11. Legal and safety – International

Overview

In this module, we look at the law as it relates to your business and your kitchen. We examine the following topics:

• Step by step guide to setting up a catering business in the US
• Register a DBA
• Business license
• Foodservice establishment license
• Food handler’s permit
• Seller’s license
• Reduce your liability by setting up a corporation
• Trademarks
• Insurance
• Safe food handling
• Canadian requirements
• Australian Regulations

Step by step guide to setting up a caterering business in the US

Below is a table of actions you must take to become a caterer in the US. There then follows more detailed advice for each step.

Bear in mind that local and state requirements differ. So you should ask at your city hall what legal steps you must take to become a caterer. Use the headings in Table 11.1 to prompt the officials.

Table 11.1 Legal requirements for catering

Register a DBA

DBA stands for ‘Doing Business As’. You must have this unless you trade in your own name. In many states, you register a DBA with your State Department of Commerce.

A DBA is required of all businesses that are not corporations, limited liability companies or limited partnerships. (These businesses register their names within their Articles of Incorporation or Organization or within their Certificates of Limited Partnership. See item 6 in Table 11.1. See also ‘

Reduce your liability by setting up a corporation

’ below.

Why Are Businesses Required by Law to Register?

Registration protects the business owner so the owners' business name cannot be legally used by another business. This registration provides you with the exclusive use of your exact business name. The more you use it and become known to the public by name, the more legal protection your name earns against "predatory encroachment" by other businesses.

Registration is required by law to let the public know who owns or stands behind a business entity. You cannot file a lawsuit in court as a business if your business is not registered.

Cost and Registration

You can register your business either in person, by fax or by mail. Some states charge $20 for a renewable three-year registration for a DBA.

If you use a limited liability company or limited partnership, your DBA will cost $50.

Finding out if a name is available

To determine if a name is available for a business to use, contact the State Department of Commerce (sometimes in a Division of Corporations and Commercial Code).

This records all the names registered and used by businesses in the State. If you can't visit the Division in person, you can receive most of the information you will need over the telephone, or through the Commerce website.

Business license

Once you have a DBA, you can get a business license from your city or county. The business license is a legal requirement.

The business license provides a public record of every company in the area.

Foodservice Establishment License

If you cook from home, you will need a separate kitchen. And it will have to be inspected and licensed by your city or county Health Department.

The inspectors will check out the type of cooking equipment you use, your refrigeration and ventilation systems, and cleanliness of the facilities.

Despite the claim that America is ‘the land of the free’, US legislation for caterers is extremely strict and restrictive.

All kitchens that prepare food for the public must be inspected and licensed.

NOTE: A home-based bakery may be exempted, but the products and ingredients must be kept separate from those used by the family. The State Department of Agriculture may require a copy of the recipes you intend to use, as well as a flow chart of the process!

Few domestic kitchens conform to state licensing requirements. For example, the regulations typically involve the following:

• The kitchen you use for catering must be separate from your own domestic kitchen.
• Solid self-closing doors must separate the commercial kitchen from the rest of the house.
• Standards must be at the same level as commercial premises.
• You must have three or four separate sinks, for food washing, utensil washing and hand cleaning.
• The room must have approved water and sewage supplies and plumbing.
• Equipment and food contact surfaces must meet the State regulations (sometimes found in the State’s ‘Sanitary Code’).

By way of example, the New York Department of Health outlines its procedures at: http://www.ci.nyc.ny.us/html/doh/html/rii/index.html

Solutions to the home-based kitchen problem

1. You can cook in your kitchen without approval. This is risky, because people will tell the authorities about you. They can then fine you, or even prevent you from operating as a business in the future. We advise against doing this.
2. You can set up a kitchen in your garage. This can cost $35,000 to $100,000. If you take this route, you’ll find it hard to recoup the money from your profits. But it can be achieved, using second-hand equipment, especially if plumbing and electricity is already in place and the Inspector is not too bureaucratic. You should submit plans for the work to the Health Department before starting work, in case the layout is deemed faulty.
3. You can cook in your client’s kitchen. This is entirely legal.
4. You can hire a licensed premises. This includes town halls, leisure centers, and church halls. You can hire them by the hour. This is a sensible and low-cost solution.
5. You could pay to use another caterer’s kitchen. You can put an ad in the local paper, as follows:
6. You can set up a kitchen in a warehouse district of your city. This could be expensive, for in addition to the rent you’ll have to build the kitchen.

Food Handler’s Permit

Many states require caterers to be licensed. This often means going on a Food Protection course and getting a Certificate to prove it. They last 8-24 hours, and in some states you can even do the course by distance learning.

By law, there must always be someone with a Certificate while the kitchen is in use.

Seller’s license

You will need to contact your State Board of Equalization about getting a seller’s license. You will need a DBA for this. The seller’s license provides you with a Resale Tax ID number.

This means you don’t have to pay tax on the goods you buy. But you will have to collect tax off your clients, which you pay quarterly to the state and city.

It may be that your State does not impose a sales tax, in which case you won’t have this problem.

Reduce your libility by setting up a corporation

There are three main ways to set up your business:

• Sole proprietor
• Partnership
• Corporation

We examine each of these possibilities next.

It may seem a bit academic to discuss whether you should be a sole trader or a corporation. But the bank, accountant and the taxman will be deeply interested in this.

And in the unlikely case of your going bust, the law would check the structure of your business (to see whether it could take your personal possessions).

So let’s have a quick look at the three main types of business:

Sole proprietor

As a sole proprietor, your business bank statements will say, ‘Frank Jefkins, doing business as Total Catering’.

It’s a good way to start because there are minimal legal requirements, which means much less record keeping, and less involvement with lawyers, accountants and the IRS.

You and the business are the same entity, so any profits you make are taxed as personal income.

But the disadvantage is that you’ll be liable for all the debts incurred in your business. So if you ended up with debts the company couldn’t pay, your creditors (the people you owe money to) would try to carry off your television and your car.

Banks quite like sole traders because they know you’re personally liable for the company’s debts. If they want to call in your overdraft, and you haven’t got the money to repay it, they can take your possessions.

This unlimited liability is not an ideal situation to be in, because you could lose everything. For example, if a wealthy customer sued you for $1m for making his guests sick, and you had no insurance, you ‘d be personally liable for that debt. That’s why many people opt for a corporation.

Limited company

A limited company means that your personal liability is strictly limited. Creditors can only take company owned goods, nothing that belongs to you personally. But in practice, the banks and other lender may ask to give a personal guarantee for any company debts.

The disadvantage is that you have slightly more administration, and you have to submit more detailed accounts, which means added complication. Also, if you have a spouse who shares in the business, that person gains no financial interest from the business. Which is why we look at partnerships next.

Partnership

A partnership is suitable when there are two or more people in the business, such as a husband and wife. Or two people who work for the same employer, and who want to set up their own firm.

A partnership is like a sole trader, in that you have unlimited liability. So if your partner empties the company bank account and disappears, you’ll be left with full responsibility for the debts.

In a partnership, you share the decision-making with your partner. So your ability to act quickly is reduced.

But you should make sure that a lawyer draws up the partnership agreement. In ten years time, you may hate your partner, and the company may be worth millions. It’s in your interests to get an agreement that protects your rights. For example, what happens if your partner falls under a bus? His dependants will want to realize the cash from the business, but you may not have the money to buy them out. One solution is for each partner to set up a life assurance policy, naming the other partner as the beneficiary. This will pay for the dead partner’s half of the business.

Incorporated company

In a corporation, you aren’t responsible for the company’s debts. So if the company goes bust, the creditors can’t take your personal money. This means you can sleep more easily at night, in the knowledge that the bank can’t take your house or savings.

There are three types of incorporation: the General Corporation, S corporation, the C corporation and an LLC corporation.

For more information on making the right choice, and for easiest way to incorporate, use a specialist firm. The Company Corporation at www.corporate.com (or on the phone at 800-818-0204) has helpful advice. Each state has different requirements, and this site helps you discover what your state needs.

Another helpful site is Business Filings on 800 981 7183 and at www.bizfilings.com

More generally, The US Business Advisor provides cross-agency government advice for businesses. You can find it at www.firstgov.gov

Which type of business to choose?

You should consult an accountant about which type of business to go for. The accountant can also set up the legal arrangements for you. The main criteria are about

• Tax: How much you pay, and how long you get to pay it.
• Safety: How at risk are your possessions?
• Bureaucracy: How much paperwork you have to do.

Exercise 11.1

Visits the websites above. Write here the form of business (partnership etc) that seems to suit your situation.

Trademarks

Another way to protect your future against encroachment by competitors is to trademark your company name, company logo, a unique phrase, or product name.

One firm that will do this for you is www.trademark-usa.com or phone 800-517-9011 Ext 22. The company will also set up a corporation for you.

Insurance

You should have insurance to protect your company and your client against the many risks that a caterer encounters, including food poisoning, falls, cuts, or cancellation.

Many clients, especially corporations, will ask to see your certificate of insurance. After all, if you aren’t insured, they might become liable for the problems you cause.

And if you cater for other people without insurance, you risk paying for an error for the rest of your life.

You can buy liability insurance just like any service company. It usually costs around $300 - $500 a year for $500,000. But note that that you mustn’t violate any part of the contract, for example by cooking in a non-licensed kitchen. In such cases, the insurance company won’t pay out.

For a specialist supplier, look at Quadrant, at www.quadrant-us.com/prod10.htm

Workers compensation insurance coverage

You will also need workers compensation insurance coverage. Some people try to avoid this by claiming their staff are self-employed independent contractors. But The IRS generally believes that the people employed by caterers are employees. And therefore you must pay tax for them. This applies to an employee earning more than $500 a quarter. You should seek professional advice about this.

Alternatively you could get your waitstaff through a temporary waitstaff agency.

Another possibility is to provide the food only, and let the client organize her own waiting staff. She might use local young people, for example, or a local maid service. However, this means you have no control over the event itself. So people might remember that your catering involved shoddy service and cold food.

Next we turn to laws relating to hygiene.

Safe Food Handling

Every caterer needs a thorough understanding of food hygiene. If you have a clean kitchen, and you understand the principles of food hygiene, you won’t fall foul of the law. Some of the main points are listed in the box below.

The US Food and Drug Administration publishes the Food Code, a reference that guides retail outlets such as restaurants and grocery stores and institutions such as nursing homes on how to prevent foodborne illness.

Most local and state regulators use the FDA Food Code as a model to help develop or update their own food safety rules. So if it’s in the Code, your local regulator may expect to see it applied in your kitchen. You can get a copy at http://vm.cfsan.fda.gov/~dms/foodcode.html or by contacting the National Technical Information Service, 5285 Port Royal Road, Springfield, VA 22161; Phone 703-605-6000 or 1-800-553-NTIS (6847).

Safe Food Handling

Cook all food thoroughly. Use a thermometer

Never re-use bowls etc without first washing them

Apply the law of stock rotation: First in, first out.

Store raw meat below cooked meat.

Keep work areas scrupulously clean

Always wash your hands

Don’t cough over food

Make sure staff understand hygiene and safe food handling procedures

Buy food only from trusted suppliers

Don’t store food where rodents can get it.

Canadian requirements

Requirements in Canada are frequently similar to those in the USA.

You can find useful information about running a business in Canada at http://www.toolkit.ca

Also check out a small business magazine Canada One at www.canadaone.com

Canada One links with My Legal Answers at www.mylegalanswers.com to give you a useful run-down on subjects like incorporation, employment law, trade marks, taxes, and so on.

Australian regulations

A good starting point for Australian regulations is

www.hunter.health.nsw.gov.au/areas/hunter/phu/food%20hygiene.htm

Summary

1. You should register a DBA with your state.
2. Then you should obtain a business license.
3. If you cook from home, you will need a foodservice establishment license You won’t be able to cook in your own kitchen: you’ll need a separate kitchen.
4. The alternative is to use the client’s kitchen, use a licensed premises, or use another caterer’s kitchen.
5. You also need a food handler’s permit.
6. You also require a seller’s permit.
7. You can operate as a sole proprietor, a partnership, or a corporation. The latter involves more paperwork but reduces your liability.
8. A trademark will help you protect your company name or logo.
9. You also have liability insurance. And if you employ people you will need to pay workers’ compensation insurance.
10. Other countries have their own regulations, but the principles remain the same.
11. Safe food handling is essential, and everything is contained in the FDA Food Code.

Reminder

Have you completed the following exercises?

• Exercise 11.1
• Exercise 11.2

When you have done them, you should do the Assignment that follows.

Assignment 11

Tell your tutor how your kitchen and your business will comply with the law. Refer especially to:

• Legal basis of your business (if you have already set up a business)
• Where you will cook, and whether you will get your premises licensed.
• Kitchen processes

When you have completed this assignment, please send it to your tutor for marking. Remember to attach it to a cover sheet if you are sending it by post.

Assignment Cover Sheet

Please put your name and the date in the arrowed boxes. Then staple the sheet to your assignment, and send it to your tutor.

Your tutor will keep the lower section of this form, returning the top portion to you.

Comments:

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To be retained by tutor