Licensing Requirement for Operating a Restaurant - Coursework Example

Licensing Requirement for Operating a Restaurant Introduction Licensing is a critical requirement prior to commencement of restaurant operations. Licensing constitutes giving permission as well as the document recording the granted permission (Becker 12). The licensor authorizes the licensee to carry out a business activity, which would otherwise be forbidden in the absence of the license. Government authorities give restaurants licenses upon paying of a required fee by the licensee and proving the capability to do the proposed business. Licenses are valid for a particular period of time after which carrying out the business will be considered illegal. The licensee should periodically renew the license for them to continue being in operation. A restaurant license allows the prospective restaurateurs to operate within a certain locality; without the license, the business can be fined or closed down altogether(Knezevic and Assaf 392). Requirements for licenses and permits vary from state to state; the most common requirements include employer identification license, business license, foods and establishments permit, liquor license, and local permits. The Role of Small Business Administration in Restaurant Licensing The enactment of the Small Business Investment Act of 1958 officially allowed Small Business Administration to license Small Business Investment Companies (SBIC) to help in managing and financing businesses in the United State of America (Pizam 23). The SBA’s Small Business Investment Companies program is still live and active and continues to license small businesses across the United States. Despite the criticisms, the Small Business Administration has greatly assisted small businesses to make steps in their development processes. Small Business Administration provides extensive information and links regarding obtaining a business license. Restaurant applicants can also check with their local government with their state offices for specific regulations; the SBA website provides all state licensing divisions to enable prospective restaurants with easy license (Sherry 54). Among the information contained in the SBA website include federal licenses and permits, state licenses and permits and tools that can help businesses to determine the types of licenses they need for particular types of business. Types of Licenses Necessary for Restaurant Operators in the USA Employer Identification Number Restaurant businesses require several employees to serve their customers. The servers need to operate within the purview of law in order to avoid legal liabilities. This necessitates restaurant owners to have Employer Identification Numbers (EIN). Employer Identification Numbers are essential to the government and the International Reporting Standards for proper business identification and appropriate collection of taxes (Sherry 57). The government is supposed to collect taxes from the restaurants operators, business partners, and employees. The Employer Identification Number is issued within a particular state. Restaurant operators can apply for state EIN by mail, online or fax. The online application is accessed through visiting the IRS website. The period between application and issuance is usually between two and five weeks. Business license Operating a restaurant requires the owners to be in possession of the business license. The business licenses are state-regulated and they allow restaurant operators to run businesses within specified jurisdictions. The restaurant that carry out any type of activities that the federal government monitor and regulate are required to have a federal business license. Federally monitored and regulated activities include sale of alcohol and transport of plant and animal products. The primary purpose of business licensing is to help the government control and monitor businesses in the states in order to avoid sprouting of illegal businesses (Baum 21). The restaurants must operate within the licensed activities, otherwise the operators will be forced to close the business and fined. Foods and establishments permit Food service establishment permit is one of the most essential types of restaurateur licenses. The name for this type of license varies from state to state since it is referred to as food handler’s permit. The main purpose of this certification is to prove that the owners and operators of the business including their employees have completed all the required food safety, packaging, preparation, and sanitation training before beginning to operate the restaurant (Baum 29). This certification is critical because it ensures that both owners and employees of the restaurant understand the basic requirements of sanitation and food preparation. The restaurant establishments, especially the kitchen area, are subject to frequent inspections by local health departments as a requirement for obtaining food service establishment permit. Inspection is beneficial because it reminds operators to adhere to high health standards to avoid spread of diseases associated with dirtiness and food contamination. Music License Restaurant establishments need to play music in order to entertain their customers. This compels these establishments to process a music license. A music license is a permit that allows restaurants to play a copyrighted music. Musicians have copyrights for their music that limit playing the music in the public settings without the permission of the producer. The copyright law was enacted as one of the intellectual rights to prevent restaurants from entertaining their guests using musicians’ work of arts without recognizing them. The music license is necessary when the restaurant intend to play music from compact discs, hold karaoke nights, or contract the services of a DJ (Sherry 34). The revenues collected from the music licensing are used to support the musicians in developing their careers. Liquor license Restaurants that plan to offer alcoholic beverages need to be in possession of at least one liquor license. Legal selling of alcohol requires the operators to apply for a state-issued liquor license regardless the area or location of the outlet. Depending on where the operators live, they can apply for a city or county liquor license too. The government has also passed several regulations regarding types of liquor licenses required for specific purposes. For example, beer and wine license allows restaurant operators to serve only beer and wine. This license limits serving hard alcohol from these establishments (Sherry 55). A class D license permits serving of any type of liquor as long as the license is valid. Regulations applying to each type of liquor license differ across provinces, counties, and states. Each license should indicate the time, venue, and maximum sale of liquor. This specification is crucial since it helps the government to approximate the amount of consumption in a given state. The licensing also helps the government to limit the amount of liquor consumption in the country through supervising the amount consumed in each liquor establishment. Costs and requirements for liquor licenses differ across the country; however, the local liquor control commission can direct the prospective liquor operators to appropriate agencies to give information regarding all legal and fee requirements for obtaining the license. The prospective operators should select the area where they are interested in operating and consult the commission for liquor control to offer further directions. License holders must follow all the terms and rules of the license to avoid suspension, revocation, and fines for non-compliance (Becker 12). Most states and provinces specify identification regulations in determining the eligibility of patrons. Local permits Depending on the area of restaurant operation, operators may need to process certain local permits before opening the restaurant business. There are areas that allow only certain amount of businesses within specified perimeters. This is one of the strategies of limiting duplication of efforts, cutthroat competition, oversupply of one type of product and congestion of businesses. Areas characterized by excessive businesses are sometimes associated with crimes and increased environmental pollution. The federal government and states try to limit the defects associated with congestion of restaurant business by restricting the number of licenses to selected suppliers (Becker 17). A zoning permit is required in such instances for a prospective operator to establish a business in a particular perimeter. If an operator wants to build a new setting or rehabilitate an existing restaurant, they may require a building permit. Some cities and counties in the United States require a permit for a restaurant to install alarm systems and erect signage. This implies that prospective restaurant operators need to consult their cities and county departments to obtain the licenses and permits that suit their needs. Business Benefits of Licensing Publicity Rights The restaurant with a business licenses gives the operators an opportunity to talk about their businesses in the public. The license provides the restaurant operators with the prestige and aura of stability to the business that attracts both customers and investors. The license enables the restaurant operators to approach customers and potential investors since they are able to share the licensing information (Knezevic and Assaf 391). The operators confirm that they have invested in the business and are dedicated to the success of the company. Customers and investors need this confidence in order to adopt the services of the restaurant and invest their finances in the business respectively. Tax Rights A licensed business is the characteristic of a separate entity from the owner and operators. This implies that the company’s taxes are filed separately from the owner’s taxes. While this makes it possible for the operator to file separate tax returns, it also provides them with an opportunity to make nontaxable deductions that they might not be able to deduct in their personal taxes. Additionally, separating business and personal taxes make it easier to report income and business losses without any difficulty (Knezevic and Assaf 391). Without licensing, these would not be possible since the business and owners would not be considered separate entities. Personal Protection Use of personal name in the business adds the personal element of the owner to the company. This exposes the business owner to the damages or injuries caused by the business. Additionally, using the personal name in the business puts the assets of the personal assets at risk if the owner were personally liable to damages or injuries caused in the course of the business. In contrast, a licensed restaurant protects the owners against specific types of liability (Pizam 29). The personal property and finances of the owner would not be a stake in any settlement if damages were to occur because of the business actions. Similarly, if the owners of the restaurant were personally liable for causing injuries or damages, the business finances would not be susceptible to legal liabilities for settlement of the damages. Regardless of the fact that various types of licenses offer various levels of protection, licensing generally separates the owner from the business and protects each of them from the legal liabilities of the other. Access to Information Information is a crucial requirement for survival of any business. A licensed business provides the owner with access to certain groups that they may not be able to join or participate is they were operating unlicensed businesses. A restaurant needs to access a wide range of information such as technological advances in tourism management, unique foods introductions, and new market niches (Baum 29). Companies such as better business bureau, investment groups, and all business-oriented organizations cannot permit owners of restaurants to join if their establishments are not licensed. Business groups usually desire to deal with the business as opposed to the owner. A licensed business proves that it has the capacity and it is a separate entity from the owner. Protection of Personal Privacy Operating a licensed protects the personal information of the owners. The personal and confidential information of the owners of the restaurants is strictly concealed from the public under a licensed business. When a business is tied with the owner’s name, almost everyone can access the personal information of the operator such as their address, phone numbers and financial status (Baum 33). Licensing ensures that the owner is separated from the business and maintains their privacy. Privacy is critical because it minimizes chances of criminal activities against the owner due to public exposure. Conclusion Licensing is a primary requirement before beginning restaurant operations because it gives the business a status of a legal entity after meeting the required criteria. Small Business Administration helps small businesses to identify the license requirements for their businesses and provides further licensing information in their website. Restaurant operators possess various types of licenses such as employment identification number, business license, foods and establishment permit, music license, liquor license, and local permits. The benefits of business licensing include publicity rights, tax rights, personal protection, ease access to information and protection of privacy. Works Cited Baum, Tom. Hospitality Management. Los Angeles: Sage, 2011. Print. Becker, Elizabeth. Overbooked: The Exploding Business of Travel and Tourism. , 2013. Print. Knez?evic?, Cvelbar L, and Albert Assaf. "Privatization, Market Competition, International Attractiveness, Management Tenure and Hotel Performance: Evidence from Slovenia." International Journal of Hospitality Management. 30.2011 (2011): 391-397. Print. Pizam, Abraham. International Encyclopedia of Hospitality Management. Oxford: Butterworth-Heinemann, 2010. Print. Sherry, John E. H. Legal Aspects of Hospitality Management. Chicago, Ill: National Restaurant Association, Educational Foundation, 1994. Print. Read More