The Ninth Circuit Court of Appeals in San Francisco has recently ruled that Yelp can revise, edit and prioritize business reviews based on advertising money that the site receives from the business.

This high profile ruling really destroys the veil of impartiality that Yelp was benefitting from for all these years.  Now its crystal clear that Yelp may (although they have not admitted that they did) delete bad reviews for a restaurant that places an ad on its site and similarly delete positive reviews given for a restaurant that refuses to place ads on the Yelp site.

Seems that this is a real wake up call for all of us (myself included) who thought that Yelp reviews were not being edited, deleted or possibly even created by Yelp itself.

There are a two ways to buy a restaurant in New York. You can do it by purchasing the ownership shares of the seller or you can purchase the assets of the seller. Each has its advantages and disadvantages in New York but an asset purchase is almost always more beneficial for the buyer. With an asset purchase, the buyer is only assuming certain specified liabilities of the seller. With a purchase of the ownership shares (stock certificates if seller is a corporation and membership interests if seller is a Limited Liability Company), the buyer will be assuming ALL of the liabilities of the seller, known and unknown. In either scenario, a lien and judgment search must be performed on the seller’s business.

GENERAL RULE: Buy the restaurant by means of a bulk asset sale / purchase rather than a purchase of the ownership shares.

You must review the existing lease carefully to determine if the seller is able to assign it to you. If they are able to assign it, you must determine whether the existing clauses are acceptable to you including the term remaining on the lease, the rent amount, the security deposit, the personal guaranty, etc. If they aren’t able to assign the lease, the landlord needs to be contacted to inquire if they are willing to let the tenant off the hook and issue a new lease directly to you.

The purchase agreement, which will either be a stock purchase agreement or bulk asset purchase agreement, will need to state all of the terms of the sale including, but not limited to, the purchase price, the amount being held in escrow, the amount to be paid at closing, the specific assets being purchased, the date for closing, any contingencies to closing (e.g. liquor license granted to Buyer), and any personal representations and indemnifications. A Bill of Sale should accompany the purchase agreement along with a corporate resolution from the seller authorizing the sale. Remember, even with an asset purchase agreement, the buyer will be responsible for any unpaid New York State sales tax owed by the seller. This is why it’s very important to (i) file the appropriate bulk sales notice (form AU 196.10), (ii) have the seller personally represent that no taxes are owed and have him/her agree to personally indemnify the buyer for any unpaid taxes, or other liabilities, that were incurred on or before the closing date, (iii) set the closing date to occur after a tax release letter is received from the New York State Department of Taxation stating that no taxes are owed, and/or (iv) have a large portion of the purchase price held in escrow until the release letter is received from the Department of Taxation. This article is intended to give you a general idea regarding what to look out for but you should retain an experienced restaurant attorney if you are considering purchasing a restaurant or bar in New York.

They both afford the owner(s) the advantage of limited liability and are both pass through entities for tax purposes (i.e. The entities both declare their profits and losses on the individual owners tax returns without the need for the entity to pay a separate tax for such income). Given the strong similarities between the two entities, choosing amongst the two is often a difficult task. As such, as a restaurant and bar attorney in New York, I am repeatedly asked this question by clients.

GENERAL RULE: Choose a Limited Liability Company over the other choice of entities when opening a new restaurant, bar or hotel in New York.

While the two have very strong similarities, they are not without their differences. For example, S-Corporations are subject to stringent corporate formalities such as holding annual corporate meetings, keeping the minutes of the meetings, appointing corporate officers to serve, and issuing corporate stock to owner’s which may often be difficult to sell and/or transfer. In contrast, an LLC does not require annual meetings, appointing officers, the recording of meeting minutes, or the issuance of stock. Moreover, profits and losses distributed by an LLC need not be made in proportion to ownership share. However, in contrast, if an S-Corporation owner owns 50% of the shares, he/she MUST receive 50% of the profits and/or losses.

Additionally, the amount of S-Corporation shareholders cannot exceed 100 and all must be U.S. citizens or permanent residents. An LLC does not have these restrictions either.

A downside to forming an LLC is the publication requirement. Within 120 days after the filing of the initial articles of organization, notice must be published once each week for six successive weeks, in two newspapers of the county in which the office of the LLC is located (one newspaper to be printed weekly and one newspaper to be printed daily; both need be designated by the county clerk). If the LLC is located in New York City, this publication will cost about $1,100.00. By contrast, an S-Corporation does not have any publication requirement. This publication cost is the main disincentive to choosing an LLC when doing business in New York, but in the end, if you plan on being in business for the next 10+ years, given the flexibility of the LLC entity, this additional cost is worth it.

The New York City Mayor’s Office published a terrific guide that should be read by all individuals that own, or plan to own, a restaurant in NYC.  It’s a terrific resource for the basics of NY restaurant ownership.  Here’s the link to the guide:

http://www.nyc.gov/html/records/pdf/govpub/2737nycrestaurantguide-81606.pdf