Delivery services represent a $118 billion industry that continues to at 5% per year. Delivery is a broad category that includes long-haul trucking businesses, courier services, food delivery, and e-commerce. Think about all the different retail products, packages, or grocery items that arrive on your doorstep each week? A delivery service of one sort or another brought all of these products to the home.

But should your delivery business be formed as an LLC, Corporation, Sole Proprietorship or something else? And how do you even start an LLC for a delivery service? I dive into these important topics and share the advantages and disadvantages of the LLC for this type of business below. Let’s get started.

• Form an LLC for a Delivery Business with ZenBusiness ($39 + State Fees)

What Is an LLC?

LLC stands for Limited Liability Company. This is different than a corporation but shares many of the privileges and benefits of a corporate entity. An LLC is a legal entity that exists independently of those who set it up. An LLC business is therefore treated as a separate individual.

Taxing for an LLC is similar to a sole proprietorship or partnership, which your delivery service may be organized as today. The LLC owners include any profits or losses on their personal returns and do not owe separate corporate taxes associated with corporations. Although, you may choose to pay taxes as a corporation if you have a financial reason to do so. Generally, though, those who get LLCs do not choose this route.

So why do so many businesses choose to form an LLC? The main reason is an LLC is considered financially responsible for itself as if it were its own person. This leaves the members (or owners) without personal responsibility for the LLC’s action financially, in most cases.

In other words, if someone sues your delivery service, they are suing the LLC, not you, and your personal assets such as your home, personal investments, and any other business assets not associated with this LLC will generally be untouchable. This legal protection can help you sleep better at night since owning a delivery business poses a real risk of vehicles accidents or other injury.

Advantages of an LLC for Delivery Service Businesses

Personal Liability Protection

You’re protected against personal liability for debts and legal actions against the LLC. So let’s say your delivery company were to fall on some bad financial times for any of these reasons:

• A once-in-a lifetime natural disaster destroys your delivery trucks and leaves you unable to pay vendors.
• Market disruption like an increase in gas increases the cost of doing business.
• Expansion miscalculation in an emerging market.
• A partnership that goes sour that you went into business with. The partner attempts to go after personal assets through litigation.
• A disreputable company sells you some trucks with significant mechanical issues that looked like a good deal. Due to the mechanical malfunction, someone gets hurt and sues your business.
• Other legal issues that can come up associated with running the business.

Any one of the examples listed above could result in an LLC is struggling to pay back debt. As long as you’ve kept your financials separate, which is critical to ensure LLC protection, you won’t be personally responsible for the debts beyond your LLC’s ability to pay them. As the name suggests, your liability in these business matters is limited.

Similarly, a delivery truck being driven by an employee could backend a compact car on the Interstate causing life-altering injuries to the other driver. That other driver or their family might sue beyond what your business or auto insurance covers, but any financial liability ends with the LLC even if that LLC were to go bankrupt if it were unable to pay the judgment. This is a real risk as legal settlements for serious personal injury issues can quickly exceed a million dollars.

Protect Personal Privacy

When setting up an LLC, you can choose to remain anonymous even if it’s a Single-Member LLC (SMLLC). Some reasons you may appreciate this anonymity include avoiding harassing calls and door-to-door business solicitation if you’re running a small delivery fleet from a home office. You probably don’t want to be contacted at home by an angry customer that looked up your business information.

Or it may be important to you to keep your business life, and personal life separate if you believe certain people knowing you own a delivery business may complicate family, friend, or other relationships with annoyances like acquaintances:

• Trying to get you to move their personal stuff for free.
• Asking for free delivery services for their company because “We’re family.”
• Being contacted directly from third-party companies. Also known as spam.
• Organizations coming after you for an old debt.

Tax Benefits

Unlike a C or S corp, an LLC passes its earnings straight through to its owners with no corporate taxes owed. In the US, the current corporate tax rate is 21%. That means that if your delivery business did have to pay corporate taxes, you’d owe 21% of your profits “off the top.” Then you’d get taxed again (double taxation) on your individual taxes at whatever your current rate is. This makes the LLC more like a sole proprietorship in terms of taxation.

With an LLC, you also get the benefit of choosing how you’re taxed. You can choose the following tax structures:

• Sole proprietor
• Partnership
• S corporation
• C corporation

In some cases, getting taxed as a C corp for example, may make financial sense, but you’ll want to look at the numbers with your CPA. I should note that if multiple people own your LLC, you won’t have the option to pay taxes like a sole proprietorship. The IRS will automatically tax your delivery service LLC as a partnership unless you choose C corp or S corp taxation.

Growth Potential

With an LLC, you can take more risk without worrying about your family home and life savings. More opportunity to take on risk means greater ability to grow your delivery business. So when you see that opportunity to start delivering in another market and you’ve crunched the numbers and evaluated the competition, you can move in confidently with less hesitation around your family’s security. In other words, you can take bigger risks with the goal of bigger returns.

Safely deliver packages to your customers.

Credibility and Consumer Trust

The initials “LLC” generally have positive connotations with both customers and any vendor partners you work with. To most people, incorporating means, you’re a legitimate business with the following:

• Clear management structure
• Internal auditing
• 3rd party financial oversight
• Quality control
• Legitimate hiring practices
• Proper licensing and insurance

And usually, these assumptions will be right, especially as you grow your delivery fleet.

Disadvantages of LLC for Delivery Businesses

Cost

An LLC is slightly more expensive than a sole proprietorship or partnership. Starting an LLC is not a way to save money on your taxes as a general rule. It has other things going for it. LLCs also have startup costs and you may have additional expenditures like hiring a CPA to ensure your financial records are to avoid IRS audits or complications with mixing business and personal.

Form an LLC for a Delivery Business with ZenBusiness ($39 + State Fees)

Pay Unemployment for Yourself

Since your LLC is a separate entity, it’s as if the LLC is your employer. That may mean you need to pay unemployment according to the state’s laws where you set it up. You’ll want to understand this piece before starting your LLC and evaluate those costs.

There is risk to owning a fleet of delivery vans.

Banking

Business and personal finances should always be separate, whether you’re an LLC or not. But things do get a little more complicated after you become this kind of company.

Checks made out to the LLC can only be deposited into an account owned by the LLC. And you’ll need to be careful not to let someone accidentally write their check to you personally. Some banks will charge extra fees for an LLC account that they would not charge for an individual.

Record-Keeping

As a delivery company that is an LLC, your business records must be immaculate. This includes but isn’t limited to:

• Vehicle expenses
• Personnel records
• Tax documents
• Vehicle, building, and equipment depreciation records
• Meeting minutes, whether meeting with your fleet drivers or other partners. This includes online meetings.
• Personal withdrawals from the LLC
• Business expenses such as trips to meet a new warehouse director across state lines.

These all need to be accurate and organized. Failing to do so could get you in a lot more trouble with an LLC than it would otherwise because your protection from liability is dependent on you keeping your personal finances separate from the business. That leads us to our next disadvantage.

Limited Liability is “Limited”

This isn’t really a disadvantage, as the same would apply if you didn’t become an LLC. But you need to know about the limitations of an LLC. You may still find yourself personally liable if:

• You injure someone while working.
• The bank requires you to guarantee a loan personally. This might happen if the LLC wouldn’t qualify for a loan on its own merit. Remember: LLCs are treated like people for all intents and purposes. If an LLC has bad credit, no credit, or limited assets, it won’t be able to get a loan without a “co-signer”–You.
• You do something fraudulent, illegal, grossly negligent, and cause some kind of harm to another person, business, government, etc.
• You don’t keep business account separated from personal accounts.

How to Form an LLC for a Delivery Service Business

1. Choose a Name for Your Delivery Service, LLC

It can be quite satisfying to finally see the name of your new LLC in print, on the side of trucks, vans, or published on a website. Here’s are some best practices for creating a LLC business name.

• Be aware of any state laws where you plan to incorporate. If you break them, the government will send the paperwork back and keep the fees.
• Avoid a name that could be confused with another company’s name. That could lead to not only a rejected application but copyright legal battles even if the name is approved.
• Use the state’s business name database to find names that may be similar to yours.
• If your name is taken, you can get creative and unique to ensure your name is not confusable with an existing company.
• Remember that an LLC or Limited Liability Company will be part of your legal name.
• Make sure it will be reasonably understood as the name of a Delivery Service, not some other industry. Deliveries, Transport, Moving, Trucking or something similar will probably be in your name.
• Avoid something that could be easily misspelled.
• Make sure you don’t unintentionally choose a name that sounds obscene. Check across common languages that your clientele might use. Depending on where you are that might be Spanish, Mandarin, Polish, etc.
• Short is usually better. It will look best on a business card and is not hard to write out on a check.
• Avoid terms that might seem divisive among some groups.  “Christian” or “Muslim” Delivery Service — Unless your niche is delivering for a certain religion this may feel excluding to part of your market.
• But do imply company values most of us can agree on. For example, put an “eco-friendly” term into your name if you’re running an electric fleet.
• Check to see if the web address is taken and search the name idea on Google. This is a good sniff test to see if there is already a company running a business under the name.

2. File Articles of Organization

Your Articles of Organization are required before you can function as an LLC in many states. States keep records of all LLCs to keep people honest and districts organized. You will file this in the state where you plan to organize. This doesn’t have to be the same state where you do business in some cases. Check the state to know exactly what to submit, but here’s what the form typically includes:

• Your LLC’s legal name, which doesn’t have to match the name of your business.
• The physical address of your LLC.
• The name and contact information for your registered agent, the human who gets any communications sent to the LLC.
• LLC’s owner/member(s).
• LLC organizer, which is most likely a business lawyer or LLC service.
• LLC manager (if applicable). This would be an outside person you hire to manage the LLC.

The state’s forms will already be created, so it’s only a matter of filling the information they request out. You can submit this to the state through an LLC service or a lawyer, who will charge you a fee for doing so. This fee is in addition to filing fees, which can be anywhere from $50 to $1,000.

In addition to Articles of Organization, your LLC will require two other important documents.

1. Operating Agreement – This explains the rights and duties of the LLC and its members. More on that in a moment.
2. Employer Identification Number (EIN) – The number that replaces a social security number on business-related documents.

3. Choose a Registered Agent

Before submitting paperwork, choose the human. They will be responsible for receiving communications from the state government such as:

• Tax forms
• Reminders
• Alerts

Someone responsible must be on top of this to avoid delays and penalties. If the registered agent does not live up to their duties, the state has the power to dissolve an LLC. Fortunately, there are plenty of LLC service companies like Swyft LLC who can handle this requirement for a few hundred dollars per year.

4. Create an LLC Operating Agreement for a Delivery Service

Create an operating agreement for your business.

Your operating agreement defines how you run your company. This agreement establishes the level of personal liability you’re taking on. Without it, you may not have the limited liability you think you do. This section makes sure everyone’s on the same page.

It also becomes a binding arrangement among multiple people if you have partners. But even if you have no partners, you need one because otherwise in the event of a disagreement, state laws will determine the default agreement. This document should be both signed by all members and filed with the state.

You’ll need to consider:

• Tax considerations
• Management structure
• What each member invested
• How profits are shared

Let’s say you already had five trucks (worth $100,000 at current depreciated value) from a previously dissolved dry-cleaning delivery service. You take on a partner who puts in $50 thousand to help you start a new floral delivery, gut the trucks, retrofit them for transporting arrangements, and replace the truck wraps with your new branding. You agree that the partner has a 33% share.

If there is no operating agreement, the state might say you have to split profits 50/50 even though you hold significantly more equity in the business. That might be fair if your partner also brings significant expertise and/or business connections to the table, but you two need to get that in writing. Don’t assume you’re on the same page with your partner. And don’t let the state decide things like this for you. Get everything in writing.

Basic Provisions of Operating Agreement

• Identifying Information: The name of the LLC and the addresses of the initial registered office and principal business office.  e.g., So Fast Deliveries, 23 Fictional Lane, Las Vegas Nevada, 88901
• Statement of intent: The name of the LLC and the addresses of the initial registered office and principal business office.   e.g., So Fast Deliveries, 23 Fictional Lane, Las Vegas Nevada, 88901
• Business Purpose: A statement of the purpose of the LLC, which should include the nature of the business. It often includes an additional statement, such as “and for any other lawful business purpose,” to cover any changes you may wish to make later.  e.g., Deliver floral arrangements and engage in any other lawful purpose
• Term: For most LLCs, this will state that the LLC will continue until it is terminated as provided in the operating agreement or until dissolved according to state law. An LLC formed for a specific purpose, such as constructing and selling a commercial building, may exist for a set period of time or until a certain event occurs.
• Tax Treatment: State whether the LLC elects to be taxed as a sole proprietorship, partnership, or corporation
• Admission of New Members: This provision outlines how someone may acquire an interest in the LLC. If there is no such provision, and you later wish to add a partner, you can always prepare an entirely new operating agreement.

Sample LLC Operating Agreement 

“Operating Agreement for Member-Managed Limited Liability Company.

I. Preliminary Provisions

(1) Effective date: This operating agreement of {So Fast Deliveries, LLC}, effective {April 1, 2022} is adopted by members whose signatures appear at the end of this agreement.

(2) Formation: This limited liability company (LLC) was formed by filing articles of organization, passive to forget the formation, or similar organizational document with the LLC filing office of the State of blank on blank. A copy of this organizational document has been placed in the LLC’s record book.

(3) Name: The formal name of this LLC is stated above however this LLC may do business under a different name by complying with the states fictitious or assumed business name statutes and procedures.

(4) Registered Office and Agent: the registered office of this LLC and the registered agent of this address are as follows: Joe Smith, 123 Fictional Lane, Las Vegas Nevada, 88901. The registered office of the agent may be changed from time to time as the members may see fit, by filling a change with registered agent or office form with the LLC filing office. It is not necessary to amend this provision of the operating agreement if and when such a change is made.

(5) Business purposes: the specific business purpose activities contemplated by the founders of this LLC at the time of initial signing of this agreement consists of the following: {Deliver floral arrangements for local florists}. It is understood that the foregoing statement of purpose shall not serve as a limitation on the power or ability of this LLC, which shall be permitted to engage in any and all lawful business activities. If this LLC intends to engage in business activities outside the state of its formation that require the qualification of the LLC in other states it shall obtain such qualifications before engaging in such out of state activities.

The duration of this LLC shall be {indefinite}. Further, this LLC shall terminate when a proposal to dissolve the LLC is adopted by the membership of this LLC or when this LLC is otherwise terminated in accordance with law. ”

{Continue filling out the below fields as they apply to your company.}

II. Membership Provisions 

(1) Nonliability of Members:

(2) Reimbursement for Organizational Costs:

(3) Management:

(4) Members’ Percentage Interests:

(5) Membership Voting:

(6) Compensation:

(7) Members’ Meetings:

(8) Membership Certificates:

(9) Other Business by Members:

III. Tax and Financial Provisions

(1) Tax Classification of LLC

Publication Requirements 

Some states such as Arizona, require that you publish the Operating Agreement after the commission approves your LLC filing. Once approved, the state may require you to publish it in a newspaper of general circulation in the area for three consecutive days, or something similar. And it will generally get published into the state’s database as a public record.

Frequently Asked Questions

Do I Need any Other Licenses, Permits, and Protection Beyond LLC to Operate?

Separate from your LLC, your delivery company may need:

• A local business license
• Occupational license
• Sales tax permit
• Payroll tax registration
• Sign permits
• Any federal licensing if you cross state borders

Is LLC a Good option for a Delivery Company?

It can be. It reduces your personal liability so that you can take the risks needed to grow your delivery company.

Are Their Disadvantages of LLC for a Delivery Company?

It will increase the amount of paperwork you need to do, and you’ll need to be especially careful not to mix business and personal. Turning you business into an LLC may also increase certain costs.

Do You Need an LLC for a Delivery Company?

Not necessarily. But it does have benefits and disadvantages you’ll want to weigh and/or discuss with your financial or legal people.

How much does it cost to form an LLC?

The cost to form an LLC depends on your state. For example in Kentucky you can expect to pay $40. In Massachusetts expect to pay around $500 to form this business entity. This doesn’t include documentation fees. You can find out how much it will cost in your state by working with an LLC service company.

What Is the Difference Between Delivery Service Sole Proprietorship VS LLC?

In a sole proprietorship, you retain all personal liability for debts and judgments related to your company if your company cannot meet those obligations. With an LLC, you will not be personally liable in most cases.

What Is the Difference Between a Partnership VS LLC?

Similar to a sole proprietorship, in a partnership, you and your partner (or partners) will be personally liable if your company can’t meet its obligations. An LLC will protect to both from liability in most cases.

Starting an LLC for A Delivery Service

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