An operating agreement (for an LLC) or shareholders’ agreement (for a corporation) is where you and your partners decide how the relationship really works. Without it, New York’s default rules step in — and those rules weren’t written with an NYC restaurant in mind.
Here are ten clauses every restaurant operating agreement should address.
1. Capital Contributions and Capital Calls
- How much is each partner required to contribute at the start?
- Can the company call for additional capital later?
- What happens if a partner doesn’t meet a capital call (dilution, penalties, or loss of rights)?
2. Profit, Loss, and Distribution Rules
- Are profits split strictly by ownership percentage, or are there special allocations?
- How and when will cash distributions be made?
- Will the company make tax distributions so owners can pay income tax on their share of profits?
3. Roles, Responsibilities, and Decision-Making Authority
- Who is the “managing member” or manager?
- What decisions can they make alone (hiring, menu, vendors) vs. those requiring a vote (new locations, loans, lease changes)?
- Are there regular reporting requirements (monthly financials, annual budgets)?
4. Major Decisions and Veto Rights
Identify “Major Decisions” that require owner or investor consent, such as:
- Selling the restaurant or its key assets
- Signing or amending the lease
- Taking on material new debt or guarantees
- Issuing new equity, changing the business concept, or approving large capital expenditures
Spell out what percentage vote or whose approval is required.
5. Restrictions on Transfer and New Partners
- Can an owner sell or gift their interest freely, or do other owners have a right of first refusal?
- Are there restrictions on transfers to competitors or unknown third parties?
- How are new partners admitted, and at what valuation?
6. Buy-Sell and Exit Provisions
Address what happens if:
- An owner dies or becomes disabled
- An owner wants to leave voluntarily
- An owner is terminated for cause or breaches the agreement
The agreement should include:
- Valuation rules (formula, appraisal, or agreed method)
- Payment terms (lump sum vs installments)
- “Good leaver” vs. “bad leaver” distinctions, if appropriate.
7. Non-Compete, Non-Solicit, and Confidentiality
Within the limits of New York law, consider:
- Reasonable non-competes (time, geography, and scope) to protect the restaurant from a departing partner opening next door with the same concept.
- Non-solicitation of employees and key vendors.
- Confidentiality provisions regarding recipes, processes, and financial information.
8. Intellectual Property Ownership
- Who owns the restaurant name, logo, recipes, website, and social media accounts?
- Is IP owned by the company itself or a separate holding company?
- What happens to that IP if a partner leaves?
9. Dispute Resolution and Deadlock
- If there’s a tie vote or deadlock on a major issue, how is it resolved?
- Mediation or arbitration before court?
- “Shotgun” buy-sell provisions or tie-breaker mechanisms?
Having a roadmap for disputes reduces the chances that a disagreement becomes a business-killer.
10. Books, Records, and Information Rights
- Who keeps the books, and what accounting method is used?
- How often do owners receive financial statements?
- What rights do minority owners have to inspect books and records?
Transparency is one of the best tools you have to avoid partner mistrust.
Conclusion
A strong operating agreement doesn’t just satisfy a legal requirement — it keeps the partnership functional when things get stressful. For restaurant owners, that means fewer blowups, more stability, and a business that’s easier to grow or sell.
