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.
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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!