No Tax on Overtime: Workers can claim a tax deduction of up to $12,500 annually on overtime pay. The deduction applies only to the “premium” portion of overtime (for example, the extra 0.5 when overtime is paid at 1.5 times the regular rate). Payroll taxes and state and local taxes still apply, and like the tips deduction, this provision is set to expire after 2028.
As noted in our earlier article, two other TCJA provisions, the Work Opportunity Tax Credit and the Empowerment Zone credit, were not extended by OBBB.
In Conclusion
Depending on the lifecycle of a restaurant business, one entity type may be more appealing than another at different stages, and restructuring may be possible with professional guidance. For example, the owner of a new single-unit restaurant may find a sole proprietor or S-Corporation to be the best option, while rapidly growing restaurant groups with financing needs may select a partnership. Owners of each structure can take taxable guaranteed payments, taxable W-2 earnings and/or distributions depending on the ultimate entity structure. There are, of course, many other scenarios.
Ultimately, each business owner must define their goals, along with their growth and exit strategies. Windham Brannon’s accounting professionals have worked with restaurant owners to align tax, accounting and liability considerations with those objectives. We welcome the opportunity to learn more about your vision and are available to help. Contact Andrew Jones with any questions.
