Sole Proprietorship or LLC in the Transportation Industry?
Updated: Nov 24, 2020
Now that you have developed a plan for your new trucking company, it is time to decide what business entity you want to form. There are two roads you can do down when forming your business entity: Sole Proprietorship or Limited Liability Company (LLC). If you're still confused on which road to take, this blog has the answers you need.
This is a very common business structure as it is the easiest to form and create. Under this structure, the sole proprietor owns the business himself. All the profits and losses from the business are treated as income and losses of the owner on the owner's income tax return. The biggest concern of a sole proprietorship is liability. If there is a lawsuit filed against a sole proprietorship, it is essentially being filed against the owner and not the business, and the owner is then liable for the lawsuit.
If this is the business entity you choose, here are some factors to keep in mind:
If you plan to do business under a name other than your own, you must file a "Doing Business As" (DBA) Certificate. You can file a DBA at your local clerk's officer and pay a small fee before getting started.
Just start your company! You do not need to file any additional paperwork to get started as a sole proprietorship - it's a quick and easy set up.
All business profits and losses must be filed on your personal tax return. There is no corporate tax as it is an unincorporated business.
Limited Liability Company (LLC)
An LLC is also an unincorporated business, but it has more protection than a sole proprietorship. Because it is unincorporated, there is also no corporate tax and all profits and losses are reported on the members of the LLC's individual tax return. An LLC is not completely separate from the individual members, but the individual members will not be held liable for a lawsuit against the business - this is the biggest advantage compared to a sole proprietorship. To create an LLC, all documents and fees must be filed in the state where the business wants to form.
These steps will help you form an LLC as your business entity:
File all documents with your state. These documents include Articles of Organization and an Operating Agreement. Make sure you check that your state offers an LLC as a business entity (not all states do).
Create an Operating Agreement. Some states require you to have an operating agreement, but don't require you to file it with them. It mainly works as an internal document that outlines how your business will run, the business you decide to operate, and payroll and share of profits and losses. Unlike the Operating Agreement which is optional, the Articles of Organization is a required document.
Start your company!
All business profits and losses must be filed on your personal tax return.
Once you have established your business structure, filed all documents and paid the fees, you're ready to get your CDL. You're not one step closer to getting your wheels turnin'!
Next week, our blog series helps you make the decision of Buying or Leasing a Truck. Be sure to stay tuned!