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Entrepreneurship

How to Start a Trucking Company and Shift Your Biz Dream into Drive


The trucking industry has an immense impact on
the U.S. economy. According to American Trucking Associations, 71 percent of
the freight tonnage moved in the United States goes on trucks. If you’ve been
thinking about how to start a trucking company so that you can become a part of
this booming industry, you may also be wondering, “Where do I begin?”

Whether you’ve been a driver for another
company and desire to start a trucking business as an owner-operator. Or, if
you’re an owner-operator and want to grow your business, this article will
offer insights that can help you work toward achieving your goals.

Starting a Trucking Business Checklist

There are many administrative, legal,
financial, and operational considerations when starting a trucking business. Many
variables, such as the type of trucking company you want to run, where your
base operations will be located, the size of your fleet, and other factors will
affect what you need to do.

Entrepreneurs who are starting a trucking
business should ask for guidance from licensed professionals (e.g., attorney,
accountant, tax advisor, etc.) that can provide expertise and ensure all the
critical compliance bases are covered.

To help you grasp what you might need to think
about and tasks you might need to tackle, let’s explore some of the
considerations. Everything that I share below is meant to give you an overview
and basic understanding but is not intended as legal, accounting, or tax
advice.

Ready to dig in and learn more about how to
start a trucking business? I thought you’d never ask!

1. Choose the business structure for your trucking company.

Whether a business owner chooses to operate as
a sole proprietor, partnership, LLC (Limited Liability Company), corporation,
or some other form of entity type, it will affect personal liability, tax
obligations, and other aspects of the trucking business.

For many business owners, the issue of
personal liability is a significant factor. With sole proprietorships and
partnerships, no legal or financial separation exists between the owners and
the business. Therefore, the business owners are personally liable for the
debts and legal issues of their business. With statutory entities such as LLCs
and corporations, however, the company is its own entity. Therefore, the
owner’s personal property and finances are not at risk of being taken in the
event of a lawsuit filed against the business (unless the owner was personally
responsible) or if the company runs into financial hardships.

How income taxes are applied also often
influences the decision of which business structure is best. Sole
proprietorships, partnerships, LLCs, and C Corporations that file for S Corp
tax treatment get pass-through taxation—in other words, profits from the
business flow through to the owners (or shareholders) of the company and get
reported on the owners’ individual income tax returns and taxed at the
applicable individual tax rates. Corporations that do not opt to be taxed as an
S Corp are taxed at the corporate income tax rate and undergo something known
as “double taxation.” Double taxation refers to the fact that a corporation’s
profits are first taxed at the corporate rate and reported on the corporation’s
tax return. Then, if the corporation distributes dividends to shareholders,
those distributions are taxed again on each shareholder’s personal tax
statement.

Other details to think about include:

  • Future financing needs – Some lenders
    and investors will want a business to be formally registered as an LLC or
    corporation before they’ll consider funding a company.
  • Compliance complexity – C
    Corporations have more formation requirements (such as establishing a board of
    directors and adopting bylaws) and ongoing filings to complete and submit than
    other entity types.

CorpNet’s Business Structure Wizard can help narrow down what options might be the best fit, and I recommend
talking with an attorney and tax advisor, too. Something for anyone interested
in starting a trucking company should know is that there are laws that prevent
registering a trucking company outside of where its primary home is. Some
entrepreneurs opt to form their companies in a state other than their home
state due to more favorable business laws or tax rates, but trucking businesses
may not. According to the Federal Motor Carrier Safety Administration’s Application
for USDOT Number
, “Principal
Place of Business — Enter the physical address of where the company is engaged
in business operations related to the transportation of persons or property and
where safety records are regularly maintained. This address will be used by
FMCSA for on-site visits to Motor Carriers for the purpose of conducting safety
audits, investigations, and other activities. A P.O. Box is not acceptable as a
Principal Place of Business, nor is the address of a consultant, service agent,
or attorney of a Motor Carrier unless the Motor Carrier engages in operations
related to the transportation of persons or property at that location.

2. Select a name for your trucking business.

After business owners have brainstormed some
names for their trucking business, CorpNet’s free business name search tool
will help in checking if the desired name is already in use in the state. If a
sole proprietor or partnership wants to use a business name that doesn’t
include the owners’ first and last names, they must file a
DBA
(doing business as). Also known as a “fictitious
name,” a DBA registers the name with the state and puts the ownership on
the public record. This is a way to provide transparency and ensure consumers
know who owns and operates a business.

Entrepreneurs who envision eventually
expanding their company (for example, opening an office in another state), may
also want to do a trademark search to see if the name is available
throughout the United States
.

3. Write a business plan.

A business plan serves as a roadmap of sorts.
It captures information about who the trucking business will serve, services it
will provide, how it will be managed, ways it will be marketed, what its
expenses will be, what its expected financial outlook is, and more.

A few
of the details to sort through as you’re building your business plan include:

  • Operational and administrative details – Who
    will manage your business? Who will handle your customer service, billing, and
    sales and marketing tasks? Do you need to hire employees or find independent
    contractors to assist you?
  • Start-up expenses –The costs to start a trucking company will vary. They will depend
    on how what business entity the company will operate as, the state where the
    business will be registered, whether the company will be hauling freight
    intrastate or across state lines, trucks and equipment that need to be
    purchased, and more.
  • Ongoing expenses – Of course, trucking
    companies incur costs to stay in operation, too. Examples of some of the
    possible expenses that come with owning a trucking business include truck and
    trailer lease payments, plate fees, fuel, inspections, maintenance, repairs,
    various licenses and registrations, insurance, staff, filing fees, and legal
    and accounting services.
  • Sales and revenue projections – Just as
    getting a handle on the costs of running a trucking business, entrepreneurs
    also need to assess their earnings potential to ensure they can become
    profitable in a reasonable amount of time.

Business plans can range from very simple to
more complex depending on the size and scope of a business. Bplans.com is a good
resource for business plan templates that give trucking company business owners
a head start
in creating one tailored to their
objectives.

4.  Designate a registered agent.

LLCs and corporations, no matter in which
state they’re located, must designate a registered agent to accept service of
process (official government notices and legal paperwork) on their behalf.
Although some states will allow business owners to serve as their own
registered agent, it’s usually beneficial to contract a third party for those
services. A registered agent must be available at their registered address from
the hours of 8 a.m. to 5 p.m. from Monday through Friday. Also, because a
registered agent’s address becomes public record, having a third-party
registered agent helps protect a business owner’s privacy. Entrepreneurs that
anticipate expanding their business can benefit from having a registered agent that can offer their services in all
50 states
.

5. Register your business.

Trucking businesses that will operate as an
LLC or a C Corporation must file registration paperwork with the state. An LLC must submit Articles of Organization,
and a C Corporation must file Articles of Incorporation.
The state might require other forms, as well. To file for S Corp election, a C Corp must also submit
IRS Form 2553
. Note that LLCs can also opt for S Corp tax treatment, and would
need to submit IRS Form 8832
followed by Form 2553.  

Although many people believe that they need an
attorney to file their business formation paperwork, that’s often not
necessary. A reputable online business filing service like CorpNet can handle
completing and submitting registration forms and other applications in all 50
states.

6. Obtain an EIN.

Most banks will require an EIN (Employer Identification Number) from the IRS
before they will open a business bank account for a company. Also, trucking
businesses that will hire employees will need to have an EIN.  An EIN is a nine-digit number that a business
uses on its tax filings and other business documents.

7.
Obtain the necessary business licenses and permits for your trucking business.

Besides the general federal and state
licensing requirements, trucking businesses must comply with industry-specific tax,
license, and permit regulations. The obligations may vary depending on the type
of activities the company engages in. Below are examples of some common
requirements:

  • Obtain a CDL (Commercial Drivers License) – Anytruck drivers working for the company
    will need to get a CDL from the state driver licensing agency in their state of
    residency.
  • Register for a Federal DOT Number –  The Federal Motor Carrier Safety
    Administration issues USDOT numbers, and the U.S. Department of Transportation
    uses them to collect and monitor a trucking company’s safety information,
    including inspections and accident investigations. The USDOT website provides the details about when
    vehicles in intrastate commerce will need a USDOT number
    .
    Each commercial motor vehicle used in interstate commerce must have a USDOT
    number. Trucking companies can apply for them through the FMCA’s Unified Registration System.
  • Apply for Operating Authority – For-hire
    freight carriers and those that transport (or arrange for the transport of)
    federally regulated commodities in interstate commerce must apply for an MC Number (Motor Carrier Authority Number)
    through the FMCSA
    . Operating Authority (sometimes called
    “Trucking Authority”) gives a trucking company permission to transport freight
    across state lines. To obtain operating authority, FMCSA requires trucking
    companies to provide proof of liability insurance.
  • Sign up in the Unified Carrier Registration (UCR)
    system
    – Companies (or individuals) that operate
    commercial vehicles in interstate or international commerce must register in a
    state that participates in the UCR program and pay an annual fee (which varies
    depending on the size of the fleet).  If
    a trucking company’s home state isn’t a participating state, it must register
    with UCR in another state that does participate.
  • Pay Heavy Vehicle Use Tax – Trucks that weigh
    more than 55,000 pounds are subject to this tax. Trucking companies must file
    an annual Heavy Highway Vehicle Use Tax Return
    and remit the applicable tax for their fleet. The costs range from $100 to $550
    per year per vehicle.
  • Designate a Process Agent – Trucking companies
    must designate a process agent in each state where they have an office or
    establish contracts. Some process agents offer coverage in all 50 states, which
    is helpful for trucking businesses that operate in multiple states. Process
    agents are used in the event that court papers are served to the trucking
    company in a state other than the one its business is registered in. FMCFA’s form BOC-3 (Designation of Process Agents) is
    used to name Process of Agents for each state
    .
  • Register for the International Registration Plan (IRP) The IRP is an agreement among the U.S. states, the
    District of Columbia, and Canadian provinces
    , which
    provides for payment of commercial motor carrier registration fees. IRP
    distributes registration fees to states and provinces based on the miles
    traveled in each state or province. Trucking companies that will operate in
    multiple states or provinces must register in their home (base) state.
  • Obtain International Fuel Tax Agreement (IFTA) Permit and Decals IFTA is an agreement between the lower 48 states of the
    U.S. and Canada’s provinces that simplifies motor carriers’ fuel use and tax
    reporting
    . The quarterly reporting and tax payments apply
    to carriers who drive in multiple states and/or across Canadian provinces. The
    International Fuel Tax Association, Inc. then distributes tax revenues to the
    individual states and provinces.

In addition to the list above, individual
states may have their own trucking company registration requirements.

8. Stay on top of your business compliance responsibilities.

Different states have different compliance
requirements for LLCs, S Corps, or C Corps. Trucking companies must also stay
up to date with all reports, filings, and fees associated with operating a
transport business. Submitting filings and license renewals on time is critical
for running a trucking business legally.

An attorney and tax advisor can help identify
what forms and reports a business must turn in and when the deadlines occur.
One way to keep track of filings and due dates is by signing up for a free CorpNet’s Business Information Zone (B.I.Z.)
account so you can review any upcoming state, city, and county compliance
deadlines.

Ready to Step on the Gas and Start Your Trucking Business?

CorpNet’s team is here to help you with your
business registration filings, serve as your registered agent, and ensure your
ongoing business compliance filings are submitted accurately and on time. Our
filing experts will save you time, money, and hassles so that you can shift
your business dream into gear. Contact us today to get started!





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Entrepreneurship

What is the Best Business Structure for Your Clients?


Whether you’re an accountant, tax advisor, coach, or consultant, your
clients inevitably turn to you for insight into how to improve their business’s
bottom line. One of the questions they might ask is “What is the best business
structure?”

You need to be ultra-careful in advising customers about this because it’s
unlawful to offer legal advice without a license to practice law.

However, you can give insight that’s pertinent to your certified area of
expertise and credentials—and, of course, direct clients to the right resources
for legal guidance.

Also, after a client has decided on a business structure, you can help them
make the transition by assisting them in completing and submitting the
necessary forms.

It is NOT considered the practice of law to file business registration and
compliance paperwork for clients. And by doing so, you can increase revenue for
your business and provide additional value to your customers.

Later in this article, I’ll get into how you can easily add business
document filing services into your suite of offerings by enrolling for free to
participate in CorpNet’s Partner Program.

But first, let’s take a quick look at some of the considerations that will
come into play as your clients contemplate what is the best business
structure. 

Factors that Affect What Is the Best Business Structure

Owners’ Liability Risks

How much personal legal and financial risk an owner is willing to assume
will influence which legal entity type to choose. Keep in mind that some
types of business have a greater potential to run into litigious situations and
significant debt than others. Formally registering a company as an entity
that’s separate from its owners offers greater personal liability protection
than operating an unincorporated business.

Tax Impact

The IRS (states and other tax authorities) will apply taxes to business
profits according to a company’s legal structure. Some structures are set up to
have taxes flow through to the business owners’ personal tax returns while
others result in the business paying as its own tax-paying entity. Under some
structures, business owners pay a bigger percentage of their earnings for
Social Security and Medicare taxes. Your clients will want to weigh their
options carefully to determine which scenario will offer them the best tax
outcomes.

Ownership and Management Flexibility

Different business structures have different ownership structures to
consider. When more than one owner is involved, things can get complicated, so
it’s critical for clients to understand the advantages and disadvantages of
their options.

Growth Potential

Some structures are better suited than others for entrepreneurs who foresee
needing to raise capital to fuel growth and expansion. In addition to
considering the opportunity to sell stock, some structures generate more
confidence and credibility when approaching investors and lenders.

Costs and Complexity

Another detail business owners will want to
keep top of mind is how much it will cost to file formation paperwork and
fulfill ongoing compliance requirements. Some structures have simple and few
obligations, while others come with more complicated (and costly) formalities.

Succession Plan

Hopefully, your clients are also thinking about their business in the long
term. What will happen to the business after they die? What if a business
partner decides to leave the company? Some business structure types cease to
exist after an owner passes away, while others live in perpetuity.

Without a doubt, there’s a lot for your clients to think about when selecting
what is the best business structure. Now that I’ve set the stage for what
clients should consider, let’s take a look at a few of the most popular
business entity types to give you more insight into each.

Types of Business Structures Your Clients Might Consider

I’ve listed the most popular business entity types below and will share more
details about each one.

  • Sole Proprietorship
  • Partnership
  • LLC
  • Corporation
  • S Corporation

Sole Proprietorship

A one-person (or married couple’s) business will automatically be considered
a sole proprietorship if it’s engaged in commercial activities but not
registered as another business structure. A sole proprietorship doesn’t have to
file formation paperwork with the state, nor does it have any formal compliance
requirements to fulfill. (However, it may need licenses and permits depending
on the type of business and where it’s located. Also, if the owner chooses to
use a fictitious name, it must file a DBA.)

A sole proprietorship is legally and financially considered the same entity
as its owner. This means the owner is personally held liable for debts and legal
obligations of the business. So, if the business can’t pay its bills or someone
sues the company, the owner’s house, vehicles, bank accounts, and other
property could be at risk. Another drawback of a sole proprietorship is limited
financing opportunities. The company may not sell shares of stock, and lenders
may not have an interest in funding the business. So, sole proprietors may need
to depend on their savings account, home equity loans, and assistance from
family to fund big-ticket purchases like property, equipment, etc.

As an unincorporated business, a sole proprietorship reports its business
profits on the owner’s individual income tax return. Because all income and
losses flow through to the individual level, the owner must also pay 15.3
percent in self-employment taxes (total Social Security and Medicare taxes) on
the business’s profits.

Partnership

When two or more people own a business, a partnership is an attractive
option for entrepreneurs who want minimal compliance formalities. Like a sole
proprietorship, a partnership is an unincorporated business. Owners (partners)
divide profits and report them on their individual income tax returns. Partners
must also pay self-employment taxes on their share of the profits.

Partners typically work with an attorney to create a Partnership Agreement
that sets forth how profits get divided and details about what happens if any
of them retires, wants to get out of the business, declare bankruptcy, or dies.
Some partnerships have a buy-sell
agreement
in place, as well, to ensure that the business can
continue to operate if something happens to one of its partners or if a partner
decides to leave.

Partnerships come in several varieties:

  • General Partnership
  • Limited Partnership
  • Limited Liability Partnership

Here’s
the difference between the types of partnership:

General Partnership

The partners in a general partnership manage the company and assume
personal responsibility for the business’s finances and legal obligations.

Limited Partnership (LP)

In a limited partnership, there are general and limited partners. While
general partners own and operate the business, limited partners act as
investors and don’t manage the business’s activities. The general partners are
the owners that assume personal liability for the business. 

Limited Liability Partnership (LLP)

An LLP is very similar to a limited partnership. The primary difference is
that every partner has limited liability and is personally protected from the
debts and legal issues of the business.

Limited Liability Company (LLC)

An LLC
offers the benefit of limited liability to its owners (called “members”) while
maintaining compliance simplicity. Some refer to it as a hybrid between a sole
proprietorship and a corporation.

A limited liability company may be a single member LLC or a multi-member
LLC
(if more than one member). Multi-member LLCs can have an
unlimited number of members.

The business structure offers choices in how it’s managed. An LLC may be
member-managed (its owners run the day to day operations) or manager-managed
(the owners hire someone to manage it or appoint one or more of its members to
handle business operations). LLC members usually draw up an operating agreement
that defines individuals’ roles and responsibilities.

From a tax perspective, the IRS will view an LLC as a pass-through entity.
As such, its profits and losses get passed through to its members rather than
the company paying corporate taxes. Just like owners of sole proprietorships
and partnerships, LLC members must pay self-employment taxes on business
profits.

However, an LLC has some tax flexibility. Members can instead elect to be
taxed as an S Corporation. I’ll explain more about S Corp tax treatment later
in this article, so keep reading!

With a single-member LLC, the business dies with the owner. Multi-member
LLCs may have a limited life, as well, if any members leave or die. Some states
will require members to dissolve the LLC and form a new one with new membership
if there isn’t a buy-sell agreement that establishes the rules for transferring
ownership.

C Corporation

A corporation, sometimes called a C corporation, is a legal entity that’s
separate from its owners and provides the most personal liability protection
for its owners (called “shareholders”). C Corps also may take some
deductions that other business entity types may not. It costs more to incorporate
than to form other business structures, and corporations have more oversight,
record-keeping, and reporting responsibilities to stay in good standing and
operate legally. Some of the compliance requirements that C Corps must fulfill
include designating a board of directors, holding directors’ meetings and shareholders’
meetings, adopting bylaws, etc.

Corporations may sell stock to raise funds, and, because they are
independent entities, they can remain active even when individual shareholders
leave or sell their shares of stock.

A C Corporation pays tax on its profits, files its own income tax return,
and it is legally liable. In many cases, corporate profits get taxed
twice—something referred to as “double taxation.” When the company
makes a profit, the corporation pays tax at the corporate income tax rate, and
then the profits paid as dividends to shareholders are taxed again on
shareholders’ personal tax returns at the applicable income tax rates. If a C
Corp meets the eligibility requirements, it can elect S Corp tax treatment to
avoid double taxation. In addition to the C Corp, other forms of
corporations may be an option depending on the state where a company is
registered:

  • Benefit Corporation (B Corp) – A for-profit corporation that exists for serving a mission to contribute to the good of the public.
  • Closed Corporation – A corporation usually run by a small group of shareholders with no board of directors. Rules vary by state, but typically, a Closed Corporation, may not participate in public trading of stock
  • Nonprofit Corporation – A corporation organized for charitable, religious, educational, scientific, or literary work. Nonprofits may apply with the IRS and state to be exempt from paying federal and state income taxes on their profits.

S Corporation (S Corp)

C Corporations and LLCs, if they meet the eligibility requirements, can
elect to be treated as an S Corp for tax purposes. An S Corp is a tax election
option (IRS Form 2553)
rather than business structure per se.

Federal income tax obligations for an S Corp pass through its owners.
Therefore, C Corps that choose S Corp election avoid double taxation because
profits are taxed only at the shareholders’ personal level. The advantage for
LLCs that elect S Corp tax treatment is that not all business profit is subject
to self-employment taxes. Instead, members pay themselves wages through the
company payroll and only pay self-employment tax on that income. Profits paid
to members as distributions are not subject to those taxes. State rules for how
taxes are applied to S Corp profits vary.

S Corps can have a maximum of 100 shareholders
(or members in the case of an LLC), and other restrictions also apply. An LLC
or C Corp that choose S Corporation election must continue to follow its
underlying structure’s filing and operational processes.

How to Help Your Clients Register Their Business Structure

Now that you have a basic understanding of your clients’ options, let’s
explore how you can help them— and open a new revenue stream for your business—after
they’ve decided what is the best business structure for them.

As I mentioned earlier, it’s not considered the practice of law to file
business documents for your clients. And fortunately, CorpNet has a program in
place to allow you to assist your clients without adding costs and with minimal
effort on your part.

You can enroll for free in the CorpNet Partner Program as
either a reseller or referral partner. As a Reseller Partner, you can private
label our services and offer incorporation, LLC formation, and corporate compliance
filings in all 50 states. Our online portal makes it easy for you to submit
requests and CorpNet takes care of all the rest behind the scenes. You get
discounted pricing (up to 30 percent) on our services and then set your pricing
to your clients as you wish. As a Referral Partner, you refer your customers to
CorpNet, and we work with them on their filings directly. For referring clients
to CorpNet, you get a referral fee of up to 30 percent.

Here’s a short list of some of the filings you can help your clients’
complete through the CorpNet Partner Program:

  • Incorporation (Articles of Incorporation)
  • LLC formation (Articles of Organization)
  • Fictitious Name Registration (DBA)
  • Business License and Permit Applications
  • Foreign Qualification (to conduct business in other states)
  • S Corp Tax Election
  • EIN (Employer Identification Number – IRS Form SS-4)
  • Initial and Annual Reports
  • Articles of Amendment (changes in company name, address, etc.)
  • Annual Meeting Minutes
  • Conversions (when changing from one business entity type to another)
  • Certificates of Good Standing

We also provide Registered Agent services in all 50 states, something your
LLC and incorporated clients will need in whichever states they conduct
business.

Contact
us today to find out more about the CorpNet Partner Program
and the
powerful way it will help you help your clients while boosting your business’s
bottom line!





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