How to Start an LLC for Uber and Lyft (Step-by-Step Guide)

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by LLC.org Team
Last updated: July 21st, 2024

Driving for Uber and Lyft can be more than extra income; it can be a full-fledged business venture. While drivers aren’t required to set up an LLC to work for either company, it’s a beneficial way to formalize your operations and safeguard your financial future.

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How to start an LLC for Uber and Lyft

The process of business formation is dependent on the state where you form the LLC, but there are some general steps that you will always need to consider.

1
Choose a business name

Selecting an LLC name is a required step before forming your LLC, as it will be required for your paperwork. Each state has their own naming rules, but the most common include:

  • The name must be distinct and not already in use by another registered business within your state to avoid confusion and legal issues.
  • The name must include an indication of the business structure, such as “Limited Liability Company,” “LLC,” or “L.L.C.,” as required by state law.
  • Avoid using words that could confuse your LLC with a government agency (e.g., FBI, Treasury) or that imply a purpose your business is not legally authorized to pursue (e.g., Bank, Insurance).

To begin, conduct a thorough search through your state’s business filing agency, often available online, to ensure the name you desire is available. Many states will let you reserve the name for a period of time until you are ready to file.

If you intend to operate under a name different from your registered LLC name, you’ll need to file a DBA (Doing Business As), which may be called a fictitious or assumed name in some states. This also requires a name availability check and adherence to the state’s naming requirements.

2
Appoint a registered agent

You must appoint a registered agent who resides in the state where the LLC is registered. This agent is responsible for receiving legal documents and notices on behalf of the LLC. All states allow the business owner to serve as their own registered agent, but if you do not have a local address or do not want to take on the task, you can use a registered agent service.

3
Register your LLC

Once you’ve chosen a business name, the next step is to officially register your LLC with the state.

The primary document required to register your LLC is the Articles of Organization, sometimes referred to as the Certificate of Formation or Certificate of Organization, depending on the state. This form outlines the basic details of your LLC, including the business name, principal address, and the name and address of your registered agent.

The cost to file the Articles of Organization varies by state but typically ranges from $50 to $500. It’s important to check with your specific state’s business filing agency for the exact fee.

4
Obtain an Employer Identification Number (EIN)

An Employer Identification Number (EIN) is a nine-digit tax ID number issued by the Internal Revenue Service (IRS) for tax purposes. It is like a Social Security Number for businesses.

Not every business will need an EIN, but it is needed in cases such as:

  • If your LLC will hire employees, an EIN is necessary for reporting and paying employment taxes.
  • Opening a business bank account typically requires an EIN. It helps separate your personal and business finances, which is essential for maintaining the legal protections of an LLC.
  • Many state and local licenses and permits require an EIN. It’s used to track your business’s compliance and tax status.
  • Establishing business credit is another use for an EIN. It allows you to build a credit profile under your business name.

You can obtain an EIN online at no cost.

5
Draft an operating agreement

Although most states don’t require an LLC to have an operating agreement, it’s advisable to create one to outline the ownership structure and operating procedures of your LLC. This document is crucial for clarifying roles and responsibilities among members, especially in multi-member LLCs. There are many templates online, or you can seek professional legal advice.

6
Obtain business permits and licenses

LLCs will all need some type of business permit and license. These requirements vary significantly based on your location, the nature of your business, and specific state regulations. Here are the general types of permits and licenses you might need:

  • General business license: Most cities or counties, and some states, require a general business license to operate legally. This license must be renewed periodically, often every year, to maintain legal operating status.
  • Tax permits: Depending on the nature of your business and your state’s tax laws, you may need to obtain a state tax permit. This is particularly relevant if you are selling goods that are subject to sales tax or if you have employees, in which case you might need a withholding tax permit.
  • Local licenses: Local government units, like your city or county, may require specific licenses tailored to the services you provide. For instance, some localities have specific requirements for businesses that operate in the transportation sector, including additional safety and operational standards.
  • Occupational licenses: Depending on the jurisdiction, certain professions may require occupational licenses. While generally not applicable directly to ride-sharing, if your LLC expands into other areas like vehicle repair or transport services for goods, such requirements may come into play.

You may also need additional state-specific licenses, especially for businesses that provide certain types of services. For Uber and Lyft drivers, this might include special vehicular or transportation service licenses.

It’s important to research thoroughly to understand all the licensing requirements applicable to your LLC. Contacting local business development centers, visiting relevant government websites, or consulting with a business attorney can help ensure you meet all legal obligations and avoid potential penalties.

Considerations for Uber and Lyft LLC Owners

Along with the steps to formally create your LLC, there are many additional considerations for these businesses. Here are some of the most common things to keep in mind when starting your rideshare LLC.

Business bank account

While a business bank account is not strictly required for LLCs, it is highly recommended. A separate account not only simplifies accounting practices but also reinforces the legal distinction between personal and business finances, which is essential for maintaining your liability protection under the LLC structure. Any CPA or tax professional you work with will also appreciate the simplified bookkeeping of a bank account.

Most banks offer services tailored to small businesses, including merchant services, credit lines, and business credit cards, which can be advantageous for managing day-to-day operations and potential business expansion. Setting up this account typically requires your LLC’s EIN and LLC formation documents.

Insurance requirements

For LLCs operating in the rideshare industry, adhering to specific insurance requirements is non-negotiable. Typically, this involves upgrading from a standard personal auto insurance policy to a commercial auto insurance policy, which provides coverage tailored to business use. This policy covers higher liability limits and can protect against a range of business-related risks, such as accidents during rides or when logged into the rideshare app, providing crucial protection for both the driver and passengers.

Uber and Lyft LLC owners should also consider general liability insurance, which covers incidents not directly related to driving but that could occur during the course of business operations, like disputes over service or accidents occurring while loading luggage. Some regions may have unique requirements or offer specific rideshare insurance policies that blend personal and commercial coverage, so it’s important to research and comply with local insurance laws to ensure full protection and compliance.

LLCs for non-residents

Forming an LLC in the United States is also an option for non-residents, whether they live out of state or outside the country. Out-of-state residents can establish a foreign LLC in any state, but they typically choose states with favorable legal and tax environments, such as Delaware or Wyoming.

For non-U.S. residents, forming an LLC can be a way to establish a business presence in the U.S., although they must ensure compliance with additional regulations such as obtaining an International Tax Identification Number (ITIN) if they do not have a Social Security Number.

In both cases, you must appoint a registered agent within the state where the LLC is formed to handle legal documents and maintain compliance.

Annual compliance

Maintaining an LLC requires adherence to certain annual compliance obligations to ensure the business remains in good standing. This typically includes filing taxes (including franchise taxes), annual reports (like the BOIR), and paying necessary fees, which vary by state.

Hiring employees

As an LLC, hiring employees can help expand the operation and increase the number of rides your business can offer. However, it introduces several new responsibilities, including withholding income taxes, contributing to unemployment and workers’ compensation funds, and complying with both federal and state employment laws.

It’s important for entrepreneurs to set up proper payroll systems and understand their obligations under labor laws. Additionally, ensuring that all drivers meet the standards and requirements of rideshare platforms is essential for maintaining service quality and legal compliance.

What is the best business structure for Lyft and Uber drivers?

When determining the best business entity type for rideshare drivers, it’s important to weigh the options in terms of liability, tax burden, and management simplicity. Some of the most common choices include:

  • Sole proprietorships are the simplest with minimal startup costs, but they do not offer any liability protection, exposing personal assets to business debts and lawsuits. Partnerships operate similarly but involve multiple owners, which can complicate liability issues further.
  • Corporations, like C-corporations and S- corps, provide liability protection, shielding personal assets from business risks. However, they require complex setup, ongoing maintenance, and can face double taxation—profits taxed at the corporate tax rate and dividends taxed on personal tax returns, particularly in C corporations.
  • LLCs stand out as particularly beneficial for Uber and Lyft drivers, offering elements of both sole proprietorships and C-corporations.

Pros and cons of an LLC

LLC Pros

  • Personal asset protection for owners.
  • Pass-through taxation and potential tax savings.
  • Enhanced credibility with customers and business partners.
  • Allows for expanded business operations, like hiring employees and independent contractors, or working in other cities.
  • Simple and less expensive to maintain compared to other business structures.

LLC Cons

  • Requires filing fees and optional other fees for professional services.
  • Most states require fees and annual filings to maintain compliance.
  • Additional tax complexity that requires diligent bookkeeping.
  • Personal liability protection has some limits.
  • Possible increases in required insurance coverage.

FAQs

Why should I consider forming an LLC as an Uber or Lyft driver?

Forming an LLC is beneficial for Uber and Lyft drivers because it provides significant liability protection, shielding personal assets from business-related lawsuits or debts. Additionally, an LLC can offer tax benefits, such as pass-through taxation, which could reduce your overall tax liability.

Can I form an LLC if I only drive Uber or Lyft part-time?

Forming an LLC is recommended for both part-time and full-time Uber and Lyft drivers. Even if you drive only occasionally, an LLC can offer you liability protection and potential tax advantages. 

What are the tax benefits of an LLC for Uber and Lyft drivers?

LLCs offer significant tax benefits, primarily through pass-through taxation, where the business income passes directly to your personal tax return, avoiding the double taxation typically associated with corporations. This structure can lead to potential tax savings by enabling more direct deductions on your income taxes for expenses related to your driving business.

Are there any specific insurance requirements for LLCs in the rideshare industry?

With an LLC, the insurance requirements typically go beyond those of a personal vehicle policy. An LLC is generally required to carry commercial auto insurance, which offers broader coverage including higher liability limits and protection for various business activities that are not covered under a personal auto policy.

Should I add other drivers to my LLC?

Adding other drivers to your LLC can be a strategic move to expand your rideshare business. It allows you to increase the operating hours of your service without extending your personal work hours. However, it’s crucial to ensure that all drivers are properly vetted, legally compliant, and adequately insured under the LLC’s policies.

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