Driving for Uber has become a popular side hustle or even a full-time job for many people. However, there is often confusion about whether or not it’s necessary to set up a limited liability company (LLC) while driving for the ride-sharing platform. In this article, you’ll learn whether you need an Uber LLC and how to start your ride-sharing business.
Requirements to Drive an Uber
To drive for Uber, you must be at least 21 years old, have a valid U.S. driver’s license, auto insurance, and pass a background check. These are the basics. However, when it comes to establishing a business structure, does one need an LLC?
While some drivers choose to form an LLC for their ride-sharing business, it is not a requirement. Many drivers will operate as a sole proprietor to keep the legal structure of their business a simple as possible. As an LLC you have alternative legal forms as an independent contractor which include: sole proprietorships, partnerships, and corporations.
Ultimately, the choice of a business structure depends on factors such as personal liability protection, tax implications, and administrative requirements. Depending on your goals and current situation, It’s important to consult with a tax professional or attorney to determine the best option for your individual circumstances.
Benefits an Uber Driver Gets When He Applies for LLC
Since it is not required for an Uber driver to form an LLC, why go through the trouble of applying for one?
Although the government does not require you to officially have an LLC for your ridesharing business, there are reasons why it may be smart to obtain one. The fact is that drivers are at high risk of getting into accidents. So it’s in their best interest to protect themselves from any liability. In case an accident does occur, an LLC ensures the driver’s personal assets will be protected in the event of a lawsuit.
In addition, an LLC also provides better organization and greater opportunities for growing your business, especially if you want to increase your income! Below are some of the key benefits of having an LLC as an Uber driver.
Protection Against Personal Liability
An LLC can provide drivers with protection from personal liability because the LLC is considered a separate legal entity from the business owners. This means that as a member of the LLC, you are not personally liable for lawsuits, debts, or judgments against your LLC, aka your business.
As mentioned above, driving can be incredibly dangerous, which means it’s best to have all of the insurance and legal protection you can get in case of an accident. Moreover, an LLC not only provides protection from personal liability but can also serve as a formal business entity that helps you build a professional image—increasing credibility in the eyes of customers and business partners.
One of the advantages of an LLC is the flexibility it offers with respect to taxation. An LLC can be taxed either as a corporation, partnership, or sole proprietorship, depending on the business structure and the needs of the driver.
This means that the owner of the LLC can choose the method of taxation that best fits his or her individual circumstances—in turn maximizing tax deductions and minimizing their overall tax burden.
In addition, business owners may report their share of the company’s income or loss on their personal tax returns and pay taxes at their individual income tax rate. This is called pass-through taxation and is a big benefit for small business owners who wish to have flexibility on how they want to be taxed. You can read the full article on the tax benefits of an LLC here.
More Organized Approach to Running an Uber Business
Another benefit of having an LLC is how it can help keep the business organized and running smoothly. An LLC is considered a separate legal entity from its members, which means that the business’s assets and liabilities are separate from those of the owners. This structure allows you, the business owner, to protect your personal assets from any potential legal action and ensures that the business operates in a more professional manner.
Additionally, organizing finances and operations through an LLC can help drivers better manage costs, expenses, and income in a more structured way. In this way, it’s easier to keep the business organized and to keep track of business finances in a systematic manner.
Greater organization also helps ensure that all business activities are in compliance with local and federal regulations, which is important for avoiding potential legal and financial problems. In short, having an LLC structure can put you in a stronger position to manage and grow your business.
Steps in Applying for LLC as an Uber Driver
Let’s go over the various steps on how to apply for an LLC and what legal documents you’ll need as an Uber driver.
Choose a Business Name
The first step in forming an LLC is to choose a business name that complies with state regulations. The name chosen must include the phrase “limited liability company” or an abbreviation such as LLC, and it must be unique and not already used by another business in the same state. E.g. UberWheels LLC.
It’s important that you do enough research on existing business names to ensure that the name you choose is available and not already in use by another business. To do this, you can check the Secretary of State’s database or conduct a search of trademark databases.
In addition, the driver should consider whether the chosen name is easy to remember and represents the nature of the business, as this can help improve the visibility and recognition of the LLC. Once you have selected a suitable name, you can register it with the state and proceed with the next steps in the formation process.
File the Articles of Organization within the State
After you have chosen a business name for your LLC, the next step is to file Articles of Organization with the appropriate state agency.
The Articles of Organization is a legal document that officially creates the LLC and must contain certain required information, such as the chosen name of the LLC, the address of the business, and the name and address of the Registered Agent. It’s important to note that the Registered Agent must be a resident of the state in which the LLC is formed and must have a physical address in that state.
Filing the Articles of Organization is usually a simple process that can be done online or by mail. Once the Articles of Organization are filed and accepted, the LLC is officially recognized as a separate legal entity. You can learn more about LLC formation documents here.
Create an Operating Agreement
Once the Articles of Organization are filed, the LLC must execute an Operating Agreement. This is a legal document that sets forth the structure and operation of the LLC, including the rights and obligations of the members. This document serves as a roadmap for the management and operation of the LLC and helps to ensure that all parties agree on how the LLC will be managed.
The operating agreement should include information such as the management structure of the LLC, the allocation of profits and losses, and the responsibilities of each member. A well-written operating agreement can help avoid disputes among members and ensure that the LLC is run efficiently and effectively.
Obtain a Federal Employer Identification Number (EIN)
Obtaining an EIN is a crucial step in the process of forming an LLC, as it allows the LLC to conduct business and file taxes as a separate legal entity. To be clear, an EIN is a unique nine-digit number assigned by the Internal Revenue Service (IRS) that is used to identify the LLC for tax purposes. It’s essentially the equivalent of a Social Security number for an individual but for a business entity.
An EIN is required for filing taxes, including payroll taxes, and for opening a business bank account. It’s important to note that even single-member LLCs, which are taxed as sole proprietorships, are required to obtain an EIN if they have employees or if they are required to file certain tax returns.
Obtaining an EIN is a simple process that can be done online or by mail. The LLC must provide information such as the name of the business, the location of the business, and the name of the person who will be responsible for managing the LLC’s finances. Once the EIN has been obtained, it must be used on all tax forms, including the annual tax return, and for any other legal or financial activities that require an EIN.
The LLC Essentials for Uber Drivers
Starting a business as an Uber driver is an exciting venture, but the decision of whether or not to form an LLC as an Uber driver can leave you on the fence. As you consider the benefits an LLC offers, such as the protection of personal assets and potential tax benefits, we encourage you to take advantage of your resources and plan carefully for the future!
If you’re overwhelmed by the legal aspects of starting an LLC, Doola can help you get started with just some basic information. You can explore how to get an Uber LLC for your business here.
What type of business is Uber?
Uber wears many hats as a business but is primarily a ride-share/delivery business.
How do I set up an Uber driver account?
To set up an Uber driver account, you can visit the Uber website, complete the online application process, and go through the necessary background check and vehicle requirements.
Is Uber a self-employed business?
Uber drivers are considered independent contractors and are therefore considered self-employed.
How do I tax my Uber income?
As an independent contractor you must pay your income tax under the form 1099 provided by Uber.
How much does an Uber owner make?
Depending on where they are drivers can make anywhere from about $5 to $26 per hour.