What business structure should I use to form my small business...details below?

Question

In the next year, I am going to buy one semi truck and hire an employee driver to drive my truck. My truck will be leased to a trucking company that will handle the general operations and daily business of my truck. What type of business should I form?

LLC, S-Corp, Sole Proprietorship

I am thinking an LLC would be the best way to go but am worried about being the sole owner when it seems having a business partner would suit this type of business form better for tax purposes. However, it would limit my liability which would be very beneficial in case of a serious accident.

Any opinions or resources are appreciated.

Answer 1

Strongly recommend you go to the small business administration website, then click on Small Business Planner. Under Option 2, Start Your Business, there is an option titled Choose a Structure. Forms of Ownership has a basic description of the options you list above, and you can go to the other descriptions to identify some other possible options that might be appropriate for your business in your state.

(As a site note, an LLC does NOT require a partner.)

Answer 2

The question depends on a number of factors.

A sole proprietorship has the least amount of expense and headaches to setup and operate, but the also the least amount of liability protection. If you go bankrupt as a SP you must declare personal bankruptcy. Income and losses are taxed to you personally and also completely subject to Self Employment tax of 15%.

An LLC is an option you do not mention, but it offers liability protection and is an organization that is more difficult to set up and operate than an SP but less than a Corporation. Income is taxed on your personal tax return as a "pass through". These taxes may be higher if you have income right away, but if you have losses they are deductible against ordinary income on your tax return. SET is due on your salary, but not necessarily on company profits.

An S- corporation has the same tax status as an LLC but is more complicated to setup and operate. If offers liability protections.

A C-Corp is the most complicated to setup and operate, but income is taxed at the corporate rates which can be less than the personal rates. If you sell assets from a C -Corp and then want the money for yourself, it will be taxed twice - once in the corp and once personally. But if you sell the entire business, you get the lowest possible tax rate, capital gains tax, currently 15%.

In short if you will have early losses and need liability protection do an LLC. If you will have a substantial business with lots of profits especially early on, do a regular C Corp. If you're dabbling here and have no real expectation of a meaningful business - do a Sole Proprietorship.

Good Luck,
Dana B - President
www.thebarfieldgroup.com