This article is a quick guide to opening a restaurant or a bar in New York, that reviews the most important legal and bureaucratic aspects of this process. Once you have developed your concept, found the desired location and drafted your business plan, you can move on to dealing with the technicalities associated with opening a food establishment or similar in New York. This article can also be useful advice to open a restaurant or bar elsewhere in the United States.
Corporation or Limited Liability Company (LLC)
Forming a business entity under the American laws is the first step towards opening a food establishment or a bar in the United States. Conducting a business as a legal entity allows its shareholders or members to protect their investment and keep it separate from their personal assets. Thus, the company’s creditors may only go after the company’s assets and the shareholders’ personal assets will be shielded against their claims or actions.
Forming an entity under the American laws is also essential to enter most of the commercial agreements required to get the business started, such as, for instance, lease agreements, assets purchase agreements and various insurance policies. The best suited legal entities to operate a restaurant or similar are the corporation and the limited liability company. For further information regarding the differences between these two types of entities read our article: U.S. Business entities. LLC vs. Corporation.
Employer Identification Number and Sales Tax Certificate
Once the company is formed, the first step is to obtain the Employer Identification Number (EIN) and the Sales Tax Certificate. The EIN, somehow similar to the european VAT number, allows the United States tax authority (Internal Revenue Service – IRS) to identify a business for tax payment purposes.
The Sales Tax Certificate is the permit to collect the sales tax from customers on certain transactions. The sales tax must be paid to the State approx. every four months. The sales tax only applies to certain types of purchase, including meals consumed in a restaurant.
Currently, in the state of New York the sales tax is approximately set at 9% of the transaction value. EIN and Sales Tax Certificate are a prerequisite to obtaining the majority of the administrative permits and licenses necessary to operate a restaurant in the United States, including food establishment permits and liquor licenses.
Location & Commercial Lease
If you are planning on opening a brand new restaurant in New York or in the rest of the United States, it is highly recommended to hire a real estate broker specialized in commercial spaces for lease. The broker will select a wide range of options in line with your needs and budget. Once the right location has been found and an offer has been placed, the landlord will perform the due diligence on the financial standing of the prospective tenant, as well as on the tenant’s business experience in the food and hospitality industry.
A landlord, indeed, will not be inclined to start a long-term business relationship with a tenant who doesn’t show sufficient financial standings and experience in this field. Commercial lease agreements in the United States, and especially in New York, are lengthy documents (approx. 60 to 100 pages including attachments) containing lots of technicalities that require the attention of a specialized attorney. Lease agreements are always subject to intense negotiations before the parties can close the deal. For more details on this topic, see our post Affitti Commerciali negli Stati Uniti.
Purchasing an Existing Business:
Another option is to purchase an existing restaurant, as opposed to building it from scratch. First thing is to determine whether your company is allowed to take over the lease agreement in place between the landlord and the legal entity from which the business will be purchased. Assigning the lease agreement to a new tenant is always subject to landlord’s prior approval.
If the prospective tenant does not show adequate financial standing or sufficient experience in the hospitality industry, the landlord will most likely disapprove the assignment. If the landlord’s consent to the assignment is obtained, the current tenant and the prospective one may move forward with the sale of the business: the most commonly used legal instrument to achieve this result is the Asset Purchase Agreement, a contract whereby the buyer only purchases the assets, but not the liabilities, of the business up for sale.
Restructuring the Premises
In most cases, some construction and remodeling activities will be required before opening the premises for business. Hiring an architect at this stage is crucial. The architect will design the premises according to your specifications and will submit the renovation plans to the Department of Building and other city departments for approval. Once this step is completed, the General Contractor will take care of the actual build-out of the space.
Like everywhere else in the world, the relationship between the business owner and the General Contractor is never an easy one. Therefore, it is of the utmost importance that this relationship be regulated by a written contract. The most commonly used version of the agreement between the business owner and the General Contractor in the United States is provided by The American Institute of Architects (AIA). The owner should protect its own interests including in the agreement a liquidate damage clause in the event the delivery of the space ready for business gets postponed as a consequence of delays imputable to the General Contractor. Such provision allows the business owner to get a monetary compensation that will offset the losses resulting from a delayed opening.
Food Service Establishment Permit
Before opening to the public, a Food Service Establishment Permit is required. Such permit is issued by the Department of Health (DoH) of the city of New York. Initially, the DoH will conduct a preliminary inspection of the premises, in which any violations of the food safety regulations will be reported and corrected at no charge for the owner. At this point, the Food Service Establishment Permit will be issued and the food may be served at the premises.
Later on, without any prior notice, the DoH will conduct a new inspection in order to assign a “grade” to the restaurant based on its hygienic conditions and compliance with food safety regulations. Grades range from the letter “A” (perfectly in compliance with law) to the letter “C” (which means that one or more violations to the said rules have been found). The grade must be displayed on the storefront for the customers to see it. The DoH conducts periodic inspections, generally on an annual basis, in order to confirm or change the grade previously assigned.
The DoH requires that at least one employee in possession of the Food Protection Certificate be attending the restaurant operations at all times. A good rule of thumb, for obvious reasons, is to have at least two or three employees in possession of such certification.
NYC Liquor License
Obtaining a permit to sell alcohol (commonly referred to as liquor license) in the state of New York is a quite complex and time-consuming process. The authority in charge to issue new liquor licenses in New York is the New York State Liquor Authority (NYSLA) The ABC Law (Alcohol Beverage Control Law) governs the liquor license process and sets forth the general policies of the State of New York with respect to the sale of alcohol. The first step toward obtaining a liquor license for your restaurant or bar in New York is, in most cases, to appear before the local Community Board, which will review your application and issue a non-binding opinion of denial or approval to be later submitted to the NYSLA for the final decision. Community Boards in New York City may be more or less inclined to issue a favorable recommendation depending on the area of the city in which the restaurant or bar is set to operate.
In the State of New York, unlike other states, the number of liquor licenses that may be issued is not contingent upon the number of people residing in a given area, instead the matter is regulated by another set of rules, such as the 500 Foot Rule, according to which, typically, no more than three on-premise full liquor licenses (those that allow to sell spirits in addition to beer & wine) are permitted within 500 feet of each other. The restriction dictated by the 500 Foot Rule, however, is not absolute and may be overcome by showing, at a special hearing referred to as the 500 foot hearing, a specific public interest that may allow more than 3 premises in possession of a full liquor license to coexist within 500 feet of each other.
Being represented by a liquor license attorney throughout this entire process can make the difference between the approval and the rejection of your application.
You can enter the United States on a ESTA or on a B-1 visa to carry out the activities required prior to the opening for business, such as researching the location for your restaurant, attending meetings with brokers, attorneys and other professionals, negotiating and executing commercial agreements. However, if your intention later on is to move to the United States and work in your restaurant, a non immigrant visa such as the E-2 visa will be required.
This visa may be issued to those who make a substantial investment in a commercial enterprise in the United States. Also, the E-2 visa may be granted to citizens of those countries, such as Italy, that maintain specific commercial treaties with the United States. The investment made in the American commercial enterprise must be “substantial”. It should also be proportionate and sufficient to support the type of business that you are willing to conduct.
While there is no minimum investment threshold, it’s unlikely that an E-2 visa application will be approved unless the investment is equal to or in excess of $80,000 – $100,000. Beneficiaries of the E-2 visa can be both the investors and their employees, provided the employees have the same nationality as the investor and are hired to cover executive or managerial positions.
The E-2 visa has a duration of 5 years, but can be extended without limitations as long as the initial conditions continue to exist. The spouse and minor children may accompany the E-2 visa holder and reside legally in the United States. The spouse may be authorized to work wherever he / she wishes, while the children may only attend school. For more information regarding the E-2 visa and other visas available to reside and work legally in the US, please read our article Immigration to USA. E-1 Visa and E-2 Visa.
Hiring Employees in the United States
The employment relationship in the United States is strictly “at will”. This means that the law allows the employer to discharge an employee (and, similarly, an employee to resign) without cause or prior notice. As a result, hiring and discharging restaurant staff in New York and in the United States is a relatively simple operation. As it’s equally simple for employees to resign without notice, having replacement staff always ready when needed is essential to maintain an unchanged level of workforce.
For 2019 the minimum hourly basic pay of a waiter in New York City is set at $14.50, of which $4.50 may come from tips. Overtime work must be paid 1.5 times the basic hourly rate excluding tips. Tipping does not constitute a legal obligation for the customers, but restaurant owners and employees typically expect the customers to tip 15-20% on the price of the meal.
Registering Your Trademark
Before developing the trademark that will identify your restaurant business in the United States, it’s highly recommended to conduct a preliminary research for trademark clearance purposes to prevent conflicts and confusion with other existing similar marks in the near future. In the United States it’s absolutely common, even for small to medium businesses, to protect their own trademarks filing an application for registration with the United States Patent and Trademark Office (USPTO).
Registering a trademark is not strictly required in order to obtain legal protection against third party infringements (a trademark in the United States is protected by the mere fact of using it in commerce before anyone else does) but it is extremely recommended to enjoy the extended legal protection afforded by the registration with the USPTO. For a general overview of the trademark registration process in the United States see our article on the topic: How to Register a Trademark in the United States.
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How to register a trademark in the United States?
Trademarks often are the most important and valuable assets for a business, in that they identify the origin of the products or the services put in the stream of commerce by a certain company.
Through the trademark, the customer is able to associate certain products with a specific company, and to distinguish them from those sold by the competitors. Customers rely on a trademark to identify a product and to understand its general characteristics, such as value, quality, price, durability, reliability etc.
A trademark confers upon the owners the exclusive right to use such trademark in connection with a product or a service. In the United States generally trademark rights belong to the person who first uses the mark in commerce, as opposed to other countries where trademark rights arise upon registration.
In the United States, at the federal level the United States Patent and Trademark Office (USPTO) is the federal agency that regulates the trademark registration process and enforce the trademark rights together with the Courts, even though in different ways.
As noted above, since in the United States trademark rights belong to the first one using the mark in commerce, registration of the mark is not mandatory to protect same from third parties’ infringements. However, the registration of a trademark with the USPTO provides significant benefits to the owner, such as:
- Prima facie evidence of ownership of the mark
- Nationwide use of the mark
- Strong remedies for infringement such as treble damages and attorney’s fees
- Incontestability of the use of the trademark after five years of the registration
- Right to use ® in connection with the mark
- Basis to register the mark in other countries
- Right to prevent the import of infringing goods via the US Custom
REQUIREMENTS FOR TRADEMARK REGISTRATION AND LEGAL PROTECTION
Use in commerce. A trademark is granted protection if it is used in commerce. However, it is allowed to apply for registration of a trademark even though the trademark is not yet used in commerce at the time. In this case, within 6 months of the Notice of Allowance issued by the USPTO, the applicant is required to provide evidence of the use of the mark in commerce by submitting a specimen of use (see infra). This six-month deadline can be extended for five times for a period of six month each, then if no evidence of use in commerce is provided, the application will be disapproved.
Distinctiveness. A mark cannot be generic but must be distinctive enough to identify the product as coming from a specific source. If a mark is distinctive, it can be registered in the Principal Registry of the USPTO and benefit from full statutory protection. Perfect examples of distinctive marks are made up words that cannot be found in the dictionary, such as Kodak, Nikon, Exxon, Pepsi, Xerox. These kinds of marks enjoy full and immediate protection from the USPTO. Another category is represented by words of common meaning that have no relation whatsoever with the products or goods for which the registration is sought. The most popular instance of these types of marks is “Apple”, which associates a fruit to personal computers, phones and other similar products. If a mark, instead, is merely descriptive, it may be registered in the Supplemental Registry and acquire full protection after a certain period of time during which such kind of mark acquires distinctiveness (so called “secondary meaning”) as a result of intensive advertising etc. A mark is descriptive when it only describes the characteristics of a product. Examples of merely descriptive marks are “Cold & Creamy” for an ice cream, or “Beef and Beer” for a restaurant. If a mark is simply generic, it cannot be ever entitled to protection. Examples of generic marks are “orange” for oranges, “shoes” for shoes etc. Such marks will never be capable of being registered. A trademark may also become generic over time and thus lose legal protection. This happens when a mark has become so popular that its name, with the time going by, has started to identify the product itself rather than its source. Typical examples of marks that became generic are Xerox, Velcro, Aspirin, Jet Ski, Thermos and so on. When a mark becomes generic, it can no longer enjoy legal protection from infringement even if registered. A company which trademark became generic cannot prevent other entities to use the same trademark in commerce for their products. In such cases, it is up to the company to put in place an intensive advertising campaign so that the customers may go back to associate that certain mark not with the product itself but with a product manufactured by a specific company.
Likelihood of confusion. Two identical or similar marks in the same class of products or services cannot coexist nor can they be registered with the USPTO at the same time. Two trademarks are considered “confusingly similar” if there is a good chance that a customer may be led to believe that the products associated with them come from the same source. There is no likelihood of confusion if the two conflicting marks distinguish products belonging to two different industries. A mark may be similar to another in many ways: (i) similarity as to the words; examples: Hypnotiq for liqueur and Hopnotic for beer. Woody Stout, Woody Wheat, and Woody Brown Ale for beer. Frickin’ and Flip’n Chicken for restaurant services. Alair for medical devices for the therapeutic treatment of pulmonary diseases and Holaira for medical devices for the treatment of obstructive lung diseases. (ii) similarity in appearance and design; (iii) similarity in sound: examples, Seycos vs. Seiko, Entelect vs. Intelect; Cana vs. Canya; Kresco v. Cresco; (iv) similarity in meaning. Examples: Mr. Clean vs. Mr. Rust; Thirty Forty Fifty vs. 60 40 20; Pledge vs. Promise.
Deceptive Marks. A deceptive mark improperly conveys a misleading description of the good or services. Example: the trademark TITANIUM was refused registration for vehicles that do not contain titanium. SILKEASE was deemed deceptive for clothes not containing silk.
Person’s Names. A living person’s name cannot be registered as a trademark except with the person’s written consent.
MARKS. DIFFERENT TYPES
A mark may consist of words, phrases, symbols, designs and combination thereof. A trademark may also include sounds, smells, colors, shapes. A trademark may be a domain name and a trade name, as well as a trade dress (feel of the product, its packaging and labeling).
Service Marks. Service marks refer to trademarks which identify a service rather than a good. There is no difference between service marks and other types of marks as to registration process and legal protection.
Certification marks. Certification marks certify that a certain product meets specific requirements or standards set forth by the certifying entity. The mark is not used by the certifying entity itself, but only by third parties to sell products or services that meet the requirements established by the certifying entity.
Collective marks. Collective marks belong to an organization and may be used by the members to distinguish the products of the members from those of the non-members. Similarly to the Certification Marks, however, the collective mark shows that the members are in compliance with certain specification established by the organization.
THE USPTO REGISTRATION PROCESS
Trademark clearance should be conducted by the owner before the commencement of the registration process and consists of a search of other marks that are potentially conflicting with the prospective mark in the same industry. One first light search should be conducted, at minimum, on the USPTO database and on Google. As the case may be, a more thorough search should be conducted on existing registrations or applications for similar marks to better evaluate the risk connected with the registration of a certain trademark.
Once the trademark clearance is completed and the results show that a mark may be eligible for registration, this is when the application process with the USPTO starts. If the mark meets the main requirements described above (distinctiveness, no likelihood of confusion, no deception etc.) it should be eligible for registration in Principal Register. Registration in the Principal Register confers upon the owner of the mark full legal protection and all the benefits previously discussed.
If a mark is deemed to be descriptive, it may still qualify for registration in the Supplemental Register, which grants the owner of the mark a limited legal protection compared to the Principal Register. In presence of a merely descriptive mark, the examining USPTO attorney may propose to amend the application and register the mark in the Supplemental Register, otherwise the application may be disapproved. According to some opinions, the continuous use of the mark for a period of five years should be considered automatic evidence of acquired distinctiveness, even though in most cases the examining attorney will require additional evidence of acquired distinctiveness, such as evidence of notoriety, advertisements of the mark, and statements from third parties certifying that the mark has become popular enough to identify the goods or services at hand.
A trademark application may be filed on line visiting the USPTO website. Paper applications are still permitted but they are highly discouraged, also in terms of the higher fees associated with them.
The application includes, first, the general information regarding the applicant. Then the description of the mark should be provided. As noted above, typically a mark consists of words, designs or a combination thereof. If a trademark is a combination of words and design, a jpg file containing the drawing of the mark should be uploaded to the website. Otherwise it will suffice to just type in the words that represent the mark. If the words contained in the mark are not in the English language, a translation should be provided no matter the language in which any given word has a meaning. This is not a secondary aspect, because if the applicant fails to indicate the translation an additional fee may be charged on the applicant upon the examining attorney’s review.
At this point, the applicant is required to indicate the class of goods or services which the mark is supposed to cover. There are 45 standard categories of goods and services pursuant to the Nice Classification, and it is up to the applicant to choose the preferred classification for the goods or services which the mark refers to. The same good or service may be included in multiple classes. For each class under which the registration is sought a minimum fee of $225.00 will be charged by the USPTO.
After indicating the classes under which the mark should be registered, the applicant is required to choose the filing basis for his application. As previously noted, while the USPTO requires that the owner provide evidence of the use of the mark in commerce, it is however possible to file an application based on the intent to use the mark in the near future (i.e. intent-to-use application). In any such case, after a 6 month period from the issuance of the so called notice of allowance by the USPTO, the applicant is required to provide evidence of use in commerce filing a specific form containing one or more specimens relating to the goods or services for which registration is being sought (so called Statement of Use).
Accepted specimens could be tags, labels, images of the goods where the mark is displayed, advertisements, web pages, business cards and much more. Of course, any of those specimens have to clearly display the mark at hand, which should match the mark displayed in the original drawing.
Another basis for filing is an existing application or registration of a mark in a foreign country under Section 44. In any such cases USPTO does not require evidence of use, at list in the beginning. The foreign country must be a party to the WIPO Paris Convention.
Examination by the assigned trademark attorney
Typically, after three months of the filing, a USPTO examining attorney assigned to the case will review the application and will issue his/her determination as to the eligibility of the proposed mark for registration. The examining attorney will check whether the application meets the requirements, whether the mark is distinctive and if any likelihood of confusion may exist.
If the examining attorney has objection to the registration of the proposed mark, he / she will issue a response to the applicant (Office Action), typically via email. At this point, the applicant has a six month strict deadline to respond. Certain office actions, mostly those based on failure to meet formal requirements, may be quite simple to respond to and generally a quick amendment to the application will be enough. Other office actions, specifically those based on descriptiveness and likelihood of confusion, require that the issue at hand be addressed by an attorney’s formal response containing legal arguments in order to overcome the examining attorney’s objections. Before serving a response, it is a very good practice to reach out to the examining attorney over the phone and try to understand what he / she is exactly looking for and to get helpful tips as to how to draft the document. Once received the applicant’s response, after a certain time the examining attorney will issue a final determination which could result in the approval or refusal of the application. In case of refusal, the applicant is entitled to file an appeal with the Trademark Trial and Appeal Board (TTAB), and, if he outcome doesn’t change, with the US Federal Courts.
Publication and Opposition
If the examining attorney approves the application, the mark for which the registration is sought will be published in the Official Gazzette of the USPTO. At this point, within 30 days of the publication any interested party may file an opposition which most likely will be brought by owners of other marks claiming likelihood of confusion. The opposition proceeding will be administered by the TTAB. In the majority of cases the parties will reach an agreement to settle the dispute before the opposition proceeding comes to an end. Most typically the parties will enter into a Trademark Coexistence Agreement which will allow both parties to use their confusingly similar marks with certain reciprocal limitations.
If no opposition is filed within 30 days of the publication, the trademark can be registered and an official Certificate of Registration will be issued to the applicant.
As previously noted, in case of intent-to-use based applications, if no opposition is filed the USPTO will issue a Notice of Allowance, which must be followed by the Statement of Use as previously described. If the Statement of Use is accepted by the office, the application may proceed to registration.
In order to keep the registration alive, the owner is required to file with the USPTO: (i) a Declaration of Continued Use or Excusable Nonuse or a combined Declaration of Continued Use and Incontestability, between the fifth and the sixth anniversary of the registration (the latter is permissible only for marks included in the Principal Register); (ii) a renewal application every 10 years (the first time between the ninth and the tenth anniversary of the registration). Each of these filings must be accompanied by a fee.