What Legal Aspects to Consider When Launching a Ride-hailing Business?
Not least, your company will need to fulfill important legal requirements. Before launching your business, it’s crucial to think about all the permitting and insurance implications, as well as the basic legal structure for your company. This post will provide a comprehensive guide to the legal issues that ride-hailing companies must consider.
Choose the Right Legal Structure
First and foremost, it’s important to establish the legal model your business will use. When you begin generating profits on the basis of self-employment, the government automatically classifies you as a Sole Proprietor. However, for rideshare companies, it’s usually best to take the extra step of registering as an LLC.
What is an LLC? Essentially, an LLC (or Limited Liability Company) creates a whole new legal entity. In other words, your rideshare company is its own thing, distinct from its owner. The upshot of this is that you can maintain a separation between personal assets and business owners, and likewise with your liabilities. This provides you with some personal wealth protections, should your rideshare company be subject to litigation.
There are other benefits to the LLC structure, too. For instance:
- An LLC makes it much easier for you to bring on employees.
- The LLC structure offers some flexible, scalable options for how you report to the IRS.
- The LLC model also allows you some wiggle room for how you manage the business day to day.
- Compared with incorporation, LLCs have minimal administrative and reporting requirements.
How to Register as an LLC
With all of that said, what are the steps required for registering your rideshare company as an LLC?
- Make sure you choose a name for your LLC that isn’t already in use by another business in your state. The state should offer an online directory for you to confirm your desired name is available.
- Appoint a person or organization to serve as your Registered Agent, receiving legal documents on the business’s behalf. In many states, you can hire external Registered Agent services for as little as $50 annually.
- Draft Articles of Organization with your state, and be sure to pay the filing fee. This fee can vary by state but is often under $100.
- Create an Operating Agreement, which details how your company will function on a day-to-day basis. This can include decisions about how to allocate managerial responsibilities or profits between your partners.
- Claim an employer identification number (EIN) from the IRS, which is free to citizens of the U.S.
- Make sure your rideshare startup has a business bank account that’s separate from your personal banking and checking accounts.
If you have questions or need additional support, seek out a business attorney or identify the best LLC service for your company.
Get the Right Permits
Once you have registered your company as an LLC, the next step is to research and apply for the permits necessary in your area. The licensing and permitting needs may vary a little bit from one place to the next, but in most states, it’s necessary to get a Transportation Networking Company (TNC) permit from the Public Utilities Commission (PUC).
If companies like Uber and Lyft operate in your community, you might also double-check to see the permits or licenses they hold, which should clue you into the permitting needs for your own rideshare business.
Establish a Protocol for Criminal Background Checks
One important consideration for rideshare companies is performing criminal background checks for all drivers. Not only does this help keep everyone safe, and potentially shield you from legal liability, it is mandatory in every state.
There are several services you can use to perform background checks, and some of them may cost as little as $10 or $20 per check. However, this can very much be a “you get what you pay for” situation, so ensuring the safety of your passengers may mean springing for a more premium background check service. (Recommendation: Choose a service that does fingerprint background checks on all drivers.)
Select the Right Insurance
Still, another important facet of legal compliance is choosing the right insurance coverage for your rideshare company. In particular, you’ll want to invest in a commercial insurance policy that covers injury, death, and property damage.
The specific coverage you require can vary from state to state, but make sure you have some kind of fleet-wide policy in place that protects your company in the wake of any accident or other type of incident.
Note that this will likely be a major expenditure for your business. The typical rideshare company allocates around 25 percent of its profits to a commercial insurance policy.
Get the Right Counsel
If you have any specific questions about legal requirements in your state, you may wish to meet with a business attorney. A good business attorney will also be able to advise you on the breadth of insurance coverage you need to protect your company.
Summary: For Rideshare Startups, Legal Considerations are Key
Starting a new rideshare business can be exciting, to say nothing of lucrative. The last thing you want is to have your launch sullied by regulatory issues. To make sure you’re checking all the right boxes:
- Check if it makes sense for you to register your business as an LLC.
- Research and apply for all the permits necessary in your area.
- Have a system in place to run criminal background checks on all drivers, ideally fingerprint checks.
- Ensure you have the right insurance coverage for your entire fleet.
To learn more about the legal foundations for a rideshare business, make an appointment with your business attorney.