The more appropriate question should be; whether or not you as a business owner you think it might be important to separate your personal assets from the business liabilities. I think the answer is clearly yes. Let’s face it accidents and mishaps in a trucking operation are real and inevitable. The big difference between the average brick and mortar or web based business and trucking is the fact that people can die when you or an employee make a mistake on the road.
Let’s look at a very possible scenario to illustrate this point. A flatbed operator may have failed to properly secure his/her load when all of a sudden a strap come loose and the buckle smashes through a window maiming a child and permanently disfiguring his/her face. In this example you as the business owner will surely get sued: however if you were a corporation and had all your ducks in a row you’re personnel assets like a home cars savings ect.. would all be untouched by the suite.
As stated earlier corporations protect you and there are several options to choose from. Each type of corporation we will discuss has it’s own distinct characteristics and tax ramifications. The “C” Corp is very common and must be filled with the state corporate division. Most lawyers can file corporate papers for you for under $1000.00 or you may choose to do this yourself. Some of the advantages of the “C” Corp are: less chance of government audits, raising capital through the sale of you’re company stock, being able to split company profits between the owners and the corporation thusly lowering tax liabilities. Some of the disadvantages to this structure are: Double taxation as you will pay corporate taxes as well as taxes on shareholder dividends. Initial startup costs are higher than other structured entities. There are rigid standards for which you must comply for instance there must be monthly corporate minutes documented as well as annual shareholders meeting held.
Once you have established you’re business as a “C” Corp then the decision may be made to file as an “S” Corp within 75 days of incorporating. The “S” Corp has some great advantages like: No double taxation because the business is not considered a separate entity from it’s shareholders. Corporate losses may be passed through it’s shareholder which of course is you the owner an those losses will be reflected on a personnel tax return. You usually don’t have to pay corporate taxes with a “S” Corp. Some disadvantages are: Piercing the corporate veil is more likely with an “S” Corp. The I.R.S. keeps a close eye on “S” Corps and you may be more likely audited. There is a limit on the number of shareholders you can have.
Let’s talk about other options you have to structure you’re business. A very popular choice for truckers is called L.L.C. or Limited Liability Corporation. An L.L.C. is somewhat of a hybrid structure taking characteristics from both corporations and general partnerships; however the L.L.C. must not have more than two of the four characteristics that make up a corporation. The main advantages to this style of business structure is the fact that the I.R.S. allows owners to make a choice on how they should be taxed whether it’s as a partnership or as a corporation.
The Sole Proprietorship is the oldest and simplest business structure around and it is a choice that a lot of single owner /operators will make. You can run the business under your own name or a trade name you choose. It is important to realize that as a sole proprietor you are not considered a corporation and the government makes no distinction between you and the business and this puts you the owner a greater risk and liability. You may have any number of employees and still remain a Sole Proprietorship.
In my personal experience I recommend The “S” Corp. At the time my wife and I initially filled our corporate papers we had only 1 truck and no outside employees. We determined that I would be the president CEO and my wife would be the secretary and treasurer. We conducted monthly corporate minutes and kept them in a three ring binder. As far as our salaries we paid ourselves a modest wage but had the flexibility to take distributions from the corporation at will. As far as an annual shareholder meeting we could basically write off our vacation if we could show our intent to discuss the corporate business.
I hope this article will help you owners in the decision making process on how to structure you’re new or exiting business.
