Sole proprietorships, partnerships, corporations, and limited liability companies are the most common legal structures for small businesses. No one legal structure or any trucking company business plan is right for all small businesses or companies.
Whether starting the business as a sole proprietor or choosing one of the more complicated organizational structures depends on several factors.
If you are starting trucking business – A Sole Proprietorship is the basic and simple form of a business organization and has no existence apart from the owner. The spouse can be an informal owner of your sole proprietorship. And we can help you prepare a trucking company business plan.
The business liabilities are also the owner’s liabilities. Ownership (proprietary) interest ends when the owner dies.
The owner undertakes the risks of business to the extent of all of his/her assets.
There is no differentiation between the business and the owner’s private assets.
The owner is responsible for loss, gain or damage.
The owner is responsible for estimated tax payments on a quarterly basis to the IRS, if the estimated tax payment is more than $500.
Sole proprietors pay taxes on business income on their personal tax returns.
A Partnership is the relationship existing between two or more persons who join together to carry on a trade or business.
A business with more than one person that is not incorporated or organized as an LLC is a partnership by default. The term partnership includes a syndicate, group, pool, joint venture, or other unincorporated organizations that carries on a business and is not classified as a trust, estate or corporation.
Each person joining the partnership contributes money, property, labor or skill and expects to share in the profits and losses of the business.
A partnership agreement or added modifications may be oral or written. If there is an oral agreement, witnesses should be present or it should be recorded on tape.
Generally, a partner’s share of income, gain, loss, deductions, or credits is determined by the partnership agreement. The liabilities of a partnership are determined by the number of shares (s)he acquires when signing the agreement.
However, the liability is every partner’s responsibility including his personal assets depending on the percentage (s)he owns in a partnership. A partnership is not a taxable entity, and each partner is responsible for paying estimated taxes and filing tax returns. A Corporation is the most important form to organize a business because it comes into existence by an act of the state and therefore is a legal entity.
It has a definite existence through legal papers filed with the State, generally the Secretary of State or the Corporation Commission. A corporation has perpetual existence as long as it is compliant with annual filing requirements of the Secretary of State or the Corporation Commission.
Registration of a corporate name shall contain the word “corporation,” “company,” or “incorporated,” or shall contain an abbreviation of one of such words.
The corporate name should not be the same as, or deceptively similar to, the name of any domestic corporation existing under the law of the same state in which the new corporation will be registered.
A corporation provides protection from personal liability for business debts. The liability of its owners is limited to their investments, and their person estates are not liable for the obligations of the corporation. However, failure to comply with and follow corporate formalities or keep adequate records can result in the loss of the limited liability status.
Corporations consist of shareholders, who are the owners of the business.
A minimum of two persons is required to create a corporation. A board of directors, which is elected by the shareholders, manages the business.
S Corporations: Certain corporations can choose to qualify under Subchapter S of the Internal Revenue Code to avoid the imposition of income taxes at the corporate level while retaining all the advantages of a corporation. Income from an S Corporation is taxed as personal income on Schedule E (Form 1040).
A corporation must meet these requirements to qualify for S Corporation status:
Be a domestic corporation.
Not be a member of an affiliated group of corporations.
Have only one class of stock. Not all shareholders need to have the same voting rights.
Have 35 or fewer shareholders.
No shareholder of the corporation can be a non-resident alien.
Shareholders must be individuals, estates or certain trusts. Corporations, partnerships and non-qualifying trusts cannot be shareholders.
Limited Liabilities Companies (LLC) combine some of the best attributes of corporations and partnerships, including limited personal liability and one level of taxation.
LLC owners report business income and losses on their personal income tax returns, thus avoiding double taxation. LLC’s are governed an operating agreement similar to corporate bylaws.
State laws govern the organization of an LLC and set forth minimum requirements that must be met to form a limited liability company.
Articles of organization must include the name of the LLC, the address of the registered office, the name of a statutory agent, a dissolution date, and information about management.
Filing requirements and fees are similar to those of a corporation.
Each form of business has advantages and disadvantages. The independent truck-owner operator should carefully study the options and make a decision based on his or her personal circumstances and applicable state and tax laws. An accountant or attorney can answer specific questions and help the owner-operator make a decision that is right for his or her trucking operation.
Once the owner-operator has selected a form of business organization, (s)he must make sure that (s)he understands the specifics of that structure and follows the requirements to stay compliant with federal, state, local and tax laws.