Do I Need an LLC for a Trucking Company?
Starting a trucking company can seem like a daunting task, but it doesn’t have to be. One of the first questions you’ll need to answer is whether or not you need to form a limited liability company (LLC). This article will walk you through the pros and cons of forming an LLC for your trucking company. Let’s get started!
Related: Guide to starting a trucking company
What Is an LLC?
Let’s start off by explaining what an LLC (Limited Liability Company) is and why you may want one. A Limited Liability Company is a type of business entity that offers its owners protection from personal liability for the debts and obligations of the company.
Related: What is an LLC?
Why Would I Form an LLC for My Trucking Company?
There are several reasons why you might want to form an LLC for your trucking company, including:
Personal liability protection. First, an LLC provides personal liability protection for its owners. This means that if your company is involved in a lawsuit, the owners’ personal assets cannot be seized to pay any judgments against the company.
Personal liability protection should be at the top of every trucking business, as one crash could wipe out an individual’s life savings. The LLC is a separate legal entity, which separates business assets from personal assets.
Ease of operation. The corporation provides the same liability protection as an LLC, however, the corporation has several additional administrative requirements such as issuing shares of stock, having an annual meeting and shareholder meeting, along with taking minutes at the meeting. The LLC offers the ability to have a corporation’s liability protection with the ease of operation of a sole proprietorship.
Tax flexibility. An LLC is unique as it has more choices than any other entity on how it can be taxed. An LLC can elect to be taxed as a sole proprietor, general partnership, C corporation, or S corporation. And to make it even better, you have the ability to change to the most beneficial tax benefits as the business grows.
Professional image. Forming an LLC for your trucking company can also give it more credibility. While this may be only a minor advantage for many, potential clients may choose to do business with an LLC versus an individual.
Related: What are the benefits of an LLC?
Disadvantages of an LLC for Truck Drivers
Now that we’ve covered the advantages of forming an LLC for your trucking company, let’s look at a few of the disadvantages.
Cost. One of the biggest disadvantages of forming an LLC is the cost. The filing fee to form an LLC varies by state and will range from $40 – $500.
Paperwork. Another disadvantage of forming an LLC is that there is more paperwork than a sole proprietorship or partnership. You will need to file Articles of Organization with your state to create the LLC, along with filing an annual report at the end of the year.
What are my other options?
There are four main types of business ownership structures to choose from, including the sole proprietorship, partnership, corporation, and LLC.
Sole Proprietorship. A sole proprietorship is the most common and simplest business structure to set up. You are the only owner and control all aspects of the business. While this is the easiest to set up, you also have no personal liability protection.
General Partnership. A general partnership is very similar to a sole proprietorship in that there are two or more owners, but each owner shares in the profits and losses of the business.
Corporation. A corporation is a more complex business structure with shareholders, officers, and directors. The biggest advantage of a corporation is that the shareholders have limited personal liability for the debts of the company.
How to Start an LLC for a Truck Driver
If you’ve decided that an LLC is the right business structure for your trucking company, there are a few steps you need to take to get started.
1. Choose a name for your LLC. Every state requires each LLC to have a unique name and different requirements for what you can and cannot include in your LLC name. For example, some states require that you use the words “LLC” or “L.L.C.” in your name while others do not allow business names that could be confused with a government agency.
Related: How to search for available LLC names
2. Appoint a registered agent. Every LLC must have a registered agent who is responsible for receiving legal and tax documents on behalf of the company. The registered agent can be an individual or a business, be generally available during normal working hours, and must have a physical address in the state where the LLC is formed.
Related: Who can be a registered agent?
3. File Articles of Organization with your state. The Articles of Organization is the official paperwork that creates the LLC. Each state has its own form and filing requirements for the Articles of Organization.
Related: What are the articles of organization?
4. Create an Operating Agreement. An Operating Agreement is not required in every state, but we recommend that all LLCs have one, especially if there are multiple owners. The Operating Agreement outlines the ownership and operating procedures of the LLC and helps to prevent misunderstandings down the road.
Related: How to create an operating agreement
5. Get an EIN. Once your LLC is officially formed, you will need to get an Employer Identification Number (EIN) from the IRS. The EIN is used to identify the LLC for tax purposes and open a business bank account.
Related: How to get an EIN
6. Obtain business licensing and permits. There are a number of licenses and permits a trucking business needs in order to be legal to operate. A few of these include:
- A commercial driver’s license (CDL)
- USDOT number.
- Hazardous materials endorsement (if appropriate)
- Motor Carrier Operating Authority (MC number)
- BOC-3 filing: Every motor carrier, broker, and freight forwarder is required to designate a process agent that can file Form BOC-3, or blanket of coverage, on their behalf with the Federal Motor Carrier Safety Administration (FMCSA).
