So you’ve listed your RV, and you’re officially in business. Congrats! Now what? Well, the next thing would be to register your business with your state.
Which structure you choose will affect your taxes, liability, paperwork, and ability to raise money. Additionally, the one you choose will vary based on your state and fleet size, among other factors.
Now, let’s get down to business!
There are various business structures to choose from:
- Sole proprietorship
This is the easiest structure for an individual to form, and if you don’t register as any other business, you’re automatically categorized as such. As a sole proprietor, your business assets and liabilities are not separate from your personal assets and liabilities. That said, you can be personally liable for all debts and obligations that come with the business.
For two or more people in business together, this is the simplest structure. There are two types:
- Limited partnerships
- Limited liability partnerships
With a limited partnership, one partner will have unlimited liability, while the others have limited liability. Those with limited liability often have limited control over the business.
Limited liability partnerships
A limited liability partnership gives all partners limited liability, meaning one won’t be responsible for the actions of their partners.
An LLC is a popular choice among RV owners growing their fleets. An LLC, or limited liability company, is a legal entity that is a combination of a partnership and a corporation. With an LLC, owners are not personally liable for the company’s debts or liabilities. In the case of bankruptcy or lawsuits, your personal assets are not at risk.
There a variety of corporation structures:
- C corp
- S corp
- B corp
- Close corporation
- Nonprofit corporation
Let’s talk about the two most popular options: C corp and S corp.
A C corp is its own legal entity separate from its owners. Corporations can make a profit, be taxed, and be held legally liable. It’s more expensive to form and uphold a corporation; however, they offer the most protection for owners from personal liability.
An S corp is a special corporation. It is designed to avoid the double taxation that can come with a C corp.
A cooperative is a member-owned business of at least five people. Each member has equal voting power regardless of their investment in the business. The cooperative business is both owned, operated, and controlled by those who use its products, services
How is an LLC different from the other structures?
Many RV owners chose to form one, if not multiple, LLCs as they grow their fleet. Why?
Well, let’s discuss:
- LLCs vs sole proprietorship
- LLCs vs corporations
LLC vs sole proprietorship
A sole proprietorship is owned and run by one person who is responsible for all liability. An LLC can be run by one or more members, and the individual members are not personally responsible for liabilities and debts; the LLC is.
In other words, your home, car, bank account, and personal assets are typically off-limits when it comes to debt collection or claims with an LLC. On the other hand, there is no separation between you and your business with a sole proprietorship. You are wholly entitled to all the profits but also responsible for all debts and obligations of the business.
If you’re just starting out in the RV rental business or renting your personal RV out part-time, a sole proprietorship may be the way to go. However, if you start to grow your fleet or hire employees, you may decide to form an LLC.
LLC vs corporations
The main difference between an LLC and a corporation is that a corporation is owned by its shareholders. An LLC is owned by an individual or individuals, referred to as members. Both offer liability protection and help establish your credibility as a business.
Corporations have a much more rigid structure and the IRS is more restrictive. With an LLC, there are fewer requirements making business operations far simpler, and profits can be split however you choose.
Those in a higher-risk business, need to raise funds, or eventually plan to sell their business, may want to look into forming a corporation. Otherwise, an LLC is usually a good choice.
State requirements for LLCs
Operating agreements aren’t required in every state when forming an LLC, but it is certainly recommended. The agreement of your LLC lays out each member’s responsibilities and states how profits and losses will be split.
An operating agreement is required if you’re forming an LLC in the following states:
- New York
There are different specifics for each, so make sure you look into your state’s LLC requirements.
How should you structure YOUR business?
How you structure your business is up to you! Consulting a lawyer, accountant, or business advisor can help you make the best decision for your RV rental business.
Now, you’re open for business!