Common Business Structures for Trucking Companies
One of the most critical steps in starting your own trucking company is deciding what business entity you want to form. There are two roads you can go down when forming your business entity and filing for trucking authority:
- Sole Proprietorship
- Limited Liability Company (LLC)
- Partnership
- Corporation
If you’re still confused about which road to take for your new trucking company, we will break down the two most popular types — sole proprietorships vs. LLCs.
What is a Sole Proprietorship?
A sole proprietorship business structure involves a single owner of the company. In other words, the sole proprietor owns the entire business by themself.
This structure is very common among trucking companies as it is one of the easiest to start. However, all the profits and losses from the business are treated as income and losses. Therefore, during tax season, all income generated and losses incurred for the year need to be filed accordingly. Furthermore, the biggest concern of a sole proprietorship is a liability. A lawsuit against a sole proprietorship is essentially being filed against the owner, not the business, and the owner is then liable for the lawsuit.
Below are some of the additional considerations and tips to keep in mind if you choose to establish your trucking company as a sole proprietorship:
- 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 office and pay a small fee before starting.
- Just start your company! You do not need to file any additional paperwork to start as a sole proprietorship – it’s a quick and easy setup.
- All business profits and losses must be filed on your personal tax return. There is no corporate tax as it is an unincorporated business.
What is a Limited Liability Company (LLC)?
An LLC is also an unincorporated business but 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 returns. 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. Ensure 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.
- All business profits and losses must be filed on your personal tax return. Make sure to consider any deductions you can write off for your trucking company when filing taxes.
What Comes Next After Choosing a Structure?
Once you have established your business structure, filed all documents, and paid the fees, you can get your CDL and become an owner-operator. If you need further assistance with starting your trucking business, Porter Freight Funding is here to assist. As an established leader in the industry, we offer several services to assist all types of growing trucking companies in staying compliant with industry regulations and speeding up the time it takes to get paid on outstanding trucking loads. We specialize in helping the following type of trucking companies:
- Established carriers and large trucking fleets
- Small to mid-sized fleets
- Owner operators
- Freight brokers
For more information on how to get your new trucking company compliant or improve your business cash flow through freight factoring, reach out to get in touch with us today.
