Do I Need an LLC to Work for Uber or Lyft?

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When you start as an Uber or Lyft driver, you must go through a background check, have a driver’s license, proof of automobile insurance, and a car that meets their requirements. You do not have to have your own business entity, such as a corporation or LLC, for this type of business. Many rideshare drivers operate as sole proprietors, meaning they are the only owners and operators. However, there are a few reasons why you should consider forming an LLC.

What Is an LLC?

An LLC is a business entity that provides the same personal liability protection as a corporation but has a more flexible tax structure similar to a sole proprietorship. LLCs are a popular choice for business formation, especially among entrepreneurs with small business startups.

What Are the Benefits of an LLC?

Personal Liability Protection

The main benefit of an LLC as a business structure is personal liability protection. LLCs protect your personal assets from claims and business debts. Suppose you are driving and accidentally hit someone; that person could sue you. However, if you are an LLC and hit someone, that person sues the LLC, so only your business assets are at risk.

Tax Advantages

If you form a corporation, you may have to pay corporate income tax as well as personal income tax unless you create an S corp. The LLC structure lets you decide how to report your income for tax purposes. LLCs offer pass through taxation meaning your income and expenses pass-through to your personal tax return, avoiding double taxation.

Additionally, there are tax benefits, such as being able to write off expenses, such as car costs and mileage, from your business income. Consult a tax professional to learn what expenses you can deduct from your tax burden.

Proof of Independent Contractor Status

Rideshare drivers are generally considered independent contractors rather than employees. California recently upheld the determination that Uber drivers are independent contractors. This classification is significant because if drivers are employees, the rideshare companies must withhold taxes, provide benefits, and adhere to state and federal labor laws. Rideshare companies have a vested interest in keeping their drivers classified as independent contractors. Operating your own LLC is one piece of proof that you are independent and not their employee.

How Do I Form an LLC?

You create an LLC in the state where you operate your rideshare business. The first step is to complete the Articles of Organization for your LLC and file them with your Secretary of State’s office. An LLC needs a registered agent, which is a representative for the LLC. You can be your own registered agent if you reside in the state where your LLC operates.

You include basic information about your LLC, such as:

• The business name and address of the principal place of business

• The business purpose

• Name and address of the registered agent

• Names of members and managers

If you are a single-member LLC, meaning you are the only owner, you would be the member. You can also be the manager unless you want to appoint someone else as a manager of your LLC.

What Do I Do After LLC Formation?

You file your Articles of Organization with the Secretary of State and pay the filing fee. Once the state approves your filing, you will receive a Certificate of Formation back from it.

The requirements for an LLC are minimal. They include completing a Business Owners Identification Report (BOIR) and filing annual reports. However, you do not have to have bylaws or maintain minutes of meetings. Some states require an LLC to have an operating agreement. This is an outline of your business and how it is run. Even if it is not needed, it is a good idea to draft an LLC operating agreement.

If you have an LLC, you should apply online with the IRS for an Employer Identification Number (EIN). It is like a social security number for your business entity. You use this number to file taxes, apply for business licenses, etc. You should also set up a business bank account under the LLC name to run all your business income and expenses through.

Other Ways to Protect Ride Share Drivers

In addition to forming an LLC, consider carrying business insurance. Your existing auto policy may have coverage for ridesharing activities, or you can look into commercial insurance policies that insure rideshare businesses.

If you have questions about whether forming an LLC is right for your ridesharing business, consult a local business attorney for legal advice. But if you want to do it yourself, consider using online business formation services to form your LLC.