Starting an LLC for Car Dealerships

What is an LLC?

So before we tell you why an LLC is a perfect option for your car dealership and how you should form one, many of you are asking this question – What is an LLC?

Well, LLC stands for Limited Liability Company. It is a type of legal entity that allows a business owner to keep their personal and professional assets separate. This means that the owner of the LLC will not be liable for the debts of the LLC and will be safe from any potential lawsuits and legal issues.

LLC rules & regulations vary from state to state, but the basic governing principle is the same – protecting your personal assets. No matter what the fiscal status of your car dealership is, if it is an LLC, you will not be personally accountable for it.

What if someone sues your car dealership for something in the future? Will your house, your own car, and any other property you own, be in danger? Well, if your car dealership is an LLC, you will highly reduce this risk!

You can protect your savings and increase the peace of your mind. Your privacy will be protected and it will increase the credibility of your car dealership with your potential customers!

Importance of an LLC for a car dealership

Want to grow your business and protect your assets? You should form an LLC. If there is any risk of liability or you want to scale your business and add new partners, you should go for an LLC. Even if you are operating your car dealership on your own, it is strongly recommended that you form an LLC to protect your assets.

One of the most important modes of transportation in the United States is cars. There is always going to be a large supply of clients and customers in this market. As a car dealership owner, you need to be aware of the rules and regulations for car dealerships to avoid any legal confrontation.

Let’s see what benefits an LLC will offer to a car dealership owner.

There are several advantages of forming an LLC for your car dealership. Let’s take a look at them briefly before we move further.

Liability protection

Due to workplace accidents, financial data breaches, and property damage, car dealerships are always facing the risk of liability. What if a customer walks across your parking lot and falls over an obstacle? If he hurts himself, you will be asked to cover any medical expenses.

Not only a car dealership, but every business carries some sort of risk. Any such business should be separated from the owner. This separation between the business and owner is called limited liability protection.

An LLC provides personal liability protection. Personal liability protection means that all of your personal assets – car, bank account, house – will be protected in case your car dealership gets sued or if your dealership defaults on a loan or debt.

Tax advantages

If you form an LLC, you will get various options that allow you to customize the tax structure of your car dealership. Therefore, you will be able to select the tax strategy that will be best for your car dealership.

The profits of your car dealership vary and depend on a variety of factors. LLC offers a business structure with flexible tax options. As an LLC owner, you can choose to classify your dealership as an S-corp or select the pass-through taxation option.

For businesses that are relatively new and are generating less profit should opt for pass-through taxation. Car dealerships that bring in large profits every year, should choose the S-corp option. Since LLCs provide tax benefits and personal liability protection, the potential for growth increases both in profit and risk.

As a pass-through LLC, your dealership will not have to file its taxes but rather the owner(s) will get the profits and will pay taxes when they will file the personal taxes. If you select the S-corp option, you will reduce the self-employment tax.

How? Well, instead of paying the self-employment taxes, you can pay yourself a salary for the role you play in the company and pay the tax only on that portion of the income. The rest of the money can be invested into your business without paying hefty taxes!

Credibility & customer trust

Every business relies on customer trust and credibility, especially car dealerships. If there is the prefix “LLC” added to your car dealership, your clients will have more faith when they come and buy/sell cars from you. No one likes to do business with an unknown, unregistered individual, right?

What if you sell a car to a customer and the car breaks down in the middle of the road and causes an accident? In case the customer sues your business, your personal assets will safe and only your business assets will be at risk.

Whether you are operating a small used car dealership that has only a handful of cars or if you are the owner of a big dealership with a large variety of cars, you should form an LLC to avail all the benefits we have listed above.

Starting an LLC for a car dealership

By now, you have an idea about what is an LLC and why having an LLC for your car dealership is highly essential. Now is the time for the most important part – Starting an LLC for a Car Dealership! The specific rules and requirements for the formation of an LLC differ from state to state.

However, the basic steps of LLC formation are universal. No matter which state you form your car dealership LLC in, you will have to go through the following steps!

1. Choosing your state of LLC formation
2. Selecting a name for your LLC
3. Choosing an official registered agent
4. Preparing and filing the articles of organization
5. Creating a business operating agreement
6. Acquiring Federal Tax ID
7. Getting Business Licenses and Permits

Let’s take a look at each step in detail so that you will not have any ambiguities while creating your car dealership LLCs.

Choosing the state of formation

You can form an LLC in any state, even if your car dealership is not situated there. However, it is a good choice to select the state in which your car dealership is located. Not only will this help you with your business licenses and permits, but will also reduce administrative costs.

If you form your LLC in another state, you will have to pay foreign qualification fees and charges as well. However, if you have an LLC in one state, and are expanding your car dealership in another state, then you will have to opt for out-of-state LLC formation.

Selecting the LLC name for your car dealership

Your car dealership name is your brand and identity. It is the very first thing that your customers see when they look up your company. From advertisements and business cards to the physical location of your dealership, the name of your LLC will be everywhere.

If it is and you are not ready to form your LLC as yet due to technical reasons, then you should reserve the name to ensure that no one else grabs your favorite name. By paying a small name reservation fee, your state will allow you to reserve the name for a certain period of time.

Moreover, the guidelines for selecting an LLC name differ from one state to the other. However, a few rules are common to each state. The first rule is that your LLC name has to be unique and distinct. To form an LLC, you have to select such a name that is not already taken up by another business entity in the state.

If you are operating under a DBA, you can also use that as your LLC’s name. Search the LLC database of your state of formation and check if the name of your choice is available. Furthermore, you can’t use terms such as state, bank, CIA, etc., and profane/vulgar words as part of your LLC names.

To know the details, you should go through the guidelines provided by the state on their website. You can reserve the name via a physical form or through your state’s website online as well.

Choosing an official registered agent

Selected your LLC name? Let’s move on to the next step – selecting your registered agent. Every LLC in the United States has a legal obligation to assign a registered agent for the business. As a new business owner, it is highly likely that you are unfamiliar with the term registered agent.

We are here to help you. A registered agent is a person that will accept official correspondence such as tax documents and legal notices from the government on the behalf of your car dealership.

Your registered agent needs to have a physical address in the state of formation – a simple P.O. Box is not going to be enough. When it comes to choosing a registered agent, you have three options – you can choose to become your own registered agent, designate a family member or friend as the registered agent for your LLC, or you can go for the best option and choose a professional, highly qualified registered agent such as Northwest Registered Agent to help take your load off.

We don’t recommend you becoming your own registered agent as this will not only add more responsibilities on top of all the work you do at the car dealership but also make your address part of the public records.

Even if your friend or family member doesn’t have privacy concerns, the risk of them forgetting to pass on important mail to you is always there. You can’t afford to miss deadlines and important legal notices from the government, so this is not a feasible option as well.

Therefore, we suggest that you choose an affordable LLC formation package from Bizee or ZenBusiness that will not only form your LLC but will offer you high-quality registered agent services free for the first year of usage!

Preparing and filing the Articles of Organization

To create your LLC, you have to prepare documents called Articles of Organization and then file them with your state. The filing fees for these documents vary from one state to the other. The format, style, and requirements of the Articles of Organization all over the US vary but there are a few common elements. These are:

Standard physical or online forms are available for each state and you can fill them accordingly. Moreover, you can also create customized articles of organization as per the needs of your car dealership.

Once you file the articles of the organization, you will have to wait for your state to process your application and then form your LLC. Depending on your state, it can take anywhere from a few days to several weeks. Moreover, a few states also provide expedited filing options as well that you can avail of by paying additional fees.

We recommend that instead of trying to file all this legal paperwork yourself, and wasting your time and energy, you should hire a professional LLC incorporation company’s services to take care of this for you!

Acquiring federal tax ID

Once you get the Certificate of Formation from your state, you will be a proud owner of your newly formed LLC! Your car dealership is going to hire employees, have a business bank account, file taxes, etc. To all this and a lot more, you need an EIN.

Don’t know what an EIN is? We will tell you! We all have social security numbers, right? EINs are social security numbers for businesses. With the help of an EIN, you can open your business bank account so that you can keep your personal and professional finances separate.

You can get an EIN from the website of the IRS quickly. Moreover, you can also send in a physical application to apply for your federal tax ID. If you go the DIY route for getting an EIN, you are going to get lost in the legal red tape and get confused by the legal jargon.

Therefore, you should take a look at the top LLC formation services such as Bizee and ZenBusiness to get an EIN. These services offer EIN acquisition services as a part of their LLC incorporation packages as well as separate features. You can see what fits your requirements and choose that option!

Cost of forming an LLC

When it comes to forming an LLC, you will have to pay some money to do so. However, the major cost will be the state filing fee-only, which ranges from $40 to $500, depending on the state of formation. There are two options that you have in order to form your LLC.

We recommend that you use a professional LLC formation service because not only will it take a load off your shoulders, but will also save you from making any errors. Moreover, services like ZenBusiness or Bizee offer affordable, premium packages that have various features that will be helpful for your car dealership such as registered agent service, business operating template, etc.

Starting an LLC for car dealerships – Final word

If you are starting a car dealership, you have to be prepared for all and any risks that your business may face in the future. For this reason and a lot more that we have explained in detail above, you should form an LLC to ensure that you can run your business successfully without worrying about any legal issues and liabilities.

Instead of wasting your time and energy trying to understand the legal terms and paperwork, you should hire the services of a good-quality LLC incorporation service.