There’s no question about it: the food truck industry is booming. While food trucks are certainly a popular choice for burgeoning entrepreneurs, they also involve many unique legal considerations. Below is a summary of some of the most common legal issues facing food truck owners.
- Choosing a legal entity.
One of the first decisions for all food truck owners is choosing the right type of legal entity to launch and grow a successful business. Here are some factors to consider when choosing a legal structure: whether an entity choice exposes the owner to personal liability for business debts, formality, amount of paperwork, taxation, and costs associated with formation and other filing fees.
The most common entity choice for food trucks is the limited liability company (LLC). An LLC involves fewer start-up costs than a corporation and also keeps the business owner’s personal assets separate from the debts and liabilities of the business. Other options include corporations, sole proprietorships, and partnerships. Sole proprietorships (for one owner) and partnerships (for 2 or more owners are automatically formed in Michigan and do not require filing any documents. By contrast, certain paperwork must be prepared and filed with the State to form an LLC or corporation.
There are pros and cons associated with each entity. If you plan to form a food truck business, you should consult with an experienced business attorney who can explain these pros and cons and guide you in choosing the legal structure best suited to grow your business and achieve your goals.
- Inconsistent municipal regulations.
Despite the recent surge in popularity of food trucks, the food truck industry is still pretty new. This novelty has created some issues with inconsistent municipal regulations. Food trucks are generally regulated at the municipal level, but many municipalities have been slow to adapt to the rapidly increasing popularity of food trucks. As a result, rules and enforcement efforts often vary significantly from one community to the next.
Communities that have adopted food truck ordinances usually regulate the permitting process, location of food trucks, parking restrictions, waste receptacles, signage or lighting requirements, and much more. Unfortunately, many cities that have not yet adopted ordinances that provide a clear legal framework for food trucks looking to operate in their jurisdiction. This lack of uniformity is often confusing and frustrating for food truck owners and municipal officials alike.
It is advisable to contact an attorney to thoroughly review all local zoning requirements for the location(s) in which you plan to operate a food truck. If the community does not have an ordinance that specifically addresses food trucks, that attorney can work with the city’s zoning or planning department to figure out how to operate and regulate food trucks in a way that is satisfactory for all parties.
3. Licensing and permitting.
Like any other business, food trucks require certain licenses and permits in order to lawfully operate. These permits may be required at the municipal, county, and/or state level. Some common permits include a business license, health permit, signage permit, and zoning permit.
In Michigan, a food truck owner will need to complete a Food Service License Application and submit it to the Michigan Department of Agriculture & Rural Development. The owner also needs to contact the County Health Department for any additional licensing requirements. As noted above, food truck owners or their attorneys should also contact the municipality to check if there are any city-specific permitting and licensing requirements, whether that municipality has an ordinance directly regulating food trucks or not.
Also keep in mind food truck owners need to register and license the food truck as you would any other motor vehicle and make sure anyone driving the food truck has a valid driver’s license. It is possible the driver may need to obtain a commercial driver’s license.
- Raising capital.
One of the benefits of operating a food truck is that, generally speaking, start-up costs are much lower than a brick-and-mortar restaurant. Still, start-up costs can vary widely depending on a food truck owner’s specific plans.
Food truck owners have several options to fund their business: funding the venture yourself, obtaining traditional bank funding, taking out loans from friends or family, partnering with venture capitalists or angel investors, or even using crowd-funding platforms. If you plan to take out a bank loan or seek funding from investors, you should include detailed calculations in your business plan so lenders and investors know you’re serious about the business and also know exactly the amount of start-up capital you need.
- Protecting the brand.
A food truck’s most valuable asset is its business name. It’s the name plastered on your truck, in the local media, on your Facebook page, Twitter, Instagram, and that you’ve spent thousands of dollars and countless hours developing.
Many business owners think that going through the time and expense of filing a trademark application is unnecessary, especially when the business is new and likely cash-strapped. This could not be further from the truth—protecting your brand off the bat is a strategic move to protect your long-term business interests and substantial financial investment.
To secure federal trademark rights to your business name and/or logo, you need to apply for a trademark with the U.S. Patent & Trademark Office (USPTO). By registering a trademark with the USPTO, you reserve nationwide rights to your mark. This protects the business name, prevents competing brands from creating a business with a confusingly similar name, and makes it much easier to expand the business in the future. Be sure to contact a skilled intellectual property attorney to assist you in this area.
The business attorneys at Dalton & Tomich plc are uniquely equipped to advise food entrepreneurs on all aspects of forming and operating a food truck business. If you currently own or have plans to open a food truck, feel free to contact us to help guide you through these legal challenges.