Laws, Licenses, and Regulations

This is not legal advice

As a food product manufacturer, and a startup, you face a high regulatory burden that may at first be unfamiliar. Depending on your product category, such as alcohol, meat, or unconventional foods, you might face requirements in addition to what is listed here. In all cases, you should talk to your local and state offices to verify that you satisfy their licensing criteria before producing and selling your product.

Production

If you are using a test kitchen or co-packer, their kitchen manager is responsible for most of the production regulations and compliance and should be familiar with your regulatory burden. If you choose to produce your product in a commercial kitchen, then you will probably meet with a health inspector and have your process reviewed for safety. 

In all cases, you should purchase Food Product Insurance and liability insurance to insure yourself against claims from customers against your production process and any damages that arise during production.

Some of the licenses you may have to pursue:

  • Food Manufacturing License. All manufacturers are licensed and subject to inspection by the FDA and the local food & safety inspector

  • City Food Service License. Cities may require that you apply for a separate license as a food manufacturer or retailer. You should contact your city’s department of health in order to verify city licensing requirements

  • Registration with the FDA. The FDA requires that all manufacturing businesses with $25,000+ in sales per year register their production facility on their website for free. If you are just starting out, you can still register (there is no harm in registering early)

Sales

As a retailer or wholesaler, you face additional regulatory burdens to ensure your product is safe and you abide by relevant commerce laws. Your primary requirement here is to collect and remit taxes.

  • Department of Commerce/Revenue. Before you sell your product, you must register with your state’s department of commerce/revenue to collect sales tax (and other taxes as applicable)

  • City/County/Special District Sales Tax. Different jurisdictions may have different sales taxes. Consult with all jurisdictions you fall under, and also in any state where you have a nexus (this is a technical term usually implying you meet a certain revenue threshold or operate in the state by warehousing goods or having employees. Work with your lawyers and accountants to stay compliant)

  • Registration with other state departments of revenue/commerce. If you sell your products in a state other than where you are operating, you may need to register with those states so that they can track your collection of sales tax. Every state or municipality sets its own threshold for this requirement based on how much you sell in their jurisdiction, and you should work with your accounting team to remain compliant

Note: many jurisdictions provide sales tax exemptions or reduced sales taxes for food and beverage products. Review appropriate guidance from these jurisdictions to determine whether you have to collect and remit sales tax.

Labelling

As a packaged food product, you are required to abide by strict labelling requirements. You can get a sense for these by looking at similar products on the market and identifying commonalities - do they all have the same disclaimers, warnings, or guidance? Do they all use the same terminology? As a packaged food product, you must have your food’s common name on the label (“chips,” not just Dr. Moller’s Crispy Delights), its weight and size, and an expiration date. Most food products must abide by FDA nutrition labelling, which is fully detailed in a guide here. Food manufacturers must also be careful about words and phrases used on their product label. Certain terms, such as “healthy” and “organic” have specific definitions that you must meet in order to use the terms. Including health claims on your label also raises scrutiny. 

Certain industrial and packaging designers are familiar with these labelling requirements and will work with you to keep your product packaging compliant. If you choose to use a less experienced designer, you should study guidance documents and collaborate with other food manufacturers to verify that you are satisfying requirements. When you pursue your product licensing, the city or state may request to see your product label and let you know if you are noncompliant, but ultimately the responsibility rests with you. 

Ingredients

All of your ingredients should be generally recognized as safe, or GRAS, per FDA guidelines. If you are using an exotic or new ingredient that does not yet have GRAS status, work with the FDA to understand compliance requirements and get it listed as GRAS. Lack of GRAS status will limit your ability to sell your product in stores.

Taxes and Fees

As a business, you are expected to pay taxes at the state and federal level and estimate your tax burden quarterly. If you fail to make quarterly tax payments, you may be penalized with extra fees at the end of your fiscal year. If you are a retailer, you may also face tax requirements from your local tax district and city. Work with an accountant to understand your tax obligations and make sure you remain compliant.

Some states, like Delaware, also charge a “franchise fee” on businesses registered in their state. This fee is for the privilege of being a business in that state and is typically paid annually based on your business’ size. Even pre-revenue startups may face several hundred dollars in franchise fees.

Accounting

You should open a business bank account and set up an accounting system to track your income, expenses, and taxes for convenient management separate from any personal funds. Keep in mind that many business expenses, including R&D, can be deductible on taxes - but you can only claim them if you keep good records. You can also hold several business accounts for different purposes; for example, you may choose to put 20% of sales into a separate account for taxes, keeping it separated and easy to monitor.

Trademarks

While you may not be able to patent your recipe to keep away competition, you can protect your brand by applying for and holding trademarks on your design. Trademarks can be design marks, like your logo, or word marks, which give you the right to that word or phrase in your product class. For example, “Patagonia Provisions” is a word mark owned by Patagonia for class 30 food items (including spices, condiments, and coffee). This prevents any other company from using “Patagonia Provisions” in their packaged coffee or condiment brand. You can read the full rules on how to apply for a trademark here, and should apply for trademarks early (they only cost $250 in most cases). Applying early has the added benefit of verifying that no other company thinks they have rights to your branding. If another trademark, or a similar trademark, exists, you will likely be notified by the company that owns it.

While trademark law is based on ‘first use’, meaning you don’t technically need to file with the US Patent and Trademark Office to have rights, filing the trademark and getting added to the TESS database (which you can use to look up trademarks) will reduce the likelihood of infringement later. It’s also worth pointing out that ‘first use’ is state specific. This can potentially lead to weird scenarios where you have rights to a brand name in some states but not others; if you just file the trademark you don’t need to worry about this.