Restaurant deals almost always involve some mix of:

• A chef or operator contributing sweat and expertise,
• One or more money partners, and
• Maybe a landlord, advisor, or brand partner in the background.
  
  

If you don’t define who owns what — and why — you’re setting yourself up for resentment and litigation later. Let’s talk about structuring equity in a way that’s fair, realistic, and legally sound.

Define the Core Players and Their Contributions:

Start with a simple table:

• Operator/Chef: Time, concept, recipes, daily management, reputation.
• Capital Partners: Cash, credit, guarantees, connections.
• Others: Advisors, early employees, landlords who receive equity as part of a deal.

Then ask yourself: “If this restaurant vanished tomorrow, who lost what?” The answer should inform how you split the cap table.

Founders’ Equity vs. Investor Equity

Founders’ Equity: Usually includes the operator, key partners, and sometimes an early investor who was there from day one.

Investor Equity: Capital investors may:

• Put in money in exchange for equity, preferred returns, or both.
• Have limited voting rights but strong economic rights (e.g., a preferred return on their investment before profits are split).

A typical pattern in independent restaurants: founders retain a controlling stake (e.g., 60–80%) and investors share the remaining equity, often with a preferred return until their capital is recouped.

Sweat Equity and Vesting for Working Partners

If someone is contributing sweat instead of cash, consider vesting:

• Equity vests over time (e.g., 4–5 years) or based on milestones (opening, performance targets).
• If the partner leaves early, some or all of their unvested equity is forfeited back to the company.
• This protects the restaurant from a partner walking away after year one with a permanent, large ownership stake.

You can also structure “profits interests” (for LLCs) that give economic upside without full ownership of capital.

Preferred Returns and Waterfalls

Clear economic rules prevent fights over distributions:

• Preferred Return: Investors receive a set return (for example, 6–10% annually on their contributed capital) before common equity participates in profits.
• Return of Capital: Investors may get their capital back before profits are split.
• Waterfall: Define the order in which cash is distributed:
  1. Operating expenses, taxes, reserves
  2. Preferred returns
  3. Return of capital
  4. Remaining profits split by percentages

Put the waterfall in the operating agreement or shareholders’ agreement, not in everyone’s memory.

Control vs. Ownership

Owning 30% doesn’t automatically mean you control 30% of decisions.

• Control is defined in your governance provisions — who serves as manager or director, what requires investor approval, etc.
• Investors may have veto rights over “major decisions” (sale, new debt, additional locations) even at a minority ownership stake.
• Working partners often retain operational control day to day, subject to those major-decision protections.

Dilution and Future Rounds

Restaurants often need more money than originally planned. Plan for that:

• Will current owners have the right to participate in future capital raises to avoid dilution?
• What happens if they can’t or won’t?
• Are there caps on how much dilution founders can suffer before certain protections kick in?

A simple pro rata rights section can prevent major disputes later.

Conclusion

Equity in a restaurant is more than just a percentage — it’s a reflection of risk, contribution, and control. Documenting these concepts up front, in legally enforceable agreements, keeps everyone aligned when the business is busy and stress is high.