The health inspector arrives during the lunch rush. A former server’s lawyer sends a demand letter claiming the tip pool was unlawful. The liquor board schedules a hearing after a sale to an underage customer. The landlord sends a default notice, and the lease is backed by your personal guaranty. A buyer offers to purchase the restaurant and asks whether the liquor license comes with it.

Each of those situations is common, and each is governed by a different body of law. A Maryland restaurant sits at the intersection of at least five:

1. Alcoholic beverages law, administered largely by local boards of license commissioners under the Alcoholic Beverages and Cannabis Article, with rules that differ from one jurisdiction to the next.
2. Wage and hour law, including Maryland’s tip credit, the federal rules on tip retention and tip pools, and county minimum wages in Montgomery and Howard Counties.
3. Food service regulation, enforced by local health departments under the State’s food service facility regulations, COMAR 10.15.03.
4. Tax law, including sales tax on meals and alcohol, payroll withholding, and personal liability rules that can reach owners and officers directly.
5. Real estate and contract law, through the lease, the personal guaranty, equipment financing, and, for many operators, a franchise agreement.

What most owners underestimate is how these areas interact. A wage claim can surface a payroll tax problem. A sales tax assessment can become a personal liability. A lease signed before permits and license approvals are in hand can leave you paying rent on a space you cannot open. And a liquor license issued in the names of individuals can complicate a partner’s exit or a sale of the business.

This guide walks through each area as it applies to Maryland restaurants, bars, cafes, and other food service businesses. It is written for owners, operators, and buyers, and it pairs with our guides on the Maryland Wage Payment and Collection Law, commercial lease review, and buying a business in Maryland.

Most restaurants operate through a limited liability company or a corporation, and that is the right starting point. But in this industry, the entity is only as useful as the documents and habits around it. Four structural decisions matter more for restaurants than for most businesses.

1. One entity per location

Operators with more than one location often form a separate entity for each. Separate entities can help contain a lease default, a wage claim, or an injury claim to the location where it arose. That protection depends on the entities actually being run separately. Shared bank accounts, commingled payroll, and cross-guaranties give a creditor arguments for reaching past the entity, a risk we discuss in our guide on piercing the corporate veil.

2. The operating agreement is also a tax document

Many restaurant LLCs operate without a written operating agreement. In Maryland, that choice carries a specific and expensive consequence.

3. Partner arrangements

Restaurants are frequently built on a partnership between a chef or operator who contributes expertise and labor and an investor who contributes capital. Those arrangements need clear answers to predictable questions: how the operator’s contribution is valued, whether the operator’s equity vests, what happens if the operator leaves, how deadlocks are broken, and how a departing owner is bought out. Our guides on business partnership agreements and buy-sell agreements address those terms.

There is also a restaurant-specific wrinkle. Because Maryland alcoholic beverages licenses are typically issued to individuals for the use of the entity, an owner’s departure is not only a matter of updating the company’s records. The license itself may need to be addressed through the transfer and substitution procedures described below.

4. Personal guaranties

Landlords, equipment lessors, food distributors, and franchisors routinely require owners to guarantee the business’s obligations personally. The entity does not protect you from what you personally guarantee. Before signing, know exactly what you are guaranteeing, for how long, and whether the guaranty can be capped or released over time. Our guide on personal guarantees for Maryland business owners explains the negotiating points.

For a full-service restaurant, the liquor license is often both a major revenue driver and one of the most valuable things the business has. It is also one of the most local areas of Maryland law. The Alcoholic Beverages and Cannabis Article contains general provisions that apply across the State and separate titles for individual counties and municipalities, and local boards of license commissioners issue and enforce most retail licenses. The practical result is that the answer to a licensing question often depends on where the restaurant is located.

Licenses are issued to people, not just companies

A Maryland license is typically issued to one or more individuals for the use of the business entity. In Prince George’s County, for example, the Board of License Commissioners’ application provides that a corporation applies through three of its officers as individuals and an LLC through three authorized persons, and that at least one of them must satisfy Maryland residency and voter registration requirements. Applicants must also complete a criminal history check before a hearing is scheduled. Other jurisdictions impose their own residency, voter registration, or taxpayer requirements.

Two consequences follow. First, the individuals named on the license carry real responsibility for what happens on the premises. Second, when a named individual leaves the business, sells an interest, or dies, the license must be addressed through the procedures in Title 4, Subtitle 3 of the Article, which governs transfers of licenses and substitution of names on licenses, together with the local rules.

What counts as a restaurant

The statewide definition in Section 1-101 of the Alcoholic Beverages and Cannabis Article describes a restaurant as an establishment that accommodates the public, is equipped with a dining room with facilities for preparing and serving regular meals, and has average daily receipts from the sale of food that exceed its average daily receipts from the sale of alcoholic beverages. The same section allows local licensing boards to adopt different standards by regulation, and local license classes can add conditions of their own, such as seating minimums.

The food-sales requirement matters more than owners expect. A restaurant that gradually becomes more of a bar can drift out of compliance with the license class it holds, and that drift tends to surface at renewal or after a complaint.

More than one location

Maryland generally limits how many licenses one person may hold. Under Section 4-203, more than one license may not be issued to an individual or for the use of a partnership, corporation, unincorporated association, or limited liability company. The statute contains an exception that allows an individual to hold more than one Class B beer, wine, and liquor license or Class BLX license for restaurants, hotels, or motels, subject to limits. Multi-unit restaurant groups should map out the licensing structure before the second location is under lease, not after.

Alcohol awareness training

Section 4-505 requires the holder of a retail alcoholic beverages license, or an employee the holder designates, to complete training in an approved alcohol awareness program, and local rules may add requirements. Keep certificates current and on file. When a violation occurs, the first question a board asks is often whether the required training was in place.

Transfers, and why the license does not simply come with the business

A buyer who purchases a restaurant does not acquire the right to sell alcohol merely by acquiring the business. A transfer to a new owner or to a new location generally requires an application to, and approval by, the local board, with public notice and a hearing.

Baltimore City illustrates how the process works. Under the Board of Liquor License Commissioners’ application process, a notice must be conspicuously posted on the property for 10 consecutive days for a transfer of ownership, a transfer of location, an expansion, or a new license, and the application is advertised. The review standard also varies. For a transfer of ownership of an operating establishment, the Board evaluates the applicant’s fitness. For a transfer of location, a new license, an expansion, or an establishment closed for more than 90 days, it considers public need and accommodation as well.

Violations, and why Maryland’s dram shop rule is not a safe harbor

Sales to underage customers and to visibly intoxicated patrons can lead to fines, suspension, or revocation of the license by the local board, and can carry separate penalties. On the civil side, Maryland has not adopted dram shop liability. In Warr v. JMGM Group, LLC, 433 Md. 170 (2013), the Court of Appeals, now the Supreme Court of Maryland, declined to impose a duty on a tavern to protect third parties from an intoxicated patron’s later conduct absent a special relationship, and indicated that any change should come from the General Assembly.

That holding is not permission to overserve. The license consequences remain. Other theories of liability, such as claims involving the conduct of security staff or conditions on the premises, are evaluated on their own facts. And a serious incident can bring a board hearing regardless of whether a civil claim succeeds. Confirm that your insurance program includes liquor liability coverage appropriate to your operation.

Wage and hour exposure in restaurants usually begins with something small: a tip pool that includes the wrong person, a tip credit taken without the required notice, or overtime calculated on the cash wage rather than the full minimum wage. Because those practices repeat every pay period for every tipped employee, a small error can grow into a significant claim, and the statutes involved allow for enhanced damages and attorney’s fees. Our guide on the Maryland Wage Payment and Collection Law explains the remedies side in detail.

The Maryland tip credit

Maryland’s minimum wage is $15.00 an hour statewide, according to the Maryland Department of Labor. Md. Code, Lab. & Empl. Section 3-419 allows an employer to count a portion of a tipped employee’s tips toward that wage, but the tip credit may not exceed the applicable minimum wage less $3.63. In other words, the cash wage may not fall below $3.63 an hour, and the cash wage plus tips must equal at least the minimum wage, with the employer covering any shortfall.

The tip credit is available only for an employee who:

• is engaged in an occupation in which the employee customarily and regularly receives more than $30 each month in tips;
• has been informed by the employer about the provisions of Section 3-419; and
• has kept all of the tips the employee received, although the statute provides that it does not prohibit the pooling of tips.

The notice requirement is where many employers fall short. If you cannot show that each tipped employee was informed of the tip credit, the credit itself is at risk for every hour it was taken. Put the notice in writing and keep a signed acknowledgment in each personnel file.

Section 3-419(d) also directs the Commissioner of Labor and Industry to require restaurant employers that take a tip credit to give tipped employees a written or electronic wage statement for each pay period showing the effective hourly tip rate, derived from employer-paid cash wages plus reported tips. Confirm that your payroll provider is generating that statement.

County minimum wages

If your restaurant is in Rockville, Bethesda, Silver Spring, Gaithersburg, or elsewhere in Montgomery County, the county rate, not the State rate, is your floor. Effective July 1, 2026, the Montgomery County minimum wage is $18.00 an hour for employers with 51 or more employees, $16.50 for employers with 11 to 50 employees, and $15.95 for employers with 10 or fewer, and tipped employees must be paid a cash wage of at least $4.00 an hour, with tips bringing total pay to at least the county minimum wage. Howard County’s local minimum wage is $16.00 an hour, with inflation-based adjustments scheduled to begin in 2027. County rates adjust periodically, so confirm the current figures each year.

The federal rules that apply on top

The federal Fair Labor Standards Act applies to most restaurants as well, and three of its rules drive a large share of restaurant claims. The regulations are collected in 29 C.F.R. Part 531, Subpart D.

• No employer or manager share of tips. Under 29 U.S.C. Section 203(m)(2)(B), an employer may not keep tips received by its employees for any purpose, including allowing managers or supervisors to keep any portion of employees’ tips, regardless of whether the employer takes a tip credit. An owner who works the floor, or a general manager who closes out the tip pool, is the classic problem.
• Who may share in a tip pool depends on the tip credit. Under 29 C.F.R. Section 531.54, an employer that takes a tip credit may require tipped employees to contribute to a pool only if the pool is limited to employees who customarily and regularly receive tips. An employer that pays the full minimum wage and takes no tip credit may include employees such as cooks and dishwashers. In either case, the employer, managers, and supervisors may not receive tips from the pool. Before adding back-of-house staff to a pool, confirm the arrangement under both federal and Maryland law.
• A compulsory service charge is not a tip. Under federal regulations, a compulsory charge for service imposed on a customer is not a tip. If you distribute some or all of it to employees, those payments are treated as wages rather than tips. That distinction affects the tip credit, payroll tax reporting, and, as discussed below, the federal income tax deduction for tips.

The federal remedy for keeping tips is significant. Under 29 U.S.C. Section 216(b), an employer that violates Section 203(m)(2)(B) is liable for any tip credit taken and all tips unlawfully kept, plus an additional equal amount as liquidated damages.

Side work and dual jobs

The tip credit applies only to hours worked in the tipped occupation. A 2021 federal rule imposed numeric limits on side work, commonly called the 80/20/30 rule. The Fifth Circuit vacated that rule in Restaurant Law Center v. U.S. Department of Labor (2024), and the Department of Labor then removed those limits from its regulations. The underlying principle remains: when an employee works a separate, non-tipped job, such as a server covering a dishwashing shift, the employer should not take a tip credit for those hours.

Overtime

Maryland’s overtime statute, Section 3-415, requires overtime of at least 1.5 times the usual hourly wage, and its list of exempted employers does not include a general exemption for restaurants. For a tipped employee, federal regulations do not allow the tip credit to increase in an overtime hour, so overtime is computed on the full minimum wage rather than on the cash wage. Applying that approach at the $15.00 State rate, the cash wage for an overtime hour is at least $11.13: $22.50, less the maximum $11.37 tip credit.

No deductions for walkouts

Section 3-713 provides that an employer may not require a tipped employee to reimburse the employer for food or beverages a customer did not pay for, and may not make a deduction from a tipped employee’s wage for a customer who leaves without paying. The establishment must also post a printed notice of that rule where tipped employees work.

The small-restaurant exclusion is narrower than it looks

Section 3-403 excludes from Maryland’s Wage and Hour Law an individual employed in a cafe, drive-in, drugstore, restaurant, tavern, or similar establishment that sells food and drink for consumption on the premises and has annual gross income of $400,000 or less. Owners of small restaurants sometimes read that as an exemption from wage law altogether. It is not. The exclusion is limited to that subtitle of the Labor and Employment Article, the federal Fair Labor Standards Act has its own coverage rules, and county wage laws have their own. Treat the exclusion as something to confirm with counsel, not something to rely on.

Sick and safe leave

Maryland’s Healthy Working Families Act, codified in Title 3, Subtitle 13 of the Labor and Employment Article, requires employers with 15 or more employees to provide paid earned sick and safe leave, and smaller employers to provide unpaid leave. Key features, as summarized by the Maryland Department of Labor:

• Leave accrues at a rate of at least one hour for every 30 hours worked.
• An employer is not required to allow an employee to earn more than 40 hours in a year, use more than 64 hours in a year, or accrue more than 64 hours at any time.
• An employer is not required to provide leave to an employee who regularly works fewer than 12 hours a week, and an employer may bar the use of accrued leave during the first 106 calendar days of employment.
• Tipped employees are paid at the full minimum wage for leave used. The statute provides that an employer may not be required to pay a tipped employee more than the applicable minimum wage for earned sick and safe leave, and the Department’s guidance for restaurant employers states that the employer must pay the employee the current minimum wage for the hours of leave used. Paying only the $3.63 cash wage for a sick day is a common error.

Montgomery County has its own earned sick and safe leave law, so restaurants in the county must comply with both the State and county requirements.

Paid family and medical leave

Maryland’s Family and Medical Leave Insurance program, known as FAMLI, is scheduled to begin collecting contributions on January 1, 2027, with benefits scheduled to become available in January 2028. Employers may withhold up to half of the contribution from employee pay. Employers with fewer than 15 employees are not required to pay the employer portion, but they must remit the employee portion if it is withheld. Restaurants should have payroll configured, and employee notices prepared, before contributions begin.

Minors

Many restaurants employ teenagers, and Maryland’s child labor rules are specific. Under the Maryland Department of Labor’s guidance, minors under 18 need a work permit, which is not issued until the minor has been offered a job. Minors who are 14 or 15 may not work more than 3 hours on any day or 18 hours in any week when school is in session, or more than 8 hours a day or 40 hours a week when it is not, and may not work before 7:00 a.m. or after 7:00 p.m., with a later limit during the summer. Minors who are 16 or 17 may not spend more than 12 hours a day in a combination of school and work and must have at least 8 consecutive hours off work and school in each 24-hour period. No minor may work more than 5 consecutive hours without a non-working period of at least 30 minutes. Local alcoholic beverages rules may further restrict what minors can do in connection with alcohol service.

Non-compete agreements for kitchen and floor staff

Some operators ask line cooks, servers, or bartenders to sign non-compete agreements. For most hourly restaurant employees in Maryland, those provisions are void. Section 3-716 makes a non-compete or conflict of interest provision that restricts an employee from working for a new employer or becoming self-employed null and void for an employee earning equal to or less than 150% of the State minimum wage, which is $22.50 an hour at the current $15.00 rate. The statute preserves protection of client lists and proprietary client information. Our guides on non-compete agreements in Maryland and trade secret protection cover what a restaurant can still protect, such as recipes, supplier pricing, and customer data.

Independent contractor classification

Paying kitchen staff, delivery drivers, or event staff as independent contractors to reduce payroll cost is a recurring source of liability. The label on the arrangement does not control. Our guide on worker misclassification in Maryland explains the tests.

The basics that still get missed

Every new hire must complete federal Form I-9 employment eligibility verification. Final pay, pay frequency, and permissible deductions are governed by the Maryland Wage Payment and Collection Law. And because restaurants are places of public accommodation under Title III of the Americans with Disabilities Act, accessibility of the premises, and potentially of websites and online ordering systems, can be a source of claims in its own right.

Food service in Maryland is regulated under COMAR 10.15.03, the State’s food service facility regulations, and enforced by local health departments. The core requirements for an owner:

• A license before you open. A food service facility must be licensed by the local approving authority before it operates. In Montgomery County, for example, the Department of Health and Human Services states that a license must be obtained prior to opening a business and that licenses expire on January 31 and must be renewed each year.
• Plan review before you build. Under COMAR 10.15.03.33, plans and specifications must be submitted to the approving authority before construction, remodeling, or material alteration. The regulation classifies facilities as high, moderate, or low priority based on how they handle potentially hazardous food, and high and moderate priority facilities must submit a HACCP plan.
• A certified manager. Local rules require many facilities to operate under a certified food service manager. In Montgomery County, a licensee may not operate a food service facility unless the facility is under the immediate control of a Certified Food Service Manager, and proof of allergy awareness training may be required.
• Inspections and enforcement. Facilities are inspected on a schedule tied to their priority, and the regulations provide enforcement procedures for violations. In serious situations, the consequences are immediate. Under COMAR 10.15.03.36, when there is reasonable cause to suspect foodborne disease transmission from a facility employee, the measures available include immediate exclusion of the employee from food handling and immediate closing of the facility until the evidence shows the likelihood of further transmission is low.

One more point that matters for buyers: health licenses generally do not transfer with the business. Montgomery County states expressly that food service facility licenses are not transferable from location to location or from person to person. A buyer should plan on applying for its own license and on the inspection that comes with it.

Restaurants collect tax on nearly every transaction and withhold tax from nearly every paycheck. That makes them custodians of money that belongs to the government, and the law treats a failure to remit it more harshly than an ordinary business debt.

Sales tax on meals and alcohol

Maryland’s general sales and use tax rate is 6%. Alcoholic beverages are taxed at 9%, and according to the Alcohol, Tobacco, and Cannabis Commission, the 9% rate replaces the 6% rate rather than being added to it. Point-of-sale systems need to apply the right rate to each item.

Mandatory gratuities have their own rule. Under COMAR 03.06.01.08, a mandatory gratuity or service charge in the nature of a tip, paid for food or beverages consumed on the vendor’s premises, is excluded from the taxable price if the food or beverages are served to a group of not more than 10 persons. Mandatory gratuities or service charges on sales to a group of more than 10 persons are part of the taxable price, whether or not separately stated. A restaurant that applies an automatic gratuity to large parties and does not tax it is creating an assessment one check at a time.

Restaurants are also buyers. Since July 1, 2025, certain software and IT services a restaurant purchases, such as some point-of-sale, scheduling, and reservation platforms, may be subject to Maryland sales and use tax, and if the vendor does not charge it, the buyer may owe use tax. Our guide on Maryland’s 3% tax on IT and software services explains the rules.

Personal liability for the business’s taxes

An LLC or corporation does not fully shield owners from these obligations:

• Sales and use tax. As discussed above, Tax-General Section 11-601 extends personal liability for an entity’s unpaid sales and use tax to specified officers and, for an LLC, to all members if there is no operating agreement or to the individuals who manage the business if there is one.
• Maryland withholding. Under Tax-General Section 10-906, withheld income tax is held in trust for the State, and if an employer negligently fails to withhold or pay it, personal liability extends to a corporate officer who exercises direct control over the corporation’s fiscal management, or, for an LLC, to any person who exercises direct control over its fiscal management, as well as to the agent required to withhold and pay the tax.
• Federal payroll taxes. The IRS can assess the Trust Fund Recovery Penalty against individuals responsible for collecting and paying over withheld employment taxes who willfully fail to do so. Restaurants that fall behind often do so by using payroll tax money to cover rent or vendors, which is exactly the pattern the penalty targets. Our guide on the Trust Fund Recovery Penalty explains how it works.

Federal tax provisions tied to tips

Two federal provisions matter to restaurants in particular:

• The FICA tip credit. Food and beverage employers where tipping is customary may be eligible for a federal income tax credit under Internal Revenue Code Section 45B for the employer’s share of Social Security and Medicare taxes paid on certain employee tips, claimed on Form 8846. The IRS explains that creditable tips exclude the amount needed to bring the employee up to the federal minimum wage. Many eligible restaurants never claim it.
• The federal deduction for qualified tips. Beginning with 2025, eligible employees may deduct up to $25,000 of qualified tips on their federal income tax returns, with the deduction phasing out when modified adjusted gross income exceeds $150,000, or $300,000 for joint filers, according to the IRS. Qualified tips must be voluntary, so compulsory service charges do not qualify, and the employee must work in an occupation the IRS lists as one that customarily and regularly received tips. The deduction applies to federal income tax only; it does not reduce Social Security and Medicare taxes on tips, and state treatment should be confirmed separately. The same legislation added tip information-reporting obligations for employers, so confirm that your payroll provider is reporting tips correctly.

For most restaurant owners, the lease is the largest financial commitment in the business, and because it is usually guaranteed personally, it can be the largest personal commitment as well. Restaurant leases also contain provisions that most other tenants never face. The general framework is in our guide on commercial lease review in Maryland. The restaurant-specific points are these.

Build the approvals into the timeline

Rent commencement should be tied to the approvals you need to open, not to a calendar date that assumes everything goes smoothly. Consider a rent commencement date triggered by the issuance of the health license, the building permits, and, where alcohol is central to the concept, the liquor license, along with a right to terminate if a required license is denied. A landlord will not always agree, but the negotiation should happen before the lease is signed, not after the permit is delayed.

Know what you are guaranteeing

Restaurant guaranties range from a full guaranty of the entire lease term to a limited guaranty capped at a number of months of rent, a guaranty that burns off after a period of timely payment, or a so-called good guy guaranty that limits the guarantor’s exposure if the tenant surrenders the premises on proper notice. Those are negotiated terms, and the difference among them can be the difference between a closed restaurant and a personal bankruptcy. Our guide on personal guarantees covers the options.

Maryland commercial leases and guaranties also frequently include confession of judgment provisions, which allow a creditor to obtain a judgment under Maryland Rule 2-611 without first litigating the claim. A defendant can move to open, modify, or vacate a confessed judgment, but the window to act is short. Know whether your documents contain one.

Restaurant-specific lease terms

• Use and exclusive clauses. A use clause that is too narrow can block a menu change, a late-night concept, or a shift toward more bar business. An exclusive clause can protect you from a competing concept in the same center.
• Hood, grease trap, and HVAC obligations. Who maintains, repairs, and replaces kitchen exhaust, grease interceptors, and rooftop units is a significant cost allocation. Leases that make the tenant responsible for replacement of building systems deserve close review.
• Percentage rent and operating covenants. Percentage rent requires reporting gross sales to the landlord, and an operating covenant can require you to stay open on specified days and hours even when it is unprofitable to do so.
• Assignment and change of control. Many leases treat a sale of the ownership interests in the tenant as an assignment requiring landlord consent. A restrictive assignment clause can block or reprice your eventual sale of the restaurant.
• Outdoor seating, signage, odors, and noise. These issues are routine sources of landlord and neighbor disputes and are better resolved in the lease than after opening.

Many Maryland restaurants operate under a franchise. A franchise agreement adds a second set of obligations on top of the lease, and the two documents are often linked, with cross-default provisions under which a problem under one creates a default under the other.

Maryland is a franchise registration state, and the federal Franchise Rule requires a franchisor to provide its Franchise Disclosure Document at least 14 calendar days before the prospective franchisee signs a binding agreement or pays any consideration. The terms that matter most for restaurant franchisees include development schedules, remodel and reimage obligations, required suppliers and pricing, royalty and advertising fund contributions, territorial protection, transfer conditions and fees, post-term non-compete covenants, and the personal guaranty. Our guide on franchise agreement review for Maryland franchisees walks through the FDD and the agreement in detail.

A restaurant acquisition involves everything an ordinary business purchase involves, plus approvals and liabilities that can change the economics of the deal or stop it entirely.

1. Understand what you are actually buying

In an asset purchase, the buyer typically acquires equipment, furniture, the trade name, recipes, websites and social media accounts, phone numbers, and goodwill. Several of those assets come with complications. Equipment may be leased or subject to a lender’s lien, so a UCC search and an equipment schedule reconciled against financing documents are essential. Outstanding gift cards, deposits for private events, and accrued employee obligations, including wages and sick and safe leave balances, need to be identified and allocated in the purchase agreement.

2. Four approvals that do not transfer automatically

• The lease. Assignment typically requires landlord consent, and the landlord may require a new guaranty from the buyer. Some landlords will not release the seller’s guaranty without negotiation.
• The liquor license. A transfer requires local board approval after notice and a hearing, as discussed above.
• The health license. The buyer generally needs its own license and inspection.
• The franchise, if there is one. Franchisor approval, transfer fees, and remodel requirements often accompany a transfer.

3. Successor tax exposure

Unpaid sales and withholding taxes are among the seller liabilities most likely to follow a restaurant. Where Maryland’s bulk transfer provisions apply, they tie the notice procedures of the Commercial Law Article to the Comptroller: under Tax-General Section 11-505, the transferee must mail the notice to creditors to the Comptroller, and if the Comptroller files a claim, the amount stated in the claim must be withheld from distribution to the transferor. Our guide on successor liability in Maryland asset purchases explains the broader rules.

4. Asset purchase or entity purchase

Buying the ownership interests in the existing entity can keep the lease and other contracts in place without assignment, but the buyer inherits the entity’s history, including any unpaid taxes and wage claims. It may still require notice to or approval from the local liquor board and consent under the lease’s change-of-control provision. Our guide on asset sales versus stock sales compares the structures.

Many of the problems in this guide are manageable if they are addressed early and expensive if they are not. These are the triggers where the first week matters:

• A notice from the liquor board, including a violation charge or a hearing date. Preparation and the record you build before the hearing matter.
• A demand letter or complaint from a current or former employee about tips, overtime, or final pay, or a contact from the Maryland Department of Labor or the U.S. Department of Labor.
• A health department closure or a serious inspection finding.
• A notice from the Comptroller, including an audit letter, an assessment, or a notice proposing personal liability.
• A landlord default notice or a confessed judgment, where the time to respond is short.
• A breakdown between partners, particularly where an individual named on the liquor license is involved.
• Before signing a lease, a franchise agreement, or a letter of intent, when the terms are still negotiable.

• Letting an owner or manager share in tips. Federal law prohibits it whether or not you take a tip credit.
• Taking a tip credit without written notice. Maryland conditions the credit on the employee having been informed of the rules.
• Calculating overtime on the cash wage. For tipped employees, overtime is computed on the full minimum wage.
• Paying the cash wage for sick leave. Tipped employees using earned sick and safe leave are paid at the minimum wage.
• Treating a mandatory service charge as a tip. It is not a tip under federal law, and on parties of more than 10 it is part of the taxable price for Maryland sales tax.
• Deducting walkouts from a server’s pay. Section 3-713 prohibits it.
• Operating an LLC with no operating agreement. Personal liability for unpaid sales tax can extend to every member.
• Using sales tax or withholding to cover rent. Those funds can become personal liabilities.
• Signing a lease with a fixed rent start date before plan review, permits, and license approvals are in hand.
• Assuming the liquor license comes with the business. A transfer requires board approval.
• Asking hourly staff to sign non-competes. For employees earning 150% of the State minimum wage or less, those provisions are void.

Most retail licenses are issued by the local board of license commissioners for the county or municipality where the restaurant is located, under the Alcoholic Beverages and Cannabis Article and the board’s own rules. A license is typically issued to one or more individuals for the use of the business entity, and applicants must meet the jurisdiction’s eligibility requirements, which may include residency, voter registration, and criminal history checks. The process generally involves an application, public notice, and a hearing. The restaurant must also fit the applicable license class, and the statewide definition of a restaurant requires average daily receipts from food to exceed those from alcoholic beverages, although local boards may adopt different standards by regulation.

Not automatically. A transfer of a license to a new owner or a new location generally requires an application to, and approval by, the local board, with public notice and a hearing. In Baltimore City, for example, a notice must be posted on the property for 10 consecutive days, and the board’s review standard depends on the type of application: for a transfer of ownership of an operating establishment, it evaluates the applicant’s fitness, and for a transfer of location or a new license, it also considers public need and accommodation. Because approval is not guaranteed, it should be a condition in the purchase agreement, and the buyer should not assume it can operate under the seller’s license before the board acts.

Under Lab. & Empl. Section 3-419, the tip credit may not exceed the minimum wage less $3.63, so the cash wage for a qualifying tipped employee may not fall below $3.63 an hour, and cash wage plus tips must equal at least the $15.00 State minimum wage, with the employer covering any shortfall. The credit is available only if the employee customarily and regularly receives more than $30 a month in tips, has been informed of the tip credit provisions, and has kept all tips other than through tip pooling. Montgomery County sets its own higher minimum wage and a tipped cash wage of at least $4.00 an hour, and Howard County has its own local minimum wage.

No. Under 29 U.S.C. Section 203(m)(2)(B), an employer may not keep tips received by its employees for any purpose, including allowing managers or supervisors to keep any portion of employees’ tips, regardless of whether the employer takes a tip credit. The federal tip pool regulation, 29 C.F.R. Section 531.54, provides that the employer, managers, and supervisors may not receive tips from a tip pool. An employer that violates the prohibition is liable for any tip credit taken and all tips unlawfully kept, plus an equal amount as liquidated damages. An employer that takes a tip credit may require participation in a pool only if it is limited to customarily and regularly tipped employees.

Restaurants commonly do, but the charge is treated differently from a tip. Under federal regulations, a compulsory service charge is not a tip, and any portion distributed to employees is treated as wages rather than tips, which affects the tip credit, payroll reporting, and whether employees can treat the amount as qualified tips for the federal tip deduction. For Maryland sales tax, under COMAR 03.06.01.08, a mandatory gratuity or service charge in the nature of a tip on food or beverages served on the premises to a group of 10 or fewer persons is excluded from the taxable price, but a mandatory charge on a group of more than 10 persons is taxable. The charge should also be clearly disclosed to customers. Proposed 2026 legislation would have restricted service fees unless paid in full to the employee who performed the service; it did not pass, but the issue may return.

Maryland has not adopted dram shop liability. In Warr v. JMGM Group, LLC, 433 Md. 170 (2013), the Court of Appeals, now the Supreme Court of Maryland, declined to impose a duty on a tavern to protect third parties from an intoxicated patron’s conduct absent a special relationship and left any change to the General Assembly. That does not eliminate risk. Sales to visibly intoxicated patrons or underage customers can lead to fines, suspension, or revocation by the local liquor board, other theories of civil liability are evaluated on their own facts, and a serious incident can prompt a board hearing. Maintaining appropriate liquor liability insurance and current alcohol awareness training remains essential.

Under the Healthy Working Families Act, employers with 15 or more employees must provide paid earned sick and safe leave, and smaller employers must provide unpaid leave. Leave accrues at a rate of at least one hour for every 30 hours worked, subject to annual caps, and an employer is not required to provide leave to an employee who regularly works fewer than 12 hours a week. For tipped employees, the Maryland Department of Labor’s guidance is that the employer must pay the current minimum wage for the hours of leave used, so paying only the tipped cash wage is not sufficient. Montgomery County has its own earned sick and safe leave law with additional requirements.

Yes, in several ways. Under Tax-General Section 11-601, personal liability for an LLC’s unpaid sales and use tax extends to all members if there is no operating agreement, or to the individuals who manage the business and affairs of the LLC if there is one; for a corporation, it extends to the president, vice president, or treasurer and any officer owning more than 20% of the stock. Under Tax-General Section 10-906, if an employer negligently fails to withhold or pay Maryland income tax withholding, personal liability can extend to a person who exercises direct control over the entity’s fiscal management. At the federal level, the IRS can assess the Trust Fund Recovery Penalty against individuals responsible for unpaid withheld employment taxes who willfully fail to pay them over.

At a minimum, a new restaurant typically needs plan review approval from the local health department before construction or alteration, the applicable building and occupancy permits from the county or municipality, a food service facility license issued after a pre-opening inspection, a Maryland sales and use tax license and payroll tax registrations, and, if alcohol will be served, an alcoholic beverages license from the local board. Many jurisdictions also require a certified food service manager, and some require allergy awareness training. Because each approval takes time, the timeline should drive the rent commencement date and contingencies in your lease.

Beyond ordinary business diligence, focus on the approvals and liabilities that do not transfer cleanly. Confirm that the landlord will consent to an assignment and on what terms, that the liquor license can be transferred and on what timeline, and that you can obtain your own health license. Search for liens on equipment and identify leased equipment. Review the seller’s sales tax, withholding, and wage compliance, because unpaid taxes and wage claims are among the liabilities most likely to follow the business, and determine whether Maryland’s bulk transfer provisions require notice to the Comptroller. Identify outstanding gift cards, event deposits, and accrued employee obligations. Then make the key approvals conditions of closing in the purchase agreement.