Your Business

3 Best Entities For Incorporating Your Food Truck

By Deborah Sweeney

2019 might just be the year of the food truck.

In March 2019, IBISWorld issued an Industry Market Research Report on the state of the food truck industry in the United States. The report reveals that the food truck industry, over the last five years, has grown by 6.8%. The industry will reach $1 billion in revenue in 2019.

This is, of course, fantastic news for foodie entrepreneurs that want to start a food truck business. Starting a food truck has never been easier than it is now. There’s a wide range of menu offerings to choose from, including tacos, barbecue, and shaved ice. Financing options for the food truck and its supplies range from taking out microloans to starting a crowdfunding campaign. Entrepreneurs may also buy, or even rent, a reliable food truck depending on how long they plan to stay in business.

Before a food truck can open its doors for operations, however, it’s recommended that entrepreneurs incorporate the business. Popular legal structures for this type of mobile business generally include:

  • Sole Proprietorships
  • Partnerships
  • Limited Liability Companies (LLCs)

Stuck trying to figure out which entity is the best fit for your food truck?

Let’s take a closer look at the pros and cons of incorporating a food truck as each structure and what entrepreneurs need to know about how to incorporate as each entity.

Sole Proprietor

What does this entity do? Sole proprietors are an army of one in business. This entity allows the owner to essentially be the business. A sole proprietorship assumes full responsibility for everything that happens to the business, good and bad, because the entity is not separated through liability protection from the company.

What are the pros and cons of being a sole proprietor? The greatest pro to being a sole proprietor is the ability for the owner, and only the owner, to call the shots. If you plan to run a food truck on your own and exercise complete control, then a sole proprietorship may be your best entity formation bet.

The con to forming a sole proprietorship is that there is no liability protection. Remember when I said that this means the owner is responsible for everything, good and bad, that happens to the business? That still holds true. The owner is held completely liable for anything that may impact the food truck, from incurring debts to accidents (like accidentally burning yourself or slipping on a sticky floor) on the job.

What should I know about incorporating as a sole proprietor? This entity is one of the simplest ways to incorporate a food truck. Incorporating as a sole proprietor is affordable. The application process requires minimal paperwork and a small fee to file. Remember, however, that you must also apply for relevant business licenses and permits that allow your food truck to operate and stay in compliance.

Partnership

What does this entity do? Partnerships are a fairly self-explanatory entity. This legal structure is an agreement that allows two (or possibly more) individuals to start a small business together.

What are the pros and cons of being in a partnership? Forming a partnership is a great choice for entrepreneurial friends or family members looking to go into business together. If you’ve always wanted to start a food truck with your best friend, then you would likely consider forming a partnership. The entity allows the co-founders to share profits and losses and work together to support the business.

Part of working together as a partnership means making decisions as a team. Partners may not always agree with one another, making it difficult to make decisions at times. Each partner is held liable for their actions when making decisions, so make sure you have the express consent of both partners before moving forward.

What should I know about incorporating as a partnership? Much of incorporating as a partnership is a lot like incorporating as any other entity: filing an application and paying a fee.

Once your food truck has incorporated as a partnership, it’s recommended that you create a written partnership agreement. This document works to protect the ins and outs of your partnership together. It outlines the roles and responsibilities of each partner, the amount of capital each partner has contributed to the food truck business, the date the partnership term officially began, and any “what ifs?” associated such as the exit of a partner.

Limited Liability Company (LLC)

What does this entity do? Forming an LLC provides liability protection within the entity. This means that your personal and professional assets are kept separate from each other. What if an unforeseen issue should arise that negatively impacts the food truck, like our aforementioned accidental injuries on the job? Your personal assets will remain protected through limited liability, ensuring you are not held personally responsible.

What are the pros and cons of being an LLC? It does take a bit of time and energy to file an LLC, but that’s one of the entity’s few cons. There are plenty of advantages that come with food trucks that incorporate as an LLC. The structure is flexible and comes with potential tax advantages including the ability to choose either an S Corporation or C Corporation tax entity.

What should I know about incorporating as an LLC? Before you file as an LLC, make sure you understand the LLC rules and regulations in the state your food truck plans to conduct business in. Forming an LLC has rules that differ from state to state. Check in with your local Secretary of State beforehand to better understand the rules associated with your LLC formation. Filing an LLC also requires filing articles of organization, appointing a registered agent to receive documents on your business’s behalf, and drafting an operating agreement that outlines how your LLC is run by its members.

What happens if you decide to take your food truck to the next level… and expand with nationwide food trucks? An LLC is not a public structure, so in that case, you probably want to consider switching the organization structure to a public entity like a C Corporation.

It’s a good idea to consult a trusted financial advisor if you aren’t sure about the next steps. Bon appétit to your growing business.

 

Disclaimer: Fundbox and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. Please consult a tax professional for information about tax laws and how they apply to your business.

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