3 Keys to LLCs
Finally, you are your own boss. You received your Department of Transportation (DOT) authority, your rig is fueled and the highway awaits on your path to prosperity as an owner-operator entrepreneur. All you need are an open road and loads to haul, right? Almost.
Trucking is a highly regulated industry, as you probably already realize. But fall out of compliance with DOT and Federal Motor Carrier Safety Association (FMCSA) rules, and you may come to a dead stop as surely as if you’d cracked a piston. But unlike an engine that can be repaired, a compliance violation can be much more disabling, leading to suspension or even loss of your license and – possibly – your livelihood.
The rules are complex, but TBS recently launched a comprehensive compliance service to help you successfully navigate the compliance process, including passing your New Entrant DOT Audit. Click here to learn more about our compliance services. In the meantime, here are some things you need to know.
In this Article, you will read:
An LLC is a business structure that combines the personal legal protection of a corporation with the tax simplicity of a partnership.
- Profits and losses pass through to the owners’ personal tax statement.
- No separate tax filing or annual stockholder meeting is required.
- Full personal legal protection of a corporation is provided.
Allowing for variations from state to state, there are four basic steps:
- Choose a Name
- Can’t have same name as any previously registered LLC or other entity in your state. (Your state will tell you whether a name is available.)
- Name must include LLC, Limited Liability Company, or some other indication the business is an LLC.
- Must not include restricted words, such as “bank,” or “insurance.”
- File Articles of Organization
- Typically filed with Secretary of State (or equivalent)
- Create an Operating Agreement (especially important for multi-member LLCs)
- Include: % interests of each member, allocation of profits and losses, members rights and responsibilities, among other things.
- Include a “buy-sell” clause that spells out how a partner may leave the partnership, how shares will be priced, and any restrictions on transfer of ownership.
- Announce Your Business
- Some states, including Arizona and New York, require new LLCs to publish a statement announcing their formation in the local paper.
- All contracts and paperwork must be in the name of your LLC – including your Authority, Insurance, factoring contracts, and payments from freight brokers. Even your phone should be in your company name.
- Keep separate records for your business, and never deposit business checks into your personal account.
- Always use the EXACT legal name of your company – if you are A.B.C. Trucking, LLC, always write it the same way and remember to use the periods between the letters. That means ABC Trucking, LLC is not correct – it needs to be A.B.C. Trucking, LLC.
An LLC can be a useful tool to protect your personal finances. But, like all tools, they only help if you use them properly. You should consult with an attorney to make sure all of the details associated with your particular LLC are legally valid, and that your company’s policies and procedures are in line with state and federal regulations governing limited liability companies. A little extra time spent up front to make sure you are protected can save you a lot of time and heartache down the road.
An LLC can protect you only if you make a concerted effort to treat your business as a business. In addition to the Three Keys, here are some important things you can do to show that your business is truly separate and distinct from you and your family.
- File all state-required reports on time and pay all fees.
- Pay sales taxes, FICA, and all other taxes on time.
- Sign all contracts in your capacity as an officer of the company, i.e.: (Your Name), Managing Member, on behalf of “LLC Name.”
- Have business cards, letterhead and other materials use the LLC name.
- Do not withdraw money from the company for personal use and document it later as a loan or bonus.
- Carefully read any personal guarantees you may sign in conjunction with a loan to your LLC. Make sure you’re only liable personally for the debt of that particular loan – remember, you must separate LLC and personal finances.
- Make sure your LLC has enough money to conduct business. Otherwise, a court might find your LLC is too “thinly organized,” which means you may have personal liability. The exact amount needed varies, depending upon the size of the LLC and its revenue.
- Don’t take a personal payment from your LLC, if that payment puts the LLC out of business. That may give creditors the right to sue you, instead of the LLC.
That is a lot to remember, but essentially they all say the same thing: If you want the protection provided by an LLC, you need to consistently demonstrate that your business is, in fact, separate from your personal assets. Pay attention to details, and don’t use the company as your personal piggybank.
Most independent trucking firms are what are known as “single-member” LLCs, which typically report income on the owner’s personal tax return. A “multi-member” LLC, that is, an LLC with multiple owners, is taxed as a partnership, and the income is reported to each owner on form K-1, generally according to percentage of ownership.
Copyright 2012, David B. McKinney and Melissa S. Taylor, Members of GableGotwals, Tulsa, Oklahoma. This is legal education and not legal advice. An attorney-client relationship is not created by the reading of this article. You should consult your lawyer before taking any action that has legal consequences.