Q: I’m interested in setting up an LLC for my rental car business. How does that work?
Thank you to a customer from Texas for that great question! Starting an LLC for your rental car business can help protect your personal assets in the case of a lawsuit. Since renting cars to strangers is always going to involve risks, it’s important to have solid liability protection. We’ll explain how it works.
Why start an LLC for a rental car business?
Here are some of the reasons it makes sense to form an LLC for your car rental business:
Liability protection
Owning a rental car business involves a number of potential risks, including:
- Personal injury
- Property damage
- Product liability
- Client data breaches
If your business gets sued and you don’t have liability protection, your personal assets could be on the line—including your life savings or your house.
LLCs have limited liability protection, which means that if the business loses a lawsuit or defaults on a debt, only the business assets can be taken, not the owners’ personal assets. However, don’t forget that in order to maintain your limited liability status, you’ll need to keep your business finances separate from your personal finances.
Credibility
Potential customers are not going to want to rent a car from a business they don’t trust. Having the letters “LLC” behind your name shows that your business is legitimate and can help you gain customers and investors, as well as small business grants and loans.
More tax options
Sole proprietorships and general partnerships don’t have options about how they can be taxed, but LLCs do. While LLCs are taxed as pass-through entities by default, they can also choose to be taxed as S-corps or C-corps. Depending on how much of a profit your business makes, being taxed as a corporation could save you money on self-employment taxes. However, it’s smart to consult a lawyer before changing your business tax status.
How do I start an LLC?
Depending on where you live, the process to form an LLC will look a little different, but in general, these are the steps you’ll need to take:
- Choose an LLC name
- Obtain a registered agent
- File formation documents with the state (typically LLC Articles of Organization)
- Create an LLC operating agreement
- Obtain an EIN number from the IRS
- Open a business bank account
- Fund the LLC
- Keep up with state reports/fees
Excited to get started? Check out the Northwest guide to Starting an LLC.