Starting a towing company can be a lucrative business venture. However, many things need to be considered before starting such a business.
One of the most important decisions you will make is what type of legal structure to use for your business.
This article will discuss how to start an LLC for a tow truck business and explain why this might be a good choice for you. We will also highlight some potential drawbacks of using an LLC structure.
Steps to Starting a Towing Business
When you want to start a towing business as a limited liability company, you must take several steps before the state legally recognizes your tow truck company.
A successful tow truck business has to follow all the local and state laws, so it is important to do some research before taking any steps.
Here are the basic steps tow truck businesses must take before registering as a limited liability company.
Step 1: Choose your LLC Name
A tow truck business registering as an LLC has to follow the naming guidelines of the state.
When choosing the name of your LLC keep in mind it cannot be the same as an existing business, and it must contain the words "Limited Liability Company" or "LLC."
When you choose your LLC's name, make sure to do a trademark search to ensure that no other towing companies are using a similar name.
You don't want to spend time and money on marketing only to find out that another tow truck company has a similar name.
Towing companies often use creative names that reflect their services. For example, "AAA Towing" or "Budget Towing." Make sure to avoid restricted words like "Bank" or "Attorney" as part of your LLC name.
Once you have chosen your tow truck business name, you can reserve it by filing a Name Reservation Request form with the state.
This ensures that no other businesses in the state can register a similar name. States require tow truck businesses to file a Name Reservation Request form before filing their Articles of Organization.
Step 2: Hire A Registered Agent
When starting a towing business as an LLC, you must hire a registered agent service.
A towing company needs a registered agent because they have to be available during business hours to accept legal documents on behalf of the company.
A registered agent is someone who agrees to receive legal documents and correspondence on behalf of your tow truck business.
The registered agent must reside in the state where the LLC is formed, and they must be available during normal business hours.
You can hire a registered agent service or an individual to be your company's registered agent.
If you hire a registered agent service, they will have multiple employees who can act as your company's registered agent. This is often a good choice for tow truck businesses because it provides more flexibility.
Step 3: Create an Operating Agreement
Even if you are the only business owner of your towing company, you will need an operating agreement to specify the terms and conditions of your business.
An operating agreement is a legal document that outlines your LLC's ownership structure, management duties, and financial obligations.
An operating agreement is not mandatory by law, but it is a good idea to have one in case there are disputes between new business owners. It can also help you avoid costly legal battles down the road.
Creating an operating agreement is not a difficult task, but it is important to consult with an attorney to ensure that your agreement is legally binding and that it covers all the necessary provisions that wi
Step 4: File Articles of Organization
A new towing business registering as an LLC has to file articles of organization with the state.
Although this filing can be done online, some states require it to be mailed in. The forms are typically available on the website of the Secretary of State or business division.
The cost of setting up an LLC varies from state to state but can typically range from $50-$500.
There may also be annual fees associated with maintaining your LLC, even in the automotive towing industry.
The articles of organization will include the company name, address, registered agent, and owner information. Be sure to have this information ready when filing.
Some other items that may be required as part of your application but are not limited to: a copy of your driver's license or state identification card, the LLC's Operating Agreement, and EIN.
Step 5: Obtain Business Licenses and Permits
Tow truck drivers need a commercial driver's license (CDL) or Class B license, which is different from a regular driver's license.
You will need to get a business license, as well as any permits required by your state or city. For example, you may need a permit to operate your tow truck on the streets in some areas.
Every business entity providing towing services needs to have a DOT number.
You can obtain a DOT by filing an application with the Federal Motor Carrier Safety Administration. The application can be found on their website and filled out completely and accurately.
After the LLC is registered with the state and the DOT number is obtained, you must get a business license from your local municipality.
Tow vehicles must also display the DOT number on both sides of the truck in a contrasting color.
Make sure to check with your county clerk's office for any other specific permits or licenses that may be needed.
Not obtaining the required permits can cause severe financial and legal penalties or even lead to your LLC getting dissolved by the state.
Step 6: Obtain Business Insurance
Truck drivers and tow trucks have to be insured against accidents, injuries, and damages that could occur while working.
This commercial property insurance will protect your business in the event of an accident or damage to your tow truck.
You'll also need general liability insurance to protect your business from any legal claims that might arise from operating your tow truck business.
You can usually get commercial property, emergency roadside assistance, and general liability insurance from the same insurance company.
Be sure to shop around and compare rates before buying any business insurance for your towing company.
Tow vehicles must also be registered and titled in your name. Check with your state's motor vehicle department for more information on registering and titling towing vehicles on your business location.
Most states require that towing companies have a surety bond. This type of bond protects customers from any losses due to dishonest or incompetent truck drivers.
Step 7: Obtain an EIN and Open a Bank Account
A towing business needs an EIN, which stands for Employer Identification Number. You can apply for an EIN online, by fax, or by mail through the IRS website.
An EIN allows towing companies to hire employees, apply for a business loan, open a business bank account, and file franchise taxes.
A business account allows your towing business to separate personal and business expenses. This is important for tax purposes and will help you stay organized.
You can open a business bank account online or in person at a bank branch. When you open a business bank account, the bank will ask for your EIN.
Registering your towing company as a limited liability company will provide personal asset protection, but only if your keep your business expenses separate from your personal expenses.
Having a business credit card and a bank account are two key ways.
The Benefits and Drawbacks of Towing Companies
Starting your own towing company as an LLC has a few benefits. For one, it is personal liability protection if something goes wrong in the course of business.
Personal asset protection is one of the major benefits of LLCs. This means that if your business is sued, your personal assets are protected.
Another benefit of LLCs is that they're easy to set up and manage, with minimum startup costs. There's no need to hire an attorney, as the process can be done online.
You'll need to create a towing company name, file articles of organization with your state, and pay a filing fee.
An LLC can also help attract investors and customers who might be reluctant to do business with a sole proprietorship.
Of course, there are some potential drawbacks to starting an LLC for your towing company as well. One is that LLCs are more complex than sole proprietorships, so you'll need to be familiar with the rules and regulations governing this business structure.
There's also a bit more paperwork involved in running and starting a towing company.
Overall, starting your towing company as an LLC is a good way to get started on the right foot. Providing towing services is a great way to make money, and LLCs protect your personal assets along the way.
If you're willing to deal with a little extra paperwork, an LLC can be a great option for your business.
Similar Article: How To Form An LLC For A Family Cabin
How Are Towing LLCs Taxed?
A towing business pays taxes based on how the LLC chooses to be taxed. If a towing company elects to be taxed as a sole proprietor, it will be taxed as an individual. This means the company will pay taxes on its net income at the individual tax rate.
If a towing company elects to be taxed as a partnership, it will be taxed as a partnership. This means the company will pay taxes on its net income at the corporate tax rate. Towing services can also opt for corporate taxation, which is taxed at the corporate tax rate.
It's important to note that a towing company LLC can be taxed differently than the way it's structured. For example, a towing company LLC that's structured as a sole proprietorship can elect to be taxed as a corporation. This is known as the "check-the-box" election.
How Many Tow Trucks Can Use the Same Dot Number?
Many tow truck companies use the same DOT number for all of their vehicles. This is because the DOT number is linked to the company, not the individual vehicle. As long as each vehicle has its own unique license plate, you should be able to use the same DOT number for all of your tow trucks.
Can a Towing Company Have 2 DOT Numbers?
Yes. A towing business can have multiple DOT numbers, as long as each truck in the fleet has its own number.
The process for getting a second (or third, fourth, etc.) DOT number is the same as getting your first one. You'll need to fill out an application and pay a fee. Towing businesses that operate under multiple DOT numbers must follow the safety regulations for each number.
How Profitable Is a Towing Business?
Generally, a towing business can generate a lot of revenue. The average towing company charges $75 per tow. If you towed 30 cars per day, you would make $22,500 per month. That is a lot of money for a small business.
You can also generate additional income by charging storage fees. Storage fees are usually $25 per day. A towing business is a great way to save money on your car repairs. You can also make a lot of money by towing other people's cars.
Small businesses generate a great portion of the United States economy. Starting a small business can be difficult, but it is worth it in the end.
Do You Need a CDL to Drive a Tow Truck?
It depends. Many tow truck businesses are considered "non-commercial" because they don't transport people or goods for hire. However, there are some circumstances where you will need a Commercial Driver's License (CDL).
CDLs are required for any vehicle that is placarded for hazardous materials, weighs 26,001 pounds or more gross vehicle weight rating (GVWR), and for vehicles that tow other vehicles with a GVWR of more than 26,000 pounds.
If you are towing a vehicle with a GVWR of fewer than 26,001 pounds, then the driver does not need a CDL.
Can a Felon Be a Tow Truck Driver?
A tow truck driver can apply for a driver's license with the state in which they reside. However, a conviction of theft, possession, or interstate transportation of a stolen vehicle can result in their application being denied.
Depending on the state, their license can also be denied for crimes against people, including assault, or any felony.
How Much Can a Towing Company Charge for Storage?
Towing companies charge a storage fee to store a towed vehicle. This fee is usually a percentage of the total bill, and it can range from $15 to $50 per day. Storage fees should be in your business plan to ensure you are making a profit.
They can be a significant portion of your towing company's income, so it is important to charge a fair price. There are some things to consider when setting your storage fees. First, you need to decide if you will charge a flat rate or a per-day fee.
Second, you need to determine the number of days you will allow for storage before charging an additional fee. Third, you need to decide how much you will charge for each day of storage.
The amount you charge for storage can vary depending on your location and the type of stored vehicle. You may also want to consider offering a discount for customers who store their vehicles for an extended period of time.
Starting an LLC for a Towing Company: Conclusion
If you're thinking of starting a towing business, an LLC may be the best option for you. This type of towing company offers many benefits, such as limited liability and tax breaks, that can help your small business thrive.
However, there are some things to keep in mind before starting a tow truck company, such as zoning laws and permits.
To avoid costly mistakes, it's important to consult ZenBusiness who can help you navigate these waters and set up your business for success.