Owner Operator Jobs, Owner Operator Services and More

Highway Finance

Partnerships:

Last Updated: Jul 8, 2007 - 9:51:13 PM
By Kevin Rutherford
Jul 2, 2007 - 9:45:08 PM
Email this article

Keep it simple and earn more than the average Owner/Operator

I’m going to continue this month with the description of a couple other forms of business, the partnership and the corporation.

Partnership
A partnership is similar to a sole proprietorship, except that it is owned by more than one person. The partnership isn’t taxed as a collective entity. The individual partners are taxed, and they file individual income tax returns. A partnership is easy to form. A handshake or verbal agreement is all you need to establish a legally binding arrangement. As in a sole proprietorship, the partners are the business, so in case of legal or financial judgments, injured parties or creditors can come after the personal assets of the partners.

Keep it simple and start out as a sole proprietor, and work with a good tax preparer, who will be able to tell you when it would be advantageous to form a Corporation.

The ease of establishing a partnership can be misleading. Partnerships, even those involving spouses and children, should have a written agreement that stipulates the role of each partner, as well as distribution of profit and loss. The agreement also should spell out a formal method for resolving conflict, such as naming an arbitrator. A partnership has no life beyond the death of one of the partners. Unless there is a formal partnership agreement, the state decides distribution of assets.

A limited partnership consists of one or more general partners who manage the day-to-day activities of the business and one or more limited partners who are investors with no active role in the business. A limited partnership is covered by the Uniform Limited Partnership Act and is subject to state regulation regarding formation, reporting and operation. In a limited partnership, a general partner is treated like a partner in a regular partnership, but a limited partner is treated like a shareholder in a corporation. The general partners are at personal risk, whereas the limited partners enjoy limited liability equal to their investments. Limited partnerships can get really complicated. They are fine for a few specialized situations, but they certainly aren’t for everyone. I do not recommend partnerships as a form of business for owner operators, there is too much risk involved, if for some reason you were going to own trucks with more than one person involved, then I would recommend a corporation, more specifically, an “S” corporation.

Corporation
Whereas sole proprietorships and partnerships are indistinguishable from their owners, a corporation is treated as being separate from its owners, shareholders and employees. Incorporation laws differ from state to state, and the cost of incorporating varies from a few hundred to a few thousand dollars. In addition to setup costs, incorporation requires numerous forms, records and formal annual meetings. The two main types of corporations are the C corporation and the S corporation.

To set up a C corporation, you must file articles of incorporation with your state. Although do-it-yourself kits for incorporating are available, it’s best to hire an attorney to avoid mistakes and to address the particular laws of your state. C corporations are notorious for double taxation, which means that the corporation is taxed, and the owners are taxed on their dividends and salary. The S corporation, however, offers the limited liability of a C corporation without double taxation. The owners or shareholders are taxed only on personal income, as in a partnership or sole proprietorship. In addition, the net income of an S corporation is available for distribution among the shareholders as dividends. In a C corporation, dividend payments are taxed, but in an S corporation, they are not. To be taxed as an S corporation, you must file articles of incorporation and make an election to be taxed as an S corporation by filing IRS Form 2553. S corporations are restricted to a limited number of employees. In addition, the corporation can have no foreign shareholders, and corporations and partnerships cannot be shareholders.

The Bottom Line...
Okay, that’s all the legal speak, now let’s get down to the bottom line. If you are just getting started as an owner operator, I highly recommend that you start as his sole proprietor. In my opinion, liability is not a reason to incorporate. If you are leased to a carrier, you already have all of the liability protection you will need. The only reason I see to incorporate is purely for tax reasons, and in order to take advantage of those reasons, you need to be earning more than the average owner operator usually makes in his first year. Keep it simple and start out as a sole proprietor, and work with a good tax preparer, who will be able to tell you when it would be advantageous to form a Corporation.

Trucking Business & Beyond will debut on April 14, 2007 exclusively on XM Satellite Radio’s Open Road Channel (XM Channel 171). The show will air every Saturday and Sunday, live, from 4:00 – 7:00 P.M. ET and consist of a combination of host talk, call-in questions and industry-expert guests. Encore Broadcasts of each show will air Sunday and Monday from 3:00 – 6:00 A.M. ET.

And.... Be watching on Idleaire for my new TV show.
ATBS TurnAround’s debut will air exclusively on IdleAire’s Inside the Outdoors TV channel beginning March 15, 2007. ATBS Turnaround is geared toward the Owner-Operator lifestyle and features real drivers facing real life hardships as they try to earn a living and become profitable on today’s high risk / low reward, razor thin margins. The show will delve into the lives of various Owner-Operators that are struggling to stay solvent, and with guidance from Kevin Rutherford and ATBS are able to “TurnAround” their operations and avoid bankruptcy.

Kevin Rutherford
The Rutherford Group
www.cmcseminars.com
trucktax@mac.com
888-CMC-8585
888-262-8585