Managing Your Business
A Truck Driver’s Guide to Starting an LLC
Chances are you’re serious about your truck driving business and want to thrive in what can be a rewarding career. But as you head on down the road, are you protecting and maximizing your assets?
If you’re operating your business as a sole proprietorship and plan on trucking over the long haul, now is an excellent time to consider starting an LLC (limited liability company). And if you’re just starting a truck driving business, establishing this business structure now can help ensure asset protection from the get-go.
This guide gives you a step-by-step process to obtain an LLC on your own. You can do it individually, but if you’d rather snap your fingers and have someone else handle the busywork while you concentrate on actually running your business, we’ve got you covered. Check out our LLC service, where we take care of all the paperwork, so you don’t have to. Or keep on reading to get your LLC journey going on your own.
Starting a Truck Driving Business LLC
If you start a truck driving business, the default business structure is a sole proprietorship. Such business entities are simple to set up but have serious drawbacks for most truckers.
With a sole proprietorship, your personal assets are not legally separate from your business assets. That means that if someone sues you for something that happened while you were driving, they’re essentially suing you personally and can come after your personal assets, including your home and savings.
A Limited Liability Company, or LLC, is a business structure that combines aspects of corporations with sole proprietorships. It protects your assets and limits your risks. Driving for a living can certainly be risky business, so the legal separation makes LLCs a popular choice among truck owner-operators.
Starting an LLC for Truck Drivers: The Benefits
Truckers who obtain an LLC enjoy a variety of benefits. Here are the top reasons to consider starting an LLC for your trucking company.
Protect Personal Assets
If you incorporate your driving business as an LLC, someone who sues you can’t come after your personal assets. For example, if you somehow damage a load, the company who hired you can only gain restitution from your business assets, not your home or personal savings. Your personal assets are also protected if your business struggles and you default on a business debt.
However, it is important to note that your protections with an LLC are only in effect if you operate and maintain your business according to federal and state regulations. In other words, an LLC is not a get-out-of-consequences-free card for a company that’s doing illegal things.
Enjoy a Tax Structure that Benefits Your Company’s Bottom Line
Retaining profitability is the name of the game. Open an LLC for your trucking business, and you can choose to be taxed as a sole proprietor, partnership, or corporation. Selecting the right tax structure for your situation can keep more of your money in your pocket and out of the IRS’s.
Most trucking businesses choose taxation as a sole proprietorship. Instead of your business being taxed as a corporation, you only pay personal income tax based on the profits and losses of your trucking business. Only the after-expenses total is net income and taxable, although some state and local governments may also require you to pay additional LLC taxes.
Your LLC may also benefit from an S Corp election. Without this, the IRS could tax your business twice — once at the corporate level, then again on your personal income. With the S Corp election, you only pay tax on your personal income. All profits are considered pass-through income to the owners.
Here’s how it works. You report your trucking income and expenses on Schedule C of IRS Form 1040. Business expenses are deductible against your gross income. These can include mileage, meals for traveling during working hours, equipment expenses, and health insurance costs. This pass-through taxation can save you a substantial amount of money in taxes.
Your reputation is vital to ensuring your business stays successful. To most customers, an LLC looks more professional than a sole proprietorship. As a result, you gain customer trust.
Investing in making your company as legitimate as possible shows your clients that you mean business — literally. When you run an LLC, you have a formal business name followed by “LLC,” which also lends credibility. Customers are more comfortable making payments to a business rather than an individual. It’s also easier to get business loans when you have an LLC.
Get More Work
Many big companies, like Ikea and Rooms To Go, require any drivers they hire as independent contractors to form an LLC. They do this as an extra layer of liability protection for themselves. Having an LLC already established can give you a leg up on the competition for those lucrative contractor positions.
How to Set Up an LLC for Trucking Business
If you decide that starting an LLC is right for your business, there are a few steps to take. The process is fairly straightforward, and you don’t even need a lawyer.
The exact process can vary somewhat according to your state, but here are the universal steps to setting up an LLC for your trucking company.
1. Choose Your State
Though you’re on the road for business, your best option is to form your LLC in your home state. This will be considered your home base.
2. Name Your LLC
When choosing a name for your trucking business, consider a few factors. First of all, you and your state will both want to prevent confusion. That means you can’t have the same name as another business. Some states even have rules against similar names.
You can check to see if there is a business with the same name on your secretary of state’s website or by using our free business name availability tool. If you find the same name is already in use, you’ll need to tweak or change your name and recheck the database.
When choosing your name, also consider your customers. You want to choose a moniker that describes what your company does yet is unique and memorable. A name that is easy to remember is also a good idea. If the name is complicated and difficult to remember, you could lose potential business.
3. Choose a Registered Agent
A registered agent is a person or organization authorized to receive information for your business. Every LLC must appoint a registered agent to operate legally.
The agent functions as your contact regarding formal correspondence between your company and government agencies. They handle service of process notices, annual report reminders, official government mail, and anything else compliance- and tax-related for your business. Such correspondence is often sent through the mail but may come via fax, email, or even courier.
While it is technically possible to serve as your own registered agent, it’s usually not a good idea for a driver. The agent must meet specific requirements, such as maintaining standard 9 a.m. to 5 p.m. business hours Monday through Friday at the exact physical address listed on your incorporation forms. That’s pretty much impossible when your job is being on the road all day.
On top of that are privacy issues. If you serve as your own registered agent, your address will be publicly accessible to anyone who feels like looking it up.
Given these restrictions and the fact that the state requires a reliable way to get ahold of you, most truckers hire a professional service for their registered agent. These services generally charge a small quarterly or annual fee.
While you’re out trucking, they’re at a stationary locale where they are ready to receive and forward any written correspondence to you — and help you respond to and deal with the paperwork.
4. File the Articles of Organization
Your company’s Articles of Organization (also known as a Certificate of Formation or a Certificate of Organization, depending on your state) is the document you must fill out to officially register your LLC in your state. You’ll need to provide information about your business, submit the application, and pay filing fees. Filing fees for Articles of Organization vary greatly from state to state but generally run between $50 to $500.
Application forms vary between states, but they generally require the following:
- Business name
- Business address
- Registered agent information
- Owner/member name
- Manager name
- Organizer name
Because the filing process can be somewhat complicated, it’s best to file through an expert. You can hire a business lawyer who acts as your registered agent, but lawyers are expensive. A more cost-effective option is to use an LLC formation service. These companies can file for you, usually offer optional registered agent services, and help you file required periodic documents such as annual reports.
5. Get an EIN (Employer Identification Number)
When you form an LLC, you don’t file taxes and other documentation using your social security number. Instead, you use an EIN (Employer Identification Number). This federal tax ID number functions like a social security number for businesses. You use the EIN when paying taxes, applying for loans, and responding to official government requests. You’ll also need an EIN to open a business bank account.
6. Create an LLC Operating Agreement
Though not all states require an operating agreement, this is an important document that helps guide your trucking business and ensure its success. An operating agreement outlines your rules, regulations, and ownership. It helps you operate efficiently and effectively, prove you are running a legitimate business, and prevent any disputes about operations down the line.
The five states that require an operating agreement are:
- New York
It’s a good idea to maintain an operating agreement even if you aren’t based in one of the states that require it. Operating agreements let you plan your business with a set of rules and regulations. The agreement defines structures for management and ownership and distinguishes your personal assets from your business’s.
Operating agreements vary from state to state, but each contain similar information. Here are the basic contents of an operating agreement:
Basic business information
Basic information includes the LLC’s name and primary address.
The organization section details the formation of the business, including when the LLC was formed, its members, and the ownership structure. If you have more than one person in your LLC, such as a partnership, this section will detail all the members and their shares in ownership.
Statement of intent
In the statement of intent, you document that you will complete your transport of materials and supplies in a safe, timely manner according to the laws of your state.
It should be no surprise that the business purpose outlines the purpose of your trucking business. For example, transporting food intended for restaurant use from one state to another. Be as broad as possible to cover any type of work you might plan on taking on.
The term of your LLC is how long you plan to stay in business. This may seem like a weird question as most people don’t pour time, money, and effort into a new business with the plans to close it anytime soon. There are some specialty situations in which someone would want a temporary LLC, but that probably doesn't apply to you as a truck owner-operator.
We’re going to assume you’re in this for the long haul, so you can just indicate that your term is indefinite and that the business will end if and when you decide to.
In the tax treatment section, indicate your chosen tax structure — sole proprietor, partnership, or corporation.
Rules for membership changes
Under rules for membership changes, describe the process for adding or removing members to your LLC and how new members will acquire interest.
For example, let’s say you want your daughter to take over the family business when she turns 25. Even if she’s currently 5 years old, setting up the rules for how to add a new partner now will save you from having to write up a whole new operating agreement later.
You’ll need to describe the management structure of the business. If you are the sole owner and authority, just write that down, easy peasy. But if you have business partners or hired someone to manage the business, you’ll need to spell out who has what authority.
If your business has more than one partner, you will have to vote on company decisions. For example, you may choose to allow for one vote per member or one vote per unit of ownership interest. The operating agreement can also specify the number of votes required for certain actions within the company.
If you are the sole owner of your trucking business, you don’t need to worry about this one.
The Capital contributions section outlines which members gave money to start the LLC and how much they invested. This will also describe how members will raise additional money. For instance, LLCs can give ownership units in exchange for startup money.
Distributions of assets
The distributions of assets section defines how members will share the LLC’s profits and losses. This can refer to money, business assets, and property, including equipment. If you are the only owner, just say that 100 percent goes to you.
Dissolution circumstances outlines under what conditions you would shut down and dissolve the business.
If there’s anything else you want to include in your operating agreement, identify it here.
- If you have partners, how often you will hold business meetings
- Who can access the checking account
- Who signs checks
- Who can accept and approve jobs
Other Important Setup Tasks
Once you’ve filed your LLC, there are a few other essential tasks to make your business legit.
- Get a business bank account; begin using it for all business transactions
- Register your LLC for state taxes
- Set up an accounting system
- Obtain all necessary licenses and permits
- Get business insurance
Confused? Swyft Filings Can Help
The process of starting an LLC for truck drivers may seem like a daunting task. You may be wondering how you’ll fit all of this in while you’re busy driving all week long.
If you’d rather spend your valuable time on the road making money rather than sitting in front of a laptop filling out paperwork, consider having Swyft Filings take care of your LLC filing for you. Just tell us a bit about your business, and we’ll handle the busywork.
That way, you can head off down the road knowing that your business and its assets are covered. We’ll handle the paperwork; you just keep on truckin’.