Truck Driver & Owner Operator Services
Incorporating: Dispelling Some Myths (brief Tutorial)
There are many reasons why people feel they should incorporate their business. Some reasons are to make more money,
for tax advantages, for asset protection, to protect against lawsuits, for ease of operation and to limit risk.
Often, some of these reasons are based on misinformation. There are many things that being incorporated won't do
for you. It will not automatically make you more profitable. Nor will it necessarily limit your liability on all
transactions or protect you from all lawsuits. However, being incorporated can limit risks, can save taxes and can
protect your assets.
Should You Incorporate?
There are many factors to be considered before deciding if incorporating is in your best interest. Every
situation is different and what is good for one trucker is not necessarily good for another. For example, some
factors to be considered are soundness of the business, consistency and level of income, awareness of corporate tax
and payroll requirements as well as stringent record keeping requirements. Many corporations formed by truckers are
one person corporations. Even if they are a one person corporation there are requirements to be met.
You cannot simply file Article of Incorporation within the state and expect to avoid personal liability.
If you do not follow the proper corporate guidelines you risk losing the benefit of "limited liability."
If you are sued and the court determines that the shareholders are operating as individuals rather than through the
corporation, the court can make shareholders personally liable for all corporate debts.
The court will look to see if corporate formalities were followed, contracts were signed properly, personal and
corporate funds were co-mingled, required meetings were held, stock was issued properly, the minute book was kept
up properly, etc. If the court determines that shareholders are personally responsible for a corporation's debts,
it is usually due to the fact that the proper corporate guidelines were not followed.
What State Is Best For Incorporation?
Many truckers have incorporated their businesses in Delaware and Nevada, enticed by low state filing fees,
lenient rules and minimal restrictions. However, minimal legal and regulatory standards are of little value if
you're operating as a closely held corporation.
Delaware for example is and has been for quite sometime the most popular state to incorporate in. Forty
percent, if not more, of the corporations listed on the New York Stock Exchange are incorporated in the state of
Delaware definitely has advantages if you're a large publicly held corporation or if you're a closely held
corporation that plans on having large numbers of directors, officers and shareholders. Because the larger you are,
the more exposure you have. If not, there is no advantage over incorporating in your "home" or "domicile" state.
Over the years the advantages of incorporating in Delaware have lessened as most states competing for business have
updated their corporate statutes allowing for more uniform corporate law. Significant differences still exist in
One problem for truckers incorporated in Delaware or Nevada is the additional costs of qualifying in their home
state as a "foreign" corporation. A corporation doing business in the state where it is incorporated is known as a
A corporation doing business in a state where it is not incorporated is considered a "foreign" corporation. For
example, a trucker living and operating his company in Kentucky but incorporated in Delaware is a "domestic"
corporation in Delaware and a "foreign" corporation in Kentucky.
As a "foreign" corporation you must register and qualify in the state which you plan to maintain and staff your
office to transact business. A corporation wishing to do business in a state other than its state of incorporation
must meet the licensing requirements of the state where it intends to do business.
The usual procedure is to file an application with the secretary of state in the state where it intends to
operate, certifying to the corporation's name, date and state of incorporation, the nature of its business, the
location of its principle place of business; and enclosing a copy of its certificate of incorporation, a
certificate of good standing and other significant data.
This information is usually accompanied by a registration fee payable to the intended state. Once operation
commences, the "foreign" corporation is then also subject to all rules applicable to domestic corporations within
the state, such as use of a corporate name and the payment of corporate income and franchise taxes.
The state fee to qualify a foreign corporation is never less than the normal incorporation fee for a domestic
corporation. In some states the fee is as much as ten times more to qualify as a foreign corporation than it is to
simply incorporate as a domestic corporation in the first place.
Incorporating as a domestic corporation in your home state offers the same limited liability, personal
asset protection and tax savings as a Delaware or Nevada corporation without the additional requirements,
responsibilities and costs of operating as both a "domestic" and a "foreign" corporation.
Also, many tax and business issues are determined by the employer/employee and/or corporation's domicile
state, such as payroll and workers' compensation requirements. A Delaware or Nevada corporation does not offer any
advantages in this area either.
Get the Proper Guidance
Incorporating your business without being fully aware of all the tax and legal implications, as well as
understanding the requirements and responsibilities of operating as a corporation, could be potentially damaging to
your business. Because of the increased costs of operating as a corporate entity, and because of the many legal and
tax considerations, anyone considering incorporating should discuss the matter with both their accountant and
Everyone's financial situation is different. This article does not give and is not intended to give specific
accounting and/or tax advice. Please consult with your own tax or accounting professional.
This article has been presented by PBS Tax & Bookkeeping Service, a company that has been providing income
tax and bookkeeping services to the trucking industry for over a quarter century. Contributions to this article
were made by Shasta May, Director Business Development for PBS. If you would like further information, please
contact us at
How You Can Benefit from a Corporation or LLC
Regardless of their size, all businesses can benefit from incorporating. Advantages of forming a corporation or
Limited Liability Company (LLC) include:
- Personal asset protection. Both corporations and LLCs allow owners to separate and
protect their personal assets. In a properly structured and managed company, owners should have limited liability for business debts and obligations.
- Additional credibility. Adding "Inc." or "LLC" after your business name can add
instant authority. Consumers, vendors, and partners may prefer to do business with an incorporated company.
- Name protection. In most states, other businesses may not file your exact corporate
or LLC name in the same state.
- Perpetual existence. Corporations and LLCs continue to exist, even if ownership or
management changes. Sole proprietorships and partnerships just end if an owner dies or leaves the business.
- Tax flexibility. Though profit and loss typically pass through an LLC and get reported on the personal income tax
returns of owners, an LLC can also elect to be taxed as a corporation. Likewise, a corporation can avoid
double taxation of corporate profits and dividends by electing
Subchapter S tax status.
- Deductible expenses. Both corporations and LLCs may deduct normal business expenses,
like salaries, before they allocate income to owners.
Click here for to determine what type of corporation: S-corp, C-corp, LLC, etc