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Separate Corp/LLC for Vehicles and Equip

836 Views | 5 Replies | Last: 6 yr ago by dog
SmokeDog
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AG
Can someone explain the benefit of having vehicles and equipment in a separate organization as far as protection and taxes are concerned? If there is an issue, and today's current litigious environment, would the organization that controls these assets be open to litigation as well as the organization that leases the vehicles and equipment? And are there good tax benefits for both organizations using this method?
LOYAL AG
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AG
The reasons are to protect the operating entity from the risk inherent with operating equipment. If your tractor trailer rolls over and kills a family the transportation company is sued and potentially bankrupted but the operating entity has some protection. Next time you see a Wal Mart truck notice it's from Wal Mart Transportation Co, Inc. or something like that. That's not Wal Mart. Run it like a real business. It owns the assets, it carries insurance, it hires drivers and carries the payroll, etc. You can't create the entity and park assets there but do everything else through the operating entity. It has to look like a separate business. This isn't one that's about taxes, it's about risk management.

By the way you should do the same for any real estate the business owns and uses for the same reasons. If someone gets hurt and the operating entity gets sued your real estate isn't exposed to the suit.
The Wonderer
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AG
As Loyal AG explained, it's about compartmentalization of risks, but you must be careful that you do not create a situation in which the corporate veil can be pierced and parent LLC's assets can become vulnerable to attack.
SmokeDog
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AG
I assume the equip entity just leases the equipment back to the operating entity. I deal with non-cdl vehicles, trailers, and construction equipment. It can be run as a true business, but having payroll within that entity would be impossible as I do not have dedicated operators. Thank you for your responses. I will consult my attorney next week.
The Wonderer
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AG
SmokeDog said:

I assume the equip entity just leases the equipment back to the operating entity. I deal with non-cdl vehicles, trailers, and construction equipment. It can be run as a true business, but having payroll within that entity would be impossible as I do not have dedicated operators. Thank you for your responses. I will consult my attorney next week.
I think in LOYALAG's example, the trucking company is a separate entity owning and operating the trucks so that Walmart's stores operation is not exposed to the liability of trucking operations. The equip company is not leasing the trucks to Walmart, it's actually operating them. It's the actual operations that create the risk of liability.
LOYAL AG
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AG
SmokeDog said:

I assume the equip entity just leases the equipment back to the operating entity. I deal with non-cdl vehicles, trailers, and construction equipment. It can be run as a true business, but having payroll within that entity would be impossible as I do not have dedicated operators. Thank you for your responses. I will consult my attorney next week.
Good idea talking to your attorney. Seeing that nothing is CDL a separate company may be overkill. It sounds like you're running the same type of assets any company running small construction or a warehouse deals with. Specifically I'm thinking forklifts, pickup trucks, box trucks, etc. In that case I think a separate entity is not necessary and really just added admin burden with little benefit. It makes more sense to make sure you've got adequate insurance coverage, particularly worker's comp and business auto.
dog
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AG
Contact a risk management firm

PM me if you want my guy's contact info

They have attorneys on staff (not only insurance agents)

Plus they have great access to ESL brokers if your situation requires that
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