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Here's are some things to consider when thinking about incorporation

Today is the day. Today is the day I stop taking orders from people who are not any smarter than I am, have any more experience than I do, work harder than I do every day, or even know how to drive a truck. I will start my own company so I can make the decisions and do things right. Today is the day.

I guess I need a truck, a customer, some fuel, and of course my own DOT number to start my business. Everyone knows how to get those things, if you do not, ask any group of drivers at any truck stop and they can give you the information on how to get them. That is the easy part. Just ask yourself if those drivers really know anything you do not.

Now for the hard part, should you incorporate your new company? If so, which type of corporation should you select and why would you pick that one? This information is something you will have trouble discovering at the truck stop. This is where you need professional advice.

When drivers ask me about incorporating their trucks, I always ask; “Are you judgment proof?” Judgment proof means that you have no income or assets and no money, and you can prove it. If you can be considered judgment proof, then you have no need to spend the time and money to incorporate since anyone who sues you will be unable to collect because you have nothing they can take. If you consider yourself not to be judgment proof, that you have an income and assets, then my answer normally would be yes, you should incorporate your trucks or your business to protect yourself and your assets.

Judgment proof is a civil defense and does not apply to criminal acts such as fraud, theft and the like where you can end up in jail for breaking the law. Rule of thumb here, you cannot go to jail just because you have no money to pay a bill (exception is child support where failure to pay will cause you to go directly to jail), you only go to jail for criminal violations.

Corporations were devised to limit the liability of the owners of the corporation (shareholders or members depending upon the type of corporation), that is to protect them from total financial ruin. Corporations are even used to protect your family since a corporation does not die when you die, it survives your death and enables you to pass your stock or membership from your estate to another.

What if your corporation goes bankrupt? You will not lose your house or savings if your corporation goes bankrupt, providing the creditors are not able to pierce the corporate veil. A corporate veil is the shield that protects the shareholders, partners or members of the corporation. Creditors can pierce the veil when the owners do not treat the corporation as a true business. Each state has statutes that regulate corporations in their state so you need to be aware of those laws and follow them to protect yourself.

The basic thing is you cannot take money for your personal use out of the corporation without first going through the tax man. Keep in mind the government will want their cut of any income you or your corporation receives. So that means you cannot pay your home electric bill or water bill from the corporation without first taking a distribution or salary to cover that amount. Uncle Sam must get his part to keep him happy, you know

What kinds of corporation can you form and which would be best for you? There are several types of corporations; LLC or limited liability companies, C-Corporations or general corporations, S-corporations or closely held corporations, Professional corporations, Partnership and non-stock corporations. They all differ somewhat, and all except the partnership offer limited liability which is one of the major reasons to incorporate.

Let’s look at the differences in the types of corporations. The LLC is not taxed at the corporate level if you select partnership treatment with the IRS allowing you to be taxed only once, personal liability is limited to your investment, a creditor of a member of the LLC cannot attach the assets of the LLC, and you are not required to have meeting minutes, bylaws or officers.

The C-Corporation is taxed at the corporate level unless the Subchapter-S election is taken with the IRS, which allows the income to pass through to you and only be taxed once; stockholders own the company and elect directors who actually run the company.

A Close Corporation is for small groups and can elect to be taxed the same as a Sub-S. The stockholders manage the company without a board of directors and there is a restriction on the sale of the stock. The Subchapter-S avoids double taxation by allowing the profits to pass through to the stockholders; the stockholders must be US residents and not business entities.

A Non-Stock Corporation is run by its Board of Directors who are elected by the voting members whose qualifications are determined by the bylaws. Non-Stock Corporations are used for non-profit organizations.

The LLC is controlled by its private operating agreement which allows a greater flexibility than the Sub-S Corporation which is controlled by state statutes and its by-laws. The LLC can have stockholders who are other corporation while the Sub-S cannot. This is a subtle distinction, but can be of great importance depending upon your personal situation.

Confusing, isn’t it? Which corporation would be best for you? To determine which corporation you should choose and which has the best benefits for you requires a keen knowledge of the types of corporations, the laws of the state where you incorporate and your personal financial situation. You should make sure you speak with your CPA and your lawyer who may even suggest you speak with a tax specialist such as a true tax lawyer. Spend a little money at the start to save a lot of money and heartaches later on.

Jim C. Klepper is President of Interstate Trucker Ltd., a law firm entirely dedicated to legal defense of the nation's commercial drivers. Interstate Trucker represents truck drivers throughout the 48 states on both moving and non-moving violations. Jim is also president of Drivers Legal Plan, which allows member drivers access to his firm’s services at greatly discounted rates.

Jim, a former prosecutor, is also a registered pharmacist, with considerable experience in alcohol and drug related cases. He is a lawyer who has focused on transportation law and the trucking industry in particular. He works to answer your legal questions about trucking and life over-the-road and has his Commercial Drivers License.

You can reach Jim at (800) 333-DRIVE (3748) or www.interstatetrucker.com and www.driverslegalplan.com.