Forming a LLC, is it worth it?

[4GIVEN]

I am just starting out with my own truck and was wondering about LLC's. The only thing im worried about is losing my house to some knucklehead that sues me for running over his car. Ive heard of getting a LLC, but ive also heard that there is something called a homeowners LLC. Anyone ever dealt with this? Whats the best way to cover my bee-hind? Oh, and by the way, ths site is th best. Thanks and God Bless!

[no_worries]

If you are the driver, you get no protection for your personal assets in the event of an accident. There may possibly be some protection in the event the business goes bankrupt. However, just starting out it's likely that you will be required to personally guarantee any significant credit anyway, which defeats the purpose.

[Joymax_Trans2]

4GIVEN,

Check out this web site nolopress.com. Hope this helps.

What is a limited liability company?

A limited liability company, commonly called an "LLC," is a business structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation.

Like owners of partnerships or sole proprietorships, LLC owners report business profits or losses on their personal income tax returns; the LLC itself is not a separate taxable entity. Like owners of a corporation, however, all LLC owners are protected from personal liability for business debts and claims -- a feature known as "limited liability." This means that if the business owes money or faces a lawsuit for some other reason, only the assets of the business itself are at risk. Creditors usually can't reach the personal assets of the LLC owners, such as a house or car. (Both LLC owners and corporate shareholders can lose this protection by acting illegally, unethically, or irresponsibly.)

For these reasons, many people say the LLC combines the best features of the partnership and corporate business structures. To learn more about limited liability companies and limited liability,

[ncnewbie]

As Joymax_Trans2 said "Both LLC owners and corporate shareholders can lose this protection by acting illegally....." Per your example above, running over someone's car is usually illegal. .

I've done quite alot of research on this subject. Most advice I've received about what "protection" a LLC provides a 1 person business always boiled down to: not much. Judges can view a 1 person LLC as simply a Sole Proprietorship and "pierce the corporate veil" exposing your personal assets. Here's some info I found about "piercing" with a quick Google search

"Factors for Courts to Consider

* Significant undercapitalization of the business entity (capitalization requirements vary based on industry, location, and specific company circumstances)
* Failure to observe corporate formalities in terms of behavior and documentation
* Intermingling of assets of the corporation and of the shareholder
* Treatment by an individual of the assets of corporation as his/her own
* Failure to pay dividends
* Siphoning of corporate funds by the dominant shareholder(s)
* Non-functioning corporate officers and/or directors
* Concealment or misrepresentation of members
* Absence or inaccuracy of corporate records
* Was the corporation being used as a "façade" for dominant shareholder(s) personal dealings; Alter Ego Theory
* Failure to maintain arm's length relationships with related entities
* Manipulation of assets or liabilities to concentrate the assets or liabilities
* Other factors the court finds relevant

It is important to note that not all of these factors need to be met in order for the court to pierce the corporate veil. Further, some courts might find that one factor is so compelling in a particular case that it will find the shareholders personally liable."


About 20 yrs ago, my roommate's girlfriend worked as a court reporter in the Boston area. Several times at our Friday nite watering hole she'd tell us stories of how the lawyers for both sides would meet with the judge to decide not so much who was guilty but how to make the outcome produce the most money for the lawyers (and hence the judge's reelection campaign). Justice can have many faces in our legal system! :twisted:

For what you're worried about, I'd suggest carrying a large liability policy on your truck and some form of "business insurance". Make those the "deep pocket" and hope the other side will be happy with the $500k from your insurance company and forget about spending another $20k on lawyers and courts trying to get an additional $50k out of your house.

And if you're thinking about an LLC with your spouse or a close relative to beat the 1 person thing, well the courts probably won't find your argument very compelling.

[jonboy]

An LLC will not protect you from your creditors if you borrowed money under your own name.

I have an LLC, and would never be in business without one or a corporation.

If you are leased to a company and you have a wreck, depending on the size of the company, you most likely could get sued along with the company. Just think about it, if the company has a lot of trucks, it is perceived there is money to be had, so the lawyers will file suit against the company and you. The company attorneys will most likely decide for some sort of out of court settlement which may not be agreable to you.

Bottom line is, you could wind up in bankruptcy, and everything you own that is not exempt property can be seized if a judgement is rendered against you. If you have an LLC, you could bankrupt it and go on again. Here's how.


1. Buy the truck in your name. You can also take the depreciation off your taxes

2. Lease the truck to the LLC or Corp you form.

(make sure there is a legal document drawn with some profit it it for you on the payment. This shows intent to make money off the lease.)

3. Keep your personal money and the LLC money seperated. Also file your taxes seperately. The government treats LLC.s and Corp. as seperate identities and so should you. Treat it as if it was a business down the street.

4. Treat yourself as an employee of the LLC and have records to prove it. Pay your spouse out of the LLC and reduce your taxes.

5. Make sure the LLC has no assets except for the business income.

If you do this and operate under the LLC, the only way they could come after you personally, would be some sort of gross negligence on your part (as an employee). This kind of organization is done everyday, in fact the rich will have two corps between their assets and any dangerous or risky business. They will generally put all their assets in a family trust which is impossible to penetrate, and then form a holding corporation, and then do business under another.

Perfect example:

Schneider Leasing
Schneider National Carriers
Schneider Logistics ?? not sure but on this one, but I bet there's more.

In other words, you could never get all their money. It's sufficiently seperated.

[no_worries]

The issue here is that, if you are in an accident, you are PERSONALLY liable. There is no way to shield your assets through an LLC or a standard corporation. Basically, if you're in an accident, you're screwed. There may be others screwed as well, i.e. a company you're leased to whether it's your own company or a completely separate one, but because you were at fault you will be named and your personal assets fair game. So there's really no reason to operate under a LLC or other corporation from a liability standpoint. This only applies to a one-truck operation. If you have employees or leased vehicles, by all means incorporate in some form.

The best piece of advice was the one on having adequate insurance coverage. If you can appease them with a large insurance settlement, you may be able to keep them from going after your personal assets.

[Kranky]

Actually, the best piece of advice is that you should consult your attorney, who knows your precise situation and can answer these questions based on that situation and legal precedent.

[merrick4]

I set up an LLC and the only reason I did was because I play the credit game. Of course you can be a sole proprietor and get business credit but I wanted a tax ID number. So now instead of maxing out personal credit (for a profit not to be in debt) which you obviously aren't supposed to do, I set up the LLC and got a bunch of new credit which is now maxed out and not affecting my personal credit nor score. Of course if I defaulted I still am personally liable.

So I guess the business credit would be an ancillary reason then but not often mentioned.

[no_worries]

Certainly a valid reason merrick, along with tax considerations, though it's debatable how big of an advantage those are. I was trying to stick with the liability issue.

The fact is, this subject has been discussed ad nauseam, not only here but on other boards and in many publications. About the only lawyers and accountants that don't acknowledge the absence of liability protection for a one-truck operation are those who derive a significant portion of their business from setting up LLC's and corps. Call OOIDA's legal department, I would imagine they'll say the same thing.

[ncnewbie]

4GIVEN: Before you decide a LLC will provide what you're looking for, you might want to take steps 1-5 above to an attorney that specializes in debt collections. Ask how much "protection" those steps would provide the officers and employee(s) of a one person (or husband-wife) LLC regarding debt collection. How much tougher would his job be? I'll wager he says "not much". (For some reason those steps reminded me of all those sitting in prison for not paying taxes because they believed the Constitution doesn't require it. I think many represented themselves in court. When my ex did that in our divorce my lawyer's advice was "don't say a word and you'll get everything". )

Best Of Luck in your new endeavor! There's loads of advice on here about being a success as an owner/operator, from maintenance to finding loads to the best cab crappers. However, with anything "legal" always seek professional advice. A little $$ up front can save you BIG $$ later.

Safe journey!

[GMAN]

I prefer operating within a corporate structure. The main reason lawyers can pierce the corporate veil is the intermingling of corporate and personal assets. It doesn't matter whether you have an LLC or corporation if someone wants to sue you they will. While the limited protections are a consideration, the tax benefits are more important to me. Every situation is different. I suggest you check with either a lawyer or CPA to advise you about your situation. By the way, you don't need an attorney to set up a corporation or LLC for you. Most states have standard forms you can use. That is all the attorney's do. The difference is that they will often retype the wording rather than use the state forms so you aren't aware that is what they are doing. I have set up several corporations. All were just as legal as if I had paid $1,000 or more for a lawyer to do it for me.

[person]

Case senario -
You are in your 4 wheeler. You do BIG time damage to someones life. Their lawyer gets the court to say that they get more than you are insured for, (b/c that's how it works now days.) If they think you have something, they go after it. In this case they cannot go after your LLC. If you didn't have the LLC they would be more inclined to go after you b/c they would think that you had more stuff to get , - like your truck and your trucking bank account.

Another senario would be that you or your spouse or minor child is found guilty of maiming someone(edited to say- if the incident occured outside of your business), or now days doing anything against them at all, and your liability is high. Once again you still have your livelyhood. In this sue happy world, people may want stuff like your equipment seeing dollar signs when they observe that you have a business.

[person]

And you can expand with this LLC. If your spouse wants to open up a daycare or a boutique or a bank, you can add this operation. And it is all under the same protection, should it become an asset. ( I really don't know banking law. Just made that up.)

These examples are about states that have "good" LLC laws. I have no idea how bad they can get in certain states.

[jonboy]

I believe if you consult an attorney you'll find that unless "gross negligence" is proven, which is very difficult to prove unless you have violated DOT rules or are violating some other statute ie. speeding, wreckless driving, or talking on a cell phone (which really makes me mad when I see drivers do that with one hand stuck in their ear), an employee cannot be held responsible, but only the company or its insurance company.

One of the first things the attorneys will do is subpeona your cell phone records to see if you were on the phone, and if you were, you'll have a difficult time defending yourself as not being negligent. You not only can be found liable in civil court, but very may well be prosecuted in criminal court. Forget the money, you could lose your license and your freedom.

I believe a law abiding driver really has nothing to worry about if they are compliant with all regulations and can substatiate it.

Bottom line is, an LLC is nothing more than a sole proprietorship wrapped in a corporate shell, and gives the same legal protection as a corporation.

If the truck operated by an LLC hits somebody, that is who they're going to look at, that LLC. When was the last time you heard of any employee of a corporation held responsible unless there was fraud or negilgence???

It just doesn't happen. If it did, the whole corporate shell would unravel in about 5 minutes and many risky businesses would cease to exist.

Remember, corporations were designed by the rich to protect their money, the tax benefits are secondary.

my three cents worth.

[person]

If the truck operated by an LLC hits somebody, that is who they're going to look at, that LLC. When was the last time you heard of any employee of a corporation held responsible unless there was fraud or negilgence???

I hope you can substantiate this. This would be great news. Is there ALWAYS gross negligence? Like when a teacher does something and the principal and school district gets sued along with the teacher. Or when a MD at a corporate hospital gets sued it seems I guess that they sue the dept. head and the hospital too. It seems every law suit that I've ever heard of had many people attached to it, each getting personally sued.

[no_worries]

There are sources all over, including the aforementioned Nolo.com, stating the exceptions to asset protection provided by LLC's and corps. Here is one that I think most directly addresses the exposure that a one-truck O/O is likely to face:

There are some tort exceptions to limited liability that would negate carefully constructed asset protection plans and expose an owner to unlimited personal liability.

Under tort or personal injury law, if an individual personally commits a tort, that person is liable to the injured party. This is true irrespective of whether the individual was acting as an agent for another party at the time he or she committed a tort. Of course, if the individual was acting as an agent, the principal (business) would automatically be liable as well.

Consistent with this general rule, if the small business owner commits a tort while acting as an agent for his limited liability company (LLC) or corporation, the owner is liable to the injured party. The fact that his LLC or corporation also will be liable is not relevant to the owner's personal liability.

Many states codify this exception in their statutes governing professional corporations (PCs). All states incorporate this exception into their statutes that govern professionals (doctors, lawyers, architects, electricians, etc.) operating in the form of LLCs (or limited liability partnerships). Even when the provision is not statutory, however, the rule is universally applied by the courts, as a matter of common law.

This exception can be encountered even in a business that sells goods and provides no services. This is especially true in a business that involves risk of injury to the customer (e.g., operation of a lumberyard). An owner who personally stacks the store shelves or loads a customer's car in a careless manner will have personal liability for his negligence. An auto accident caused by the owner of the business represents another commonly encountered example of this exception. This, of course, can occur in almost any business.

Nevertheless, this exception to limited liability will represent perhaps the most significant exposure to liability for the small business owner who operates a personal service business.

By the way, as is taught in all 1L classes, gross negligence is not necessary to find somebody liable in tort cases. Negligence is all that needs to be proven and only by a preponderance of the evidence. A much lower standard than in a criminal case. By virtue of the fact that we are considered "professional drivers" we can be held to a much higher standard than the general motoring public. As a result, in most accidents involving trucks, the driver can be found responsible to some degree. The first thing most driver training courses tell you is that if you're in an accident, it's your fault. While that's not entirely accurate, it's not far off.

[4GIVEN]

Basically its just me, but my wife is going to be taken care of all the paperwork and stuff. I just bought a 99' international 9200i and im leasing on with triple crown. I currently drive for fed ex national. Hopefully I will be ok for a while until I learn the ropes. Thanks for all the replies Everything helps!!