Forming a LLC, is it worth it?
 

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!

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.

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,

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. :D .

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.

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.

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.

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.

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.

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.

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!