Why Starting an LLC for a Rideshare Business Is Important

Personal Asset Protection

The top reason to form an LLC for an Uber or Lyft business is to gain access to the personal asset protection provided by this business structure. Whether you work as a full-time rideshare driver or you only occasionally work on these platforms, you need the limited liability protections that an LLC can provide.

For example, let’s say you are sued by a passenger for endangering them by driving recklessly, or Lyft or Uber sues you for violating their terms of service. In either circumstance, if you operate your rideshare business as a sole proprietorship, your personal assets — like your house, car, personal bank accounts, etc. — would be at risk if you are sued.

On the other hand, if you form an LLC for your Uber or Lyft business before you ever pick up your first passenger, and you operate and maintain that LLC in a compliant fashion, the scope of the lawsuit will be limited to your business assets. In other words, your personal assets will be protected by the business structure you’ve chosen.

Taxation

The LLC’s options for taxation are another major advantage, although not all of these options are typically applicable to rideshare businesses. Still, the LLC can save you a considerable amount of money compared to simply operating as an informal business entity.

Sole Proprietorship

Your rideshare LLC can be taxed as a sole proprietorship, which is the default option. With this tax structure, your business itself does not pay taxes, but rather the profits are passed through the business entity and you pay taxes on that money when you file your own personal taxes.

C Corporation

You can also choose for your rideshare business to be taxed as a C corporation, although this option isn’t very popular because it subjects your business to what’s known as double taxation — meaning that your profits are taxed first on the corporate level and again on the personal level when they’re distributed to you.

S Corporation

The other option is S corporation taxation. There are quite a few limitations to electing S corp taxation, but most Uber or Lyft businesses have no trouble meeting these requirements — your business cannot have more than 100 owners, they all must be either residents or citizens of the United States, etc.

In theory, S corp taxation can help your rideshare business save money by reducing your self-employment tax burden. Instead of paying self-employment taxes (a 15.3% tax that includes the employer and employee portions of Medicare and Social Security) on all of your business income, you can pay yourself a reasonable salary for your role and only pay self-employment tax on that portion of your income, while you can reinvest the rest of it into your business without paying this tax.

The problem with electing S corp taxation for Uber and Lyft drivers is that you simply don’t have many business expenses to invest that extra money into. Sure, there are routine repairs and other expenses, but it’s not like you’re going to buy a new car every year, so the IRS might (rightfully) have some questions if it sees you leaving lots of money in your business structure.

Compare Packages

Identify the LLC package and services that fit your needs and then get started.

Starter

Premium

Starter

$0

Premium

$349/yr

Starter

File in 2 to 3 weeks **

$0

PLUS STATE FEES

Premium

File in 1 to 5 days **

$349/yr

PLUS STATE FEES

Top Features

More InfoWe do everything needed to file your application with the state and make your business official. Standard LLC Filing
More InfoWe’ll file your paperwork quickly and accurately. If there are any errors with your filing, our team will do what’s needed to make it right. 100% Accuracy Guarantee
More InfoKeeps you compliant with all state-required annual report and amendment filings to maintain LLC protections and avoid fines. Worry-Free Compliance
More InfoThis essential document is like the constitution for your business. Operating Agreement
More InfoOur fastest service puts you to the front of our line of filings. Our Fastest Filing Speed
More InfoOur team will secure your EIN from the IRS so you can open a business bank account, hire employees, and pay taxes. EIN
More InfoIncludes over 25 templates for contracts, service agreements, waivers, and more. Business Documents
More InfoGet online with a website builder tool optimized for traffic and customers. Business Website Builder
More InfoBuild and protect your brand by registering a private domain name that matches your business name. Domain Name with Privacy
More InfoStay organized and give your business more credibility with a business email. Business Email Address

File in 2 to 3 weeks **

1 year free, then $199/yr*
+$99
+$79
+$99
+$99
+$15/mo
+$35/yr
+$25/yr

File in 1 to 5 days **

*SPECIAL OFFER – Get Starter for $0 plus state fees. Includes one optional free year of Worry-Free Compliance that renews at $199/yr.
**These filing times are averages and include our processing times and Secretary of State turnaround times which vary by state.

What Is an LLC?

First off, let’s quickly outline what an LLC is. LLCs are formal legal entities that are typically taxed similarly to sole proprietorships and general partnerships, in that the owners include any company profits or losses into their personal returns — the LLC itself does not owe income taxes.

An LLC may also elect to be taxed like a corporation, although this is not a very common option.

There are similarities to corporations too, especially when it comes to financial responsibilities. In an LLC, the owners or members are not usually personally accountable for the financial status of the business. This means that if someone sues your LLC, your personal assets are not at risk.

How to Start a Rideshare LLC

The formation process for LLCs varies depending on which state you’re forming one in, but in general, the process has some universal steps that need to be taken no matter what state your business is located in. If you want a comprehensive overview of all the steps required to form an LLC, check out our complete guide on the topic. The basic steps in the LLC formation process in any state are as follows:

1) Choose an LLC name

Coming up with the perfect name for your new LLC is an important step. You’ll need to choose a name that represents your company and describes what you do, and you’ll also have to make sure it isn’t already in use by checking your state’s business database.

2) Designate a registered agent

Your LLC’s registered agent (which can be an individual or a professional service) is responsible for receiving important document deliveries from the state — like service of process, annual report reminders, etc. — and forwarding them to you. The registered agent ensures that the state always has a reliable point of contact for your business.

3) File your formation documents with the state

The form used to create an LLC is usually called the Articles of Organization, although the name can vary (some states call it the Certificate of Formation or something similar). You’ll need to provide the state with some basic information about your business and its owners. In exchange, the state will formally create your LLC.

4) Acquire an EIN

The Employer Identification Number (EIN) is a federal tax ID number that essentially functions as a Social Security number for a business. The EIN allows your business to hire employees, pay taxes, apply for bank loans, and more. You can easily obtain an EIN from the Internal Revenue Service free of charge.

5) Create an LLC operating agreement

Most states don’t require operating agreements but every LLC should have one regardless. This is an internal document that outlines several key operational aspects of your LLC. The value of the operating agreement is how it can help prevent ownership disputes down the line by clearly explaining how the LLC will be run.

6) Create a financial infrastructure

You will need a business bank account for your LLC, and you’ll probably want a business credit card for work-related expenses as well. It’s also a good idea to use accounting software like QuickBooks or even hire an accountant to handle your bookkeeping for you.

7) Handle taxes, licenses, and permits

Depending on your state, you may need a general business license to operate your LLC in compliance with state requirements. Other than having your driver’s license, there aren’t any widely applicable industry-specific licenses or permits for rideshare drivers, but that doesn’t mean you won’t need any. Don’t forget to check with your state to see if there are franchise or privilege taxes assessed on LLCs, and also see if your municipal and/or county government entities have any further licensing requirements.

8) Understand maintenance requirements (annual reports, franchise taxes, etc.)

Again, these requirements can vary by state, but most states require some sort of regular report to ensure that your LLC’s info is up-to-date in the state’s business database. Some states require reports each year, while others only require them biannually or not at all. No matter what your state requires, you’ll need to stay on top of it to keep your LLC in good standing.

Additional Resources for Starting an Uber or Lyft Business

1) The Rideshare Guy

The Rideshare Guy’s website is stuffed with valuable information for Uber and Lyft drivers, but our favorite part might be the resources section. Here, you’ll find information about insurance issues, maximizing your rideshare profits, background checks, legal representation for accidents, taxes, tools and analytics, and more.

2) The Rideshare Guru

Not to be confused with The Rideshare Guy, The Rideshare Guru has a wide variety of resources and tools for Uber and Lyft drivers. This site has advice about the gig economy, insurance, taxation, vehicles, apps, dashcams, and more. They also have a broad selection of articles and videos on topics that affect every rideshare driver’s bottom line.

3) RapidGo Driver

This useful website splits up its resources into some intriguing categories. You can learn more about traditional rideshare driving, pantry and grocery delivery, parcel and package delivery, meal delivery, etc. — for those of you in states with legalized marijuana, RapidGo Driver even has resources for cannabis delivery.

4) Gridwise

Gridwise is an app that runs in tandem with your Uber or Lyft app and helps you streamline your rideshare business. Gridwise automatically keeps track of your mileage, helps you analyze your earnings, compares your earnings per mile or per hour with other drivers in your area, helps you pick the right time to make airport runs, and more.

5) Ridester

Ridester has a two-pronged approach to helping rideshare drivers achieve their goals. They provide valuable content about the rideshare industry, with plenty of news and resources to help drivers maximize their profits. Ridester also curates transportation-based work opportunities, so you’ll never have a shortage of gigs.

Frequently Asked Questions

  • The biggest liability risk for a rideshare driver is an at-fault accident. If you cause a traffic collision, you could be on the hook for extensive expenses, especially because Uber and Lyft consider their drivers to be independent contractors rather than employees.

    In addition, Uber and Lyft both have comprehensive terms of service for all contractors to follow, and failing to do so could lead to being kicked off their platforms or even sued.

  • Everyone’s situation is different, and we are not here to provide legal advice. That said, the limited liability company has some concrete advantages over the corporation that makes it the preferred option for most small businesses.

    Corporations tend to have more complex formation and maintenance requirements, and they don’t have the taxation advantages of an LLC. The corporation has some advantages of its own (for example, it’s easier to attract investors to a corporation) that make it worth a look but the LLC is a simpler and more flexible business structure.

  • You certainly can! Every state allows entrepreneurs to serve as their own registered agents. However, while the role of the registered agent can seem like that of an unnecessary middleman, there is more complexity to this position than some people realize.

    For instance, you would need to be present and available at your business location during all standard business hours. In addition, if you serve as your LLC’s registered agent, you may need to make your home address a matter of public record. Not only does this have privacy concerns, but there’s also the matter of unwanted junk mail as well.

  • The DIY route is always an option for LLC formation. However, LLC services are so affordable that there’s really no good reason not to use one these days. In addition, some of these companies often throw in free bonus features that make them an even better bargain.

  • Some people like to form their LLCs in states with favorable legal settings. For instance, Delaware is often seen as the most business-friendly state, as it has an entire court system that’s dedicated solely to business matters. As for Wyoming, this state has some of the most generous anonymity laws for LLC ownership.

    However, for most people, your best option is to simply form your business in your home state. Forming in a different state can be a tremendous hassle, and it can add some unnecessary complexity to tax issues as well.

  • The costs of LLC formation can vary quite a bit depending on which state you’re forming one in. For in-depth information about LLC formation costs in your specific state, take a look at our comprehensive guide to state-by-state expenses.

Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

Start your Rideshare LLC