Virtual restaurants are food businesses that exist only on an online platform. A virtual restaurant offers a new way for existing restaurants to reach a large number of potential diners, without the hassle of opening separate premises.
If you set up a virtual restaurant, you will have a separate brand and menu from your existing physical shopfront. Diners for your virtual restaurant will only be able to order through an online platform.
Setting up a virtual restaurant gives you a chance to tap into a market of diners who may, for example, live in suburbs without many dining options.
Starting a virtual restaurant that operates out of your existing restaurant’s kitchen is an effective and relatively simple way to reach these customers. This article sets out the key legal steps involved in starting a virtual restaurant.
Distinguishing Your Virtual Restaurant from Your Existing Business
When you start a virtual restaurant, you will continue running your existing restaurant as normal. However, you will need to think about (and respond to) gaps in your local market in ways you may not have needed to for your existing restaurant.
For example, if your research reveals that your area lacks a good Thai restaurant, and your existing restaurant serves Vietnamese cuisine, you may be in a great position to apply your knowledge, ingredients and equipment to a virtual Thai restaurant that fills this gap. However, it is important to distinguish your existing Vietnamese restaurant from your new virtual Thai restaurant.
Ensuring your existing restaurant and your new virtual restaurant have their own brand identities will protect the:
- goodwill you have built up in your existing business;
- assets of the existing business; and
- brand of the existing business.
Creating a new brand will also allow you to customise your new restaurant branding to attract new customers. It is a relatively painless process to distinguish your new virtual restaurant from your existing business. There are two key steps:
- apply for a business name for your virtual restaurant; and
- apply for a trade mark for your virtual restaurant.
Applying for a trade mark for the new restaurant is crucial – it gives you the exclusive right to use the name. Applying for a business name is an obligatory legal step, but it does not give you the same legal rights to exclusivity as a trade mark. Since you will be running a virtual business, your goodwill will be built up through brand recognition. This means coming up with a great name, and legally protecting it early.
Business Structure and Tax Considerations
The simplest way to set up a virtual restaurant is to stick with your existing business structure (restaurants usually have a Proprietary Limited (Pty Ltd) company structure). You can then just register a business name and trade mark for your new virtual restaurant.
This strategy – operating your new virtual restaurant under the same business structure as your existing restaurant – means the way you deal with your tax should not change drastically.
You will simply be returning the income (and claiming all relevant deductions) in relation to the virtual restaurant, in the same way you would if you ran two separate (physical) restaurants within the same entity.
Tax may be a little more complex if you run the virtual restaurant from the same premises as your existing restaurant, but with different owners. It could also be complicated if your existing restaurant is not structured in a tax-efficient way. Finally, dealing with tax could become difficult if you choose to set up an entirely new business structure for your virtual restaurant.
Depending on your local council’s requirements, and state or territory’s licensing laws, starting your virtual restaurant may affect your existing licences. Food businesses in Australia are generally regulated at a local council level, which means there can be many differences in licensing rules from one suburb to the next. You should check these requirements with your local council, however there are a couple of issues to keep in mind:
a) Business Structure
You may choose to set up a new business structure for the virtual restaurant (rather than simply applying for a business name and trade mark under your existing entity). If so, the new and separate legal entity may need a separate licence.
b) Alcohol Licences
In some states and territories, different licences are required to:
- serve alcohol in a restaurant;
- serve bottled alcohol for takeaway; or
- sell alcohol online.
If your existing business already sells food and alcohol online, your existing alcohol licence may cover your new virtual restaurant’s activities. However, if you plan to sell alcohol online through your virtual restaurant, you will need to apply for a licence.
If your existing business does not change between your existing restaurant and your virtual restaurant, then your insurance requirements may be unaffected. You generally need to obtain new insurance policies, or update existing insurances, if:
- you hire additional employees (you may need a higher cap on your workers’ compensation insurance);
- your business changes significantly (e.g. you change from a cafe to an all day restaurant serving alcohol); or
- you purchase expensive new equipment.
Check with your insurance broker to determine whether your current suite of insurances can cover your new virtual restaurant.
Starting a virtual restaurant is a great way to reach new diners using your existing resources, without the hassle of opening new premises. Opening a virtual restaurant provides an opportunity to fill gaps in the market by offering a cuisine that is otherwise not available. This gives you a great chance to establish a strong brand without much existing competition.
When establishing your new virtual restaurant, the key legal considerations are:
- ensuring the new business is easily distinguishable from the existing business by registering a business name and trade mark;
- checking your local council’s licensing requirements and state or territory’s alcohol licensing laws; and
- speaking with your insurance broker to ensure your existing insurances are appropriate.
You may also need to speak with your accountant or a tax lawyer about tax considerations if:
- you establish a new legal structure for the virtual restaurant; or
- your existing structure is not tax efficient.
Overall, establishing a virtual restaurant is a prime opportunity to take advantage of online platforms and access new potential customers. Ticking off the key legal considerations above is a great way to lay strong foundations upon which to build your new virtual restaurant.
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