What is an LLC?
Whether you are new to trucking or have been here for a while I’m sure you have heard the term LLC before. But do you know what it is, do you know if you need it, Pros and Cons? Let’s talk about it!
What does LLC mean?
LLC is short for Limited Liability Company. The owners of an LLC are called members. So fancy. I going to continue to use that term, just FYI. An LLC is one of many ways you could structure your company. Note that each state may use different regulations. You should check with your state before you start the prosses.
There are a few different types of LLCs. Let’s break them down.
- A Single-member LLC is for when you are the sole owner of the company.
- A multiple-member LLC is if you have a partner or partners who also own part of the company. Members may include individuals, corporations, other LLCs, and foreign entities.
- A professional LLC (PLLC) is a business entity designed for licensed professionals. Lawyers, doctors, architects, engineers, accountants, and chiropractors.
Do I need to form an LLC?
If you are planning on starting your own trucking company, or any company, or are currently running a business as a sole proprietor, you should consider forming an LLC. Especially if you’re concerned with limiting your personal legal liability as much as possible. An LLC can be used for businesses of all sizes. From one-owner operations to businesses with many co-owners.
What are the Pros and Cons of an LLC?
Pros
· As the name LLC implies, there is limited liability for you as the owner. Your personal assets are protected from lawsuits and creditors.
· An LLC can help you avoid double taxation. What is double taxation you ask? In this case, it is being taxed at the company level and then again at the personal level. Having an LLC means the income your business generates passes through to you as the owner and gets taxed as personal income. AKA pass-through taxation.
· An LLC is the simplest type of business to form and operate.
· LLCs can have as many owners, AKA members, as you want.
· Forming an LLC can also give you more creditability with your customers. If you are small or just starting out this can be a big help.
Cons
· The IRS considers LLC members as self-employed. This means you will need to pay self-employment taxes. There is an exception though. If you’re in a multiple-member LLC and are not actively involved in the management of the business. The regulations surrounding this are complex though. Be sure to talk with your accountant about it if you think this applies to you.
· Taxation can get complicated depending on how you choose to have your LLC taxed. The IRS taxes single-member LLCs as a sole proprietorship by default. Multiple-member LLCs are taxed as a partnership. But you can also choose to have your LLC taxed as an S corporation or C corporation. An S corporation election can save you thousands of dollars in self-employment tax when done correctly. It can get complicated, so we recommend working with a tax accountant to decide how you should elect to be taxed.
· It tends to cost more to form an LLC than to be a sole proprietor or have a partnership.
If you have more questions on LLC’s, forming one, or what type of LLC you should form, reach out! We would love to help. Ready to run and form one but want a little help? Trucking Angles can help you with that and some!
Written by Harley VanDyke
Harley joined Superior Trucking Payroll Service (STPS) in early 2019. With nine years of customer service experience, she truly understands what it takes to make our clients happy. She loves working at STPS because of the family-like atmosphere. Harley’s favorite place to be is Traverse City, Michigan or anywhere that has hippos.
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