Incorporating what's right for you.

We find that many of our customers purchase and carry business insurance to provide liability and other protection for their business. However, whether or not the business insurance covers a specific claim relating to the business will depend on a number of factors, including the event giving rise to the claim, the nature of the claim, and the terms and limits of the insurance coverage. An insurance policy will provide protection only against certain claims, and may not cover all of the losses incurred. In addition, the policy holder may be liable for any judgment that exceeds the coverage included in the insurance policy.

In light of the variety of risks that a business owner may face and the limitations on many types of insurance, we find that many of our customers form an entity, such as a corporation or an LLC, to own and operate their business, in addition to purchasing and carrying business insurance. Many of our customers form a corporation or an LLC to own their business assets and operate their business in order to protect their other assets and property from claims that might result from their business. If the LLC or corporation is formed and managed correctly, customers can limit their potential liability if there is a claim or lawsuit relating to their business. If there is a claim against the LLC or corporation, then generally only the assets owned by the LLC or corporation, and not the business owner's personal assets, will be potentially subject to the claim. Therefore, many of our customers form an entity, such as a corporation or an LLC, to own and operate their business in addition to purchasing and carrying business insurance.

Choosing the best entity to own assets and/or operate any business, including a trucking business, is typically dependent on the particular circumstances involved, such as the size and nature of the company's business, and number of owners or members and their respective rights and obligations. Although an LLC and a corporation can both help protect our customers from liability, we find that many of our customers choose an LLC to operate their business. An LLC can offer them more freedom in how they can manage their business (for example the investors can expressly set forth and/or limit the rights, powers and obligations of the LLC's managers and members), and may not require some of the typical formalities of a corporation, such as annual meetings of stockholders. In addition, an LLC can have tax advantages over a corporation. For example, an LLC with only one owner may not have to file a separate tax return and its profit or loss can be included on the owner's tax filing. In contrast, a corporation must file a separate tax return.

Generally, a company will need to apply for and obtain a United States Department of Transportation number and possibly a Motor Carrier (MC) number if it: uses a vehicle weighing over 10,000 pounds; (ii) transports 9-15 people (including the driver) for compensation; (iii) transports over 16 people; or (iv) transports hazardous material. Carriers are generally regulated by the Federal Motor Carrier Safety Administration and Surface Transportation Board. Additional information can be obtained from http://www.fmcsa.dot.gov/.

Generally, by properly forming and maintaining an entity, such as a corporation or an LLC, in a particular state, that entity will be registered as an entity and be qualified to do business as an entity in that particular state. As noted in question #3 above, however, if a company is involved in transporting cargo or individuals, it may be subject to additional requirements. Additional information can be obtained from www.fmcsa.dot.gov.

Also, depending on the laws of a particular state and depending upon the activities conducted in that state, a business entity, such as a corporation or an LLC, may have to register or qualify as a business entity to do business in a state other than the state in which the entity was formed. The entity is often referred to as a "foreign" entity in states other than the state in which it was formed. Generally, qualifying an entity to do business in a state other than its state of formation is similar to the formation process, and the entity may be required to pay filing fees and provide certain information and documentation to the state. If an entity is required to qualify to do business in a state but fails to do so, it may be subject to penalties. In addition, see the response to question #5 below.

Individual driver licensing and vehicle registration are subject to individual state licensing and registration requirements. Therefore, customers should check with their home state motor vehicles department for vehicle registration and licensing information. Additionally, if a company operates its transportation business in states other than its home state, it should consult the registration and licensing requirements of such states.

The business entity statutes of virtually all states require a business entity to (1) specify and maintain a registered office and (2) specify, appoint and maintain a registered agent, in the state in which it is formed and/or qualified to conduct business. Failure to maintain a registered agent and registered office in a state may result in administrative dissolution of the entity or revocation of its certificate of authority to conduct business in a state.

In addition, a motor carrier is generally required to have a registered agent (sometimes called a process agent) in each state in which it is authorized to operate and in each state traversed during such operations. (See www.fmcsa.dot.gov for additional information). See also response to question #10.

Registered agent service consists of providing a corporation, LLC or other business entity with a registered agent and/or registered office in the state where the entity is formed and/or the states in which it is qualified or registered to conduct business. A registered agent receives legal process and compliance mail (e.g., annual reports and tax documents) on behalf of a business entity at a business entity's registered office in the applicable state and will forward such items to the entity's designated contact for handling.

The Company Corporation® can provide not only the basic registered agent services as required by statute, but also a suite of integrated services that, among other things, will help a business entity keep in compliance with law and file necessary corporate forms. For a more complete description of the registered agency services that The Company Corporation® can provide, please visit www.incorporate.com/registeragent.html

Generally, business entities, such as corporations or limited liability companies, are recognized as distinct legal entities, separate and apart from their owners. Thus, business entities generally can hold title to property and assets, such as vehicles, in the name of the entity. In fact, we find that many of our customers choose to have their business entity, and not them personally, hold title to, own and operate their business assets in order to help protect their other assets and property from claims that might result from operation of their business. If the business entity is formed and managed correctly, customers can limit their potential liability if there is a claim or lawsuit relating to their business or business assets owned by the entity. If there is a claim against the entity, then generally only the assets owned by the entity, and not the business owner's personal assets, will be potentially subject to the claim.

Also, if business assets are financed and there are liens held by a bank or finance company on the business assets, the bank or finance company may require the assets be titled in the name of the actual borrower under the loan. Thus, if the business entity has obtained the financing in its name, then the bank or finance company may require that the assets be titled in the name of the entity. See also the response to question #7 for a discussion on providing financing to business entities.

If it otherwise qualifies, an LLC or corporation can obtain a loan from a bank, finance company or other lender. Before applying for a loan or financing, it is necessary to determine the proposed amount of the loan, how the loan proceeds will used by the company, and the company's expected source of the funds necessary to repay the loan. Typically, lenders will grant loans only if they are satisfied that the borrower has the ability and resources to repay the loan. Also, lenders typically require that any assets purchased by the LLC or corporation with the proceeds of the loans, such as trucks or other equipment, must be pledged as collateral for the loan.

Normally, the criteria that lenders use to evaluate a company's loan application include a thorough credit check of the borrower (in this case, the company and any guarantors). A lender may also look at the company's cash flow (past and projected) to determine if it will be able to repay the loan and also continue to operate its normal business operations. Lenders may also ask the company's owners to personally guarantee the loan and/or provide additional collateral (other than the property owned by the company) that the lender can take if the company fails to repay the loan according to the required terms.

Typically, lenders will use the above criteria regardless of whether the loan applicant is an LLC or corporation. Stated another way, a company's ability to obtain a loan generally will depend on the resources and financial condition of the company and its owners, and not the legal form of entity (i.e., LLC or corporation).

Many of our customers form a corporation or an LLC to own their business assets and operate their business in order to protect their personal assets from a claim or lawsuit relating to their business. If a business investor owns multiple business assets, he or she may be able to further protect his or her assets by forming a separate corporation or LLC to own and hold each separate asset. If the separate corporations or LLCs are properly formed and maintained, then theoretically only the assets owned by a specific corporation or LLC would be subject to claims or lawsuits against that corporation or LLC. However, there are costs and administrative burdens associated with forming, qualifying (if necessary), and properly maintaining multiple corporations or LLCs, which should be considered in deciding whether to form separate entities for each business asset. For example, each corporation or LLC must apply with applicable federal and state registration and licensing requirements. See also the responses to questions #3, #4, and #5.

Another option to consider, if permitted under applicable law, is a series LLC, which is an umbrella entity consisting of one LLC with multiple "series" or "cells." Series LLCs may be of interest to individuals who have several large assets (such as multiple vehicles) for which they desire to maintain separate liability protection.

To best understand how an LLC and a series LLC differ, a typical non-series LLC (if properly formed and maintained) will generally protect its owner's personal assets from the LLC's business obligations. However, it will not protect one asset owned by the LLC from being used to satisfy a judgment relating to another LLC asset. Under a non-series LLC, all assets owned by the LLC are potentially subject to any claim or lawsuit against the LLC. For example, assume that a typical non-series LLC holds several assets. If a person is injured by one of the LLC's assets and sues and wins, then all of that LLC's assets -- even the other assets that it owns -- can be used to satisfy the judgment obtained against the non-series LLC. The LLC could potentially lose all of its assets based on a lawsuit or claim that is related to only one of its assets.

A properly formed and maintained series LLC will treat each created series as a separate entity, with its own rights and obligations. Theoretically, under a series LLC, if someone is injured by Asset #1 (which is an asset of Series #1) and sues the LLC and wins, then only the assets of Series #1 should be at risk with regard to the claim. Companies should consult the applicable state and federal laws and registration requirements to determine if it is necessary for each Series of a series LLC to separately register its vehicles or obtain licenses in the name of the Series.

The series LLC originated in Delaware, but the laws of some other states (such as Illinois and Oklahoma) also provide for the formation of a series LLC. The Company Corporation has extensive experience in setting up series LLCs in Delaware, Illinois or Oklahoma, and can help business owners properly form and maintain a series LLC.

Ownership and transfer of ownership of a vehicle is determined by the law of the state where the vehicle is registered. Customers should consult the applicable state motor vehicles department for details regarding transfer of ownership and registration of vehicles.

The BOC-3 is the form used by the FMCSA to identify the "process agent" or "registered agent" used by a company in a state. See also the responses to questions #4 and #5. Having a process agent in every state is known as "Blanket Coverage." A company cannot obtain its Certificate of Authority unless it has filed a BOC-3 with the FMSCA. (See also http://www.fmcsa.dot.gov/registration-licensing/licensing/agents.htm).

The Company Corporation provides process agent services. Please call 800-818-6082 or contact us online for more information.

The International Fuel Tax Agreement is an agreement among all states (except Alaska and Hawaii), and with certain Canadian provinces. It simplifies the trucking companies' quarterly reports and allows the use of a single set of decals and permit applications in connection with the payment of fuel taxes. It does not apply to all vehicles. For additional information see www.dot.wisconsin.gov/business/carriers/ifta.htm.

The Heavy Highway Vehicle Use Tax generally applies to highway motor vehicles having a taxable gross weight of 55,000 pounds or more, but certain vehicles may be excluded. If a company is subject to the tax, it must file a Form 2290, Heavy Vehicle Use Tax Return. The tax form is not due until after the company begins to use the covered vehicle. For additional information, visit www.omeda.org/fastfacts/0230.htm.

To obtain the Heavy Highway Vehicle Use Tax form, visit http://www.irs.gov/pub/irs-pdf/f2290.pdf