When starting a heavy duty repair and tow business, your first big decision will be how to structure your company. Two of the most common options for heavy duty repair and tow businesses are LLC and sole proprietorship. Let’s review both paths to help you better understand them.
What Are the Differences Between an LLC vs. a Sole Proprietorship?
The main difference between an LLC and a sole proprietorship is how they’re defined. An LLC, which stands for limited liability company, is a business type that prevents you from being liable for your company’s debts or liabilities personally. A sole proprietorship is a business type that doesn’t separate you and your business. One of the cons of this option is that your personal and business debts and liabilities will all be tied to you.
For example, if you decide to purchase all of your towing equipment as a sole proprietor and take on more debt than you can handle, creditors can go after your personal property such as your home. As an LLC, your personal property is protected. There are also differences in the structure of each business. For example, a sole proprietorship is run by one person while an LLC can have multiple owners known as members.
Sole Proprietorship vs. LLC: Which Should I Choose?
3 Benefits of a Sole Proprietorship
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- Easy set up: It’s incredibly easy to form a sole proprietorship. You don’t even have to register your shop with your state. All you’ll need to do is file a DBA (doing business as) if your business name is different from your legal name.
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- No need to file a separate return: You’ll file your taxes using your personal tax return, making tax time easy. Plus, you’ll only be responsible for paying your personal federal, state and local taxes. You can also write off business expenses, such as towing equipment repair on your personal return.
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- Keep all profit: As a sole proprietor, you get all of the profit your business makes.
3 Benefits of an LLC
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- Protect yourself: Your personal property such as your home, car and bank account are protected from creditors working to collect business debts.
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- Easier tax filing: As an LLC, you won’t have to pay LLC taxes or corporate taxes. All you need to do is pay personal income tax using your personal tax return.
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- Full control without liability: If you choose to be the sole owner and manager of your business, an LLC gives you complete business control without personal liability.
Just like any other business decision, there are also cons to the different business types. For example, RoadSync and other important vendors only work with LLCs. Yet, LLCs cost more to create and manage. And while you can create a sole proprietorship without much cash up front, it might be hard to get a loan for that new tow truck.
Be Prepared for Partners
It’s important to note that, as a heavy duty repair and tow shop owner, there are a few pieces of information you’ll need frequently for business verification. Many vendors, partners or financial institutions, including RoadSync, will also requires these items from any business they work with:
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- FIN #
- Voided check from business account
- W-9
- Active Secretary of State filing
- SS4/Business License
Not sure whether to choose a sole proprietorship or LLC? Consider these pros and cons and how you want your business to look in the future. We also encourage you to talk to a business attorney who can give you some advice.
In Heavy Duty Repair & Tow Business Growth Mode? Check Out Our Blog for More Insights!
Is business booming? Our blog is full of industry insights and resources to support you, including information on how to hire the best technicians for your shop. Check out our recent blog post, Attracting and Hiring Employees for Your Shop.
