LLC for Auto Body Shops
Do you enjoy seeing decade-old cars look like they’re brand new? Can’t resist repairing dents, removing scratches and marks, and restoring corroded cars? Turn that passion and skill into something profitable and start your own auto body repair shop.
By venturing into the realm of auto body repair, you can combine your skillset with a profitable business opportunity, catering to the needs of car enthusiasts and individuals seeking high-quality automotive restoration services. The first step into this venture is to form a business for it. And while there are many types for you to choose from, such as sole proprietorships and corporations, we understand that you’re here because you’re interested in LLCs.
But why an auto body shop LLC? Let’s talk about costs, taxes, and more.
What Is An LLC?
A limited liability company (LLC) is a hybrid business structure combining the benefits of sole proprietorships, partnerships, and corporations. It offers flexibility in taxation, is easy to form, and offers legal protections in certain cases. LLCs are the most popular business structure right now. In fact, gig companies like Ford Holdings and FCA US use this structure. Like them, you can form your auto body shop into an LLC as well—and enjoy levels of success.
What Are The Advantages Of An Auto Body Shop LLC?
LLCs have many advantages you can enjoy as a car body repair business owner. Let’s look at some of the most important ones:
Easier to set up and run
Forming an LLC requires less paperwork. You can even hire experts to take care of the necessary paperwork and submissions for you so that you won’t have to. An LLC also requires less documentation and administration when running.
Owners have control of the business
When it comes to an LLC, the owners, known as members, not only have ownership in the company but a lot of involvement as well. Unlike other business structures where ownership is divided into shares or partnership interests, LLC members individually own the company. This means that each member has a direct stake in the business and holds certain rights and responsibilities.
This gives LLC members the opportunity to run their companies as they see fit—what matters is that all members know your roles and responsibilities and agree with how you divide the profits and losses.
Protection for personal assets
LLC owners enjoy limited liability protection. If your car body repair shop is sued and found responsible, only the LLC’s assets, such as equipment, vehicles, and property owned by the company, can be used to pay for any debts arising from the lawsuit. This helps protect your personal assets, such as your savings and property, from being used to cover the company’s liabilities.
What Are The Disadvantages Of An Auto Body Shop LLC?
Although LLCs offer numerous advantages, it is also important to acknowledge that they also have certain drawbacks. In fact, here’s a quick look at them and how to avoid them:
LLCs registered as single ownerships are more costly to operate due to reports and documentation as compared to a single proprietorship. Since you’ll be running a business that requires more than one person to operate it, you can simply register your LLC as a partnership or a corporation.
Transfer of ownership
For LLCs registered as partnerships, the transfer of ownership might be more tedious than LLCs registered as corporations. You shouldn’t worry about this if you don’t have any plans to transfer ownership to others. Also, if you have more than two people owning the LLC, consider registering it as a corporation.
LLCs registered as corporations are also required to shut down should a member pass away or file for bankruptcy. To avoid this, members should create a business continuation agreement while forming the LLC. Still, the advantages of selecting LLC as your auto body shop business structure far outweigh the disadvantages. And with careful planning, the downsides can be completely avoided.
How To Create An Auto Body Shop LLC
Now that we’ve covered the pros and cons, let’s move on to the process of forming your own auto body shop LLC. Here’s what you need:
- A business name
- Hire a Registered Agent
- File an Article of Organization
- Create an Operating Agreement
- Get an Employer Identification Number
Choose a unique business name
A unique name lets your business stand out from others and helps potential customers remember your company easily. It should also be easy to understand and communicate the services your business offers. An example would be something like “Ride & Shine.”
The only naming requirement is that you don’t file for a duplicate name. No Secretary allows it. Plus, keep in mind that your company’s name might need to include “Limited Liability Company,” or “LLC” depending on the state where it is located as well.
Hire a Registered Agent
Registered Agents act as the point of contact between your LLC and the state. They are responsible for receiving important legal documents, such as lawsuits, subpoenas, and official government correspondence, on behalf of your LLC. It is important to choose a reputable organization or individual to act as your registered agent to ensure that important legal matters are handled promptly and professionally.
File your Article(s) of Organization
Next, you need to file an Article of Organization. This document serves as the charter and official proof of your LLC’s existence within your state. This is a necessary step to forming your LLC—without you won’t be able to operate legally. To obtain the necessary forms, contact your state’s Secretary of State office.
Create an Operating Agreement
An Operating Agreement describes the working relationship between the members of your LLC. It defines the relationships and responsibilities among the members of the LLC, specifying each member’s roles, duties, and authority within the business. This agreement also addresses important aspects such as the distribution of profits and losses among the members, decision-making processes, dispute-resolution mechanisms, and procedures for admitting or removing members.
It’s not required in most states, but by drafting one, you create a clear framework that governs how your auto body shop operates and how key decisions are made.
Get an EIN
An EIN is a number your LLC needs to transact with the IRS (such as when paying company taxes). This number is also used to register a bank account for your business, as well as apply for loans. For auto body shops, you’ll more certainly need an EIN to hire employees.
How Are Auto Body Shop LLCs Taxed?
The government taxes auto body shop LLCs depending on how it is registered. Here’s a quick look at how your LLC could be taxed:
For LLCs registered as sole proprietorships and partnerships
LLC member earnings are considered pass-through income and are taxed individually. This means that each member is required to report individual earnings from the business to the IRS and pay taxes for these directly. The LLC is not taxed as a company.
For LLCs registered as S-corporations
Your LLC can elect to be taxed as a corporation. If your LLC is taxed as an S-corporation, your members will pay taxes for their respective earnings individually. The only time your LLC listed as an S-corp pays taxes will be when it has profit left in the business.
There are also other taxes you must remember to pay with your LLC:
As members of an LLC, you are responsible for paying your own contributions to Social Security and Medicare. Unlike employees of a company where taxes are automatically deducted from their wages, LLC members receive pass-through income from the company, meaning the profits and losses of the LLC are passed on to the members for taxation purposes.
This type of tax is computed based on your LLC’s total assets or gross revenues. While not all states require this, some demand this annually. The amount varies between states but can cost around $100 to $800.
What Are The Costs Of Starting An Auto Body Shop LLC?
You’ll need to spend quite a bit of money to start and form your own auto body repair LLC. Let’s discuss the key expenditures you should consider.
Every LLC needs to file many important legal documents, such as annual reports, which will cost you about $50 to $800, depending on the state where your business is located. We recommend hiring experts to handle the paperwork and filing to ensure accuracy in detail.
Registered Agent Fees
Your LLC must continuously pay the registered agent you chose so you can continue benefiting from their services. Prepare around $100 to $300 for this.
While it doesn’t cost a cent to create your own Operating Agreement, we highly suggest paying legal service providers to help you create one. Doing so helps you make sure that all legal concerns (such as those related to compensation or profit) are covered.
You will also need to spend on publishing notices about your new LLC in local newspapers. The duration varies per state, and the price of publication depends on the newspaper, so make sure to inquire.
Equipment & Maintenance
Naturally, any car body repair shop needs equipment to operate. To start, you might find yourself purchasing the following:
- Hydraulic Lifts
- Diagnostic Tools such as multimeters, leak detectors, and code scanners
- Wheel Balancers
- Air Compressors
- Pneumatic Tools such as sanders and drills
- Hand Tools
- Paint Guns
There are other tools you should be prepared to buy, such as frame and body straighteners, anchor pots, pulling posts, and pulleys. These will help you deal with bigger damages caused by collisions.
You will also need funds to continue the operations of your auto body shop LLC. These funds will be used to pay rent and utilities, maintain equipment, purchase consumables like automotive paint, and so on. Overall, prepare to spend at least $50,000 to run your business.
It is not that difficult to start your own auto body shop LLC. Moreover, the flexibility in taxation options and the safeguarding of personal assets make the LLC structure highly coveted—even by already large businesses. Let StartGlobal help you open that dream company today.
For a more detailed overview of forming LLCs in various states, check one of our guides below:
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