If you are in the Transportation Industry you should be Incorporated.

The Warehousing, Distribution and Transportation of products/merchandise entail commercial transactions subjecting numerous persons and entities to liability. Depending upon the circumstances two and or more persons or entities may be responsible for a loss.

If your Tractor/Trailer and/or Bobtail are involved in an accident, the monetary damages and award against you can be devastating. With similarity an electronics and/or other high value cargo loss can easily exceed your cargo insurance policy limits. This assumes that you have cargo coverage and that an exclusion is not applicable.

Reflecting the nature of the Transportation Industry and your exposure to liability, you should consider Incorporating your Trucking, Freight Forwarder, Brokerage, Warehousing, Distribution, Air Freight and/or other Business.

A Corporation is a legal entity separate and distinct from its Shareholders. One or more natural Persons, Partnerships, Associations or Corporations, domestic or foreign, may form a Corporation in California. A California Corporation is subject to the laws of the U.S. and California. Its rights and liabilities are set forth in part in the California’s Corporations Code. Some of the advantages of a Corporation include, but are not limited to, the following:

     A. Continuous Life – The Corporation does not dissolve and/or cease to exist with the death of a Shareholder.

     B. In general easy transfer of Ownership.

     C. Limited Liability.

     D. Depending upon the type of Corporation there is no Double Taxation.

     E. Depending upon the type of Corporation profits are not subject to Social Security Taxes.

A Corporation is owned by its Shareholders. “Shares” means the units into which the proprietary interests in a Corporation are divided. “Shareholders” means one who is a holder of record of Shares.

Unless restricted by its Articles, By-Laws, Shareholders Agreement, Trust and/or other limitation, shares of a small California Corporation (one with 35 or less Shareholders) can be transferred by transferring Stock/Share Certificates to another person and/or entity.

With certain exceptions, Shareholders, Directors and Officers are not liable for the debts and obligations of a Corporation. This statement assumes, among other things, that the Corporation was properly capitalized, operated and conducted its business affairs in a Business Like Manner.

Reflecting that a Corporation is owned by Shareholders, a Corporation continues to exist after the death of a Shareholder. The ownership of the shares merely change hands.

Most people are familiar with the terminology “S” and “C” Corporations. The Internal Revenue Service determines the Federal Tax Status of Corporations.

“S” Corporations – Generally referred to as “Pass-Through Entities.”

The taxable income of a “S” Corporation is generally computed in the same manner as in the case of an individual and passed through to the Shareholder. With certain exceptions such as for built-in gains, investment credit recapture, excess passive investment income and Corporation Tax preference treatment, a “S” Corporation is not subject to the corporate income tax. Each Shareholder will take into account separately his pro rata share of each item of Corporate income, loss, deduction or credit, for the taxable year of the Corporation whether or not it is to be distributed to the Shareholder.

The taxable year of a “S” Corporation is required to be a permitted year, which is either a calendar year ending December 31st or other accounting period for which the Corporation establishes a business purpose which satisfies the IRS.

Another advantage of a “S” Corporation is Social Security and Medicare taxes. The income of a “S” Corporation is set forth and reported to its Shareholders on a Schedule K-1 Form and is taxed as ordinary income to the Shareholders. Unlike income from a Partnership and or Sole Proprietorship, the income of a “S” Corporation is not considered to be self-employment income under the tax laws and therefore is not subject to Social Security or Medicare taxes. A downside of not paying Social Security taxes is that the Social Security benefits you will receive is dependant upon the amount of your wages and those taxes you have paid during your working years.

“C” Corporations

The taxable income of a “C” Corporation is all taxed to the Corporate entity at Corporate rates with subsequent distributions then subjected to separate taxation by the Shareholders, generally as dividends.

Income of a “S” Corporation is subjected to a simple tax at the Shareholders level compared to the income of a “C” Corporation which is first taxed at a corporate rate, then the individual rate.

Tax-Free Capital Transactions

Property may be transferred to a corporation in exchange for its stock or securities without recognition of gain or loss if the transaction meets the requirements of IRC § 351. This provision usually permits incorporation of going businesses without tax; however, there may be aspects of the proposed transaction (e.g., contribution of services) with tax effects that require careful study by counsel.

“Partnerships”

Partnership means an association of two or more persons to share as Coowners a business for profit. With certain exceptions the association of two or more persons to conduct a business for a profit forms a Partnership regardless of the intent of the persons to form the Partnership.

“Limited Partnerships”

Subject to various exceptions Partners are liable jointly and severally for all obligations of a Partnership. However, a Partnership may file a statement with the Secretary of State of California limiting the liabilities of a Partner(s). Note, there are various exceptions to the limited liability of a Partner even though a statement has been filed with the Secretary of State.

Limited Liability Company (LLC)

A limited liability company (denoted by L.L.C. or LLC) in the law of many of the United States is a legal form of business company offering limited liability to its owners. It is similar to a corporation, and is often a more flexible form of ownership, especially suitable for smaller companies with a limited number of owners. Unlike a regular corporation, a limited liability company with one member may be treated as a disregarded entity, so the member is often singled-out as a person performing the actions of the LLC. A limited liability company with multiple members may choose, generally at the time that the new entity applies for a US federal taxpayer ID number, to be treated for U.S. federal taxation purposes as a partnership, as a C corporation, or as an S corporation. An LLC can elect to be “member managed” or “manager managed.” (Wikipedia)

Similar to “S” Corporations the business losses, profits and expenses flow through the Company to the individual members. Members avoid the double taxation of paying a corporate tax and also individual taxes. This generally results in a tax advantage.

Limited liability companies generally provide liability protection to its members. However, there are a number of exceptions to this general rule.

For a Free Consultation regarding Incorporating and/or Questions about Corporations, please call us at (714) 828-2178 and/or (800) 370-5114.