Seneca CollegeBUSINESS LAW380

Mike Smith has owned and operated a restaurant for the last 10 years. After the outbreak of Covid 19, he is no longer able to open his dining room to serve food to his customers for an indeterminate amount of time. Customers of his restaurant have always been able to order takeout food over the phone or online. To date, Mike has never bothered to incorporate his restaurant (named "Super Delicious Diner"). Mike has 10 employees that work for him (i.e. Cooks, waiter/waitress, door greeter, etc.). He has three years left on his lease for the restaurant, which he personally signed for. The rent is $3,000 a month. Mike is not sure what to do. He is thinking about closing his restaurant for good, but is also contemplating carrying on with his takeout business hoping the pandemic will end soon and he can go back to running his restaurant in a normal way with his dining room full of customers. He is also aware that once Toronto adopts Phase 3, he will be able to partially open his dining room.Mike has also noticed that last month another restaurant just opened with the name "Delicious Dinner" and Mike feels that the restaurant is stealing his customers using a similar name.

Discuss the legal issues of both staying open and closing the restaurant permanently.  Discuss Mike's personal liability with respect to both opening and closing the restaurant.  Also address any legal issues regarding the restaurant located down the street with the similar name.

Answer:

Here the legal issues when the restaurant is kept open will be with regards to protecting the business by suitably incorporating it. It should be noted that a corporate entity functions like a 'going concern'. Going concern is an accounting term for a company that has the resources needed that are needed to enable it to operate in for an indefinite period of time. It also refers to the company's ability to stay afloat. In case the restaurant is kept open then it should be incorporated immediately and this will provide it with the ability to raise necessary funds that are needed to help it cope with the situation that has been created by the COVID pandemic. The legal issues of closing the restaurant permanently will be with regards to the legal contracts that have been entered by the restaurant with its 10 employees and with the lease contract for the place on which the restaurant is run.

Mike's personal liability when the restaurant is kept open will be the liability to pay wages to all the employees and the liability to pay monthly rental as per lease agreements. As the restaurant is not incorporated Mike will be personally liable for all payments. Here the restaurant will be regarded as being run as a sole proprietorship and hence Mike will have an unlimited liability for all the operational exposure of the restaurant. Mike's personal liability with regards to closing the business will be with regards to any unpaid dues of the restaurant. If, at the time of closure, there exists any dues on the part of the restaurant, that has not been paid then Mike will have an unlimited liability and he will have to pay the dues from his personal assets if required.

The legal issues with regards to the new restaurant located down the street with the similar name is that the new restaurant is using a similar name as Mike's restaurant and this use of similar name is, most likely, for the purpose of capitalizing on goodwill of Mike's restaurant and furthering its business interest by attracting more customers to its restaurant by piggybacking on the popularity of Mike's restaurant. Thus Mike can take immediate legal action against 'Delicious Diner' and prevent it from using a similar name as that of Mike's restaurant.