LLC for Auto Services
If you enjoy fixing broken cars and are thrilled at the idea of seeing them back in good running condition, why not turn that passion into something profitable? Auto services, while a fairly competitive industry, is always in demand, with a profit margin of 50% to 65% for labor and 20% to 28% for parts.
It’s no secret that starting a car repair and restoration business requires some time and effort, but it can be easier if the business is registered as an LLC. Why an LLC? Let’s talk about that.
What Is An LLC?
LLC stands for “limited liability company.” It’s a type of business structure that provides the ease of sole proprietors and partnerships in starting up and taxation as well as the legal protections of corporations in the event that some of the company faces financial issues. In fact, it’s the most popular business structure right now, with some car companies like FCA US and General Motors Holdings registered as LLCs.
What Are The Advantages Of An Auto Services LLC?
An LLC has a ton of advantages, making it a great option for new auto service business owners. Let’s go over some of the most important ones:
Less paperwork to start and run
An LLC requires less paperwork to start and run. While you still need to make the necessary reports, you won’t need to put a lot of effort into documentation and administration as you do with other business types. You can simply focus on what you want to do: repair and restore motor vehicles.
Your auto service LLC can have as few or as many owners (called “members” for legal purposes) as you want. For example, you can run it with just two people—with you or another person serving as the mechanic and the other doing administrative tasks. You can also run it with multiple co-owners. What’s important is that all of you in your company know your roles and responsibilities and agree on how you divide your profits.
Protection for personal assets
The liability incurred by the members of an LLC stops at the assets they have invested and purchased in the company. This means that in the event that your auto service faces potential lawsuits and losses in court, penalties are paid using company assets (and not your personal ones).
What Are The Disadvantages Of An Auto Services LLC?
As with any business type, there are also some disadvantages to owning an auto services LLC. These aren’t serious, however. These disadvantages include the following:
- LLCs with single owners have more paperwork compared to sole proprietorships. They also have reduced asset protection in some states.
- The transfer of ownership shares is a more tedious process for LLCs compared to other business structures.
- Unless an agreement is stated during its formation, LLCs listed as corporations will be forced to shut down in the event that a member passes away or files for bankruptcy.
These downsides can be averted with careful planning. For example, instead of starting a single-member LLC, you can form a multi-member LLC with your family and/or friends as the other members. Just make sure to be careful whom to add so that you won’t have to deal with unwanted transfers in the future.
How To Create An Auto Services LLC
By now, you might be getting ready to start that motor vehicle repair and restoration business you’ve wanted. And if you’re worried about complex processes and piles of paperwork, don’t be. Forming an LLC is relatively simple. Here’s what you need to form your Auto Services LLC:
- Choose a unique name
- Hire a Registered Agent
- File your Article(s) Of Organization
- Create an Operating Agreement
- Get an EIN
A unique name
A unique name lets you stand out from other car repair companies in your area. It will also be associated with your skill as your reputation grows over time.
Here are some tips for choosing a good name for your LLC:
- The name should communicate the kind of services you offer customers. Names like “Car Care Experts” or “Auto Restore Specialists” do that very well.
- Make sure that your chosen company name isn’t used by other businesses in your area. Check with your Secretary of State’s office or website to verify. If it’s available, but you won’t be starting yet, reserve it with them for future use.
- Depending on the state where your Auto Services LLC will be located, your name might need to include “Limited Liability Company,” or “LLC.”
Following these tips will help you select the right name for your car care company.
A Registered Agent
A Registered Agent serves as the point of contact between your LLC and the state. They represent your company in legal matters and receive all legal documents. So, be sure to select one from a reputable company. The only requirement is that they have to live within the same state where your LLC is located.
The Article(s) of Organization
The Article of Organization (sometimes called the Certificate of Organization in some states) is a charter document used to establish your LLC in the state. To file this, you need to fill out the required paperwork and submit it to your Secretary of State’s office. Some states have blank forms to use for this purpose, so make sure to check with them.
You will also need to pay a certain amount along with submitting the document. The amount varies depending on the state, but it is somewhere between $50 to $500.
An Operating Agreement
An Operating Agreement is a document that details your company’s members about your relationship with one another. It includes all pertinent information about your organization, its member’s roles and responsibilities, and details regarding the division of profits and losses. It also includes clauses on what to do in the event that your company closes.
An EIN Certificate
An Employer Identification Number (EIN) is used for several reasons:
- Filing business taxes
- Registering a bank account for your business
- Used when you apply for business loans
- To set up a payroll system for when you hire employees.
You can get an EIN from the IRS fully free of charge. Visit their website for more details.
How Are Auto Services LLCs Taxed?
LLCs are taxed differently depending on how you choose to register them with your state. Here’s a quick look at how it happens:
- For LLCs registered as sole proprietorships and partnerships: The IRS considers members’ earnings made through LLCs as “pass-through income.” This means the company itself won’t pay taxes, but its owners/members will have to report their profits and file tax returns individually.
- For LLCs registered as S-Corp: If you are earning too much to justify your self-employment tax, you can choose to give yourself a reasonable salary using an S-Corp, adjusting the taxes you have to pay for it. The undeclared salary will be subject to company income tax. Depending on your profits, an S-Corp LLC could be better for your business.
What Are The Costs Of Starting An Auto Services LLC?
Starting an auto services LLC has its costs, like any formation process. Here’s what you need to spend:
These are the necessary fees you need to pay when filing annual reports and the like. You can expect to spend between $50 and $800 depending on the state your business is based in. We suggest hiring some experts for this task to take care of the necessary paperwork and filing with your local government offices.
Registered agent fees
You will also need to pay your registered agent around $100 to $300 to ensure continued service that your business benefits from.
While it is possible to draft the Operating Agreement on your own, seeking assistance from a local lawyer can minimize the risk of you overlooking crucial elements and ensure that all parties involved are aligned and protected. Prepare to spend up to $200 on this.
Some states, like Nebraska, New York, and Arizona, require new LLCs to publish notices in the newspapers for a time. The duration of publication varies by state, and the cost of publishing varies among different newspapers. Do research on your local laws and consult with local newspapers to obtain accurate prices.
State filing fee
Registered agent service
LLC formation service
Business license and permits
Employer Identification Number (EIN)
Initial legal and accounting fees
Equipment and supplies
Marketing and advertising
Starting your own Auto Services LLC is the easiest and safest way for you to make a profit out of something you truly enjoy as a car repair enthusiast. It’s easy to start, and your personal assets are legally protected in the event that something wrong happens with your business. Let StartGlobal help you work on reaching that dream today.
For a more detailed overview of forming LLCs in various states, check one of our guides below:
Is LLC The Best Entity For Me?
Maybe, LLC isn’t the right entity for you. Maybe it is a C-Corp. Only way to find out is to directly compare them all.
LLC vs Corporation (C-Corp)
Sole proprietorships and Limited Liability Companies (LLCs) are two of the most common business entities for individuals and small businesses. Learn what differentiates the two today.
LLC vs S-Corp
Not sure what business structure to choose? Learn about the key differences between LLC and S-Corp today.