Incorporating a restaurant: get the corporation before the lease

The lease is the reason the corporation comes first

Restaurants carry the harshest failure math of any small business, and the single largest obligation is the lease. Signed personally, it follows you for the full term even after the doors close; signed by a corporation, your downside is whatever you separately guaranteed and nothing more. That difference is the whole argument for incorporating before site selection gets serious, because assigning a personally held lease to a corporation later requires the landlord's consent — and landlords use consent requests to reopen terms.

The same logic covers everything else you sign in the build-up: the fit-out contract, supplier accounts, the POS agreement, and any franchise agreement. Every one of them should name the corporation, which means the corporation has to exist before the pen moves.

What the shield covers — and the guarantees that punch through it

The corporation stands behind insurance, not in front of it. Slip-and-fall and food-safety claims hit your policy first; the corporate shield matters for what exceeds coverage and for trade debts nobody guaranteed. It does not cover everything: directors remain personally liable for unremitted source deductions and HST, which in a cash-tight restaurant is exactly the money that gets borrowed from first. And once you incorporate, make sure the insurance policies name the corporation as the insured — coverage still written in your personal name is a gap hiding in plain sight.

Then there are the guarantees you sign on purpose. Almost every new restaurateur personally guarantees something, so the realistic goal is scope, not refusal: a guarantee limited to the first 18 to 24 months of the lease, capped at a set number of months' rent, burning off after a clean payment history. Keep a list of every guarantee you have signed and negotiate them down at each renewal — most owners forget what they guaranteed until the worst moment to find out.

Licences attach to the operator — set the entity before applying

An Ontario liquor sales licence from the AGCO is issued to the legal entity operating the premises, and municipal business licences and health-unit records follow the same principle. Open as a sole proprietor and incorporate a year later, and each of those has to be transferred or re-applied for — with the liquor licence carrying real revenue risk if timing slips. Incorporating first means every licence is issued to the right entity once.

Buying an existing restaurant sharpens the point. An asset purchase means licence transfer applications that belong in the closing timeline, not after it; a share purchase keeps the licences sitting undisturbed inside the corporation, but you inherit that corporation's history, debts, and CRA account along with them. The licence convenience of a share deal has to be weighed against the diligence burden it brings.

From one location to a group

Once the first restaurant holds real equity, the standard structure is one corporation per location: a failed second opening then costs its own company instead of dragging down the profitable original. Above the operating companies, a holding company can hold the trademark and accumulated cash, moved up as tax-free intercorporate dividends and out of reach of location-level claims. The costs are honest — a T2 for every corporation, and one $500,000 small business limit shared across the associated group — which is why we structure for a group only when a second location is actually in sight. Some groups add a management company for the central kitchen, head-office staff, and shared purchasing, charging each location a fee — genuinely useful at three locations, expensive clutter at one and a half.

Franchisees of American brands carry one more layer: royalty and fee payments to a US franchisor raise withholding and gross-up questions that live on our cross-border tax page for restaurant owners.

Source: Alcohol and Gaming Commission of Ontario.