Starting a food truck business can be a lucrative idea, especially considering the attractive growth opportunities.
According to Grand View Research, the global food truck market’s value was $3.93 billion in 2020. And experts predict it will grow to $6.63 billion in 2028.
You can get started with your food truck idea as it is relatively inexpensive compared to setting up a full-service restaurant.
Several aspects are a part of the food truck business. It includes fixing the menu, deciding on a catchy name, and getting a food truck. However, it is equally important to finalize the structure of your food truck business. You can choose between a sole proprietorship, partnership, or a limited liability company (LLC).
After considering the pros and cons of each option, it is safe to say that LLC is the best option for starting a food truck business. Its structure and low costs make an LLC one of the most preferred routes for starting a food truck business.
Here is all you need to know about getting an LLC for the food truck business.
What is an LLC?
A limited liability company, or LLC, is one of the most popular choices for a legal structure for any business (including a food truck).
This business structure enables the owner(s) to limit their liability toward their business and separate their personal assets. This aspect is helpful if a business faces a lawsuit. It keeps the personal assets of the owners protected.
Compared to other choices like starting a sole proprietorship, partnership, an LLC is much better as it provides liability protection for the owners. And compared to starting a full-fledged corporation, it’s much easier to create and manage an LLC as they have less statutory requirements. Also, LLCs can have very flexible tax treatment.
You can complete the process of starting an LLC by yourself. Alternatively, you can hire an LLC filing company to take care of the paperwork for you.
Does a Food Truck Business need an LLC?
While it’s not required, an LLC may be a good choice for a structure for any business involving some risk, including a food truck. An LLC can help you save money on taxes and it reduces your personal liability.
It also allows you to choose a formal structure instead of relying on informal options like sole proprietorship and partnership.
How to Form an LLC?
You need to follow a structured approach to form an LLC. If you hire a filing company, they will take care of the items below. Here are some of the steps that you can follow to form an LLC:
- Select your state
There are different rules in each state for starting and managing an LLC. The first step in establishing an LLC is to select the state where you want to start the food truck business.
For instance, if you are going to form an LLC in Florida, you need to follow the local rules to start and manage an LLC there. Additionally, it’s best to form your LLC in the state where you are doing business. If you form your LLC in another state, you’ll end up having to register that LLC in your home state/the state where you’re doing business.
- Name your LLC
The second step is to finalize the name of the business. If you need help deciding a name, there are various business name generators that you can use for the purpose. Your desired LLC name will go on the LLC paperwork that’s filed with the state.
You can also order a domain name for your business at this stage and get your website started.
- Choose a Registered Agent
A Registered Agent is a person or company who agrees to accept legal mail and state notices on behalf of your LLC. The Registered Agent must have a physical address in the state where you’re forming your LLC. If you’re a resident of that state, you can be your own Registered Agent. Or you can hire a professional Registered Agent company. The Registered Agent will get listed in your LLC paperwork that’s filed with the state.
- File Articles of Organization of the LLC
The Articles of Organization is the document that you file with the state. Once it’s approved, your LLC will officially go into existence. Depending on the state, the Articles of Organization may also be known as the Certificate of Organization or Certificate of Formation.
- Create an LLC Operating Agreement
An LLC Operating Agreement is a legal document that outlines who owns your business, how much of the business they own, how the LLC is managed, how taxes are paid, and more.
- Get an EIN
EIN or Employer Identification Number is a number that can be considered a social security number for a business. It is a unique number used for business and tax purposes. You can get this for free from the IRS.
LLC Benefits for Food Truck Business
There are several benefits of starting an LLC for a food truck business. Some key benefits of starting a food truck business with an LLC structure are as follows:
Credibility
One of the biggest benefits of forming an LLC for a food truck business is that it brings along a lot of credibility for the business.
Your vendors, suppliers, and customers may take your business more seriously. By choosing an LLC business structure, you are making a conscious effort to have a formal structure for your business.
The increased credibility can also help your business when taking any loan, credit, or grant.
Liability
Limited liability protection means the owners personal assets are safe and protected in the event the business were sued.
A food truck business may involve various risks, as you are selling food to customers. Therefore, it’s usually better to choose an LLC structure that helps you separate your personal assets from your business assets.
Additionally, a business could face other risks like a financial data breach, workplace accidents, or trademark infringement.
Tax benefits
By default, a Single-Member LLC is taxed the same way as a Sole Proprietorship. And a Multi-Member LLC is taxed the same way as a Partnership. So in these cases, there is no tax benefit to forming an LLC. However, an LLC can make an election to be taxed as a Corporation (a C-Corporation or an S-Corporation). So for some people, that could be beneficial. Overall, LLCs are flexible in how they can be treated for tax purposes.
Conclusion
Forming an LLC for your food truck business can help in more ways than one. An LLC is more credible than a Sole Proprietorship or Partnership. And the LLC will protect the owner’s personal assets if the business is involved in a lawsuit. LLCs are also easier to maintain and manage when compared to a traditional Corporation. And LLCs can choose how they’d like to be treated for tax purposes. For these reasons, LLCs are the most common business structure, not just for food trucks, but for all businesses in the United States.
Author Bio:
Matt Horwitz is the founder of LLC University, a website that teaches people how to form LLCs. Matt is the leading authority in LLC education and is featured in CNBC, Yahoo Finance, Entrepreneur Magazine, and the US Chamber of Commerce. Matt holds a Bachelor’s Degree in business from Drexel University with a concentration in business law. LLC University®, established in 2010, was the first company to create free LLC courses in all 50 states.
