Should I Start an LLC for My Driving School?

Starting a limited liability company (LLC) for your driving school can provide several benefits.

Most importantly, an LLC structure offers limited liability to its owners, which can protect their personal assets from lawsuits and creditors.

For a driving school, lawsuits can arise from things like negligence claims (e.g., a student gets into a car crash while under the supervision of one of your instructors, etc.).

LLCs are also affordable, highly flexible (from a tax point-of-view), and can make your driving school seem more credible.

Recommended: Use Northwest to form an LLC for $29 (plus state fees).

Do I Need an LLC for a Driving School?

LLCs are a simple and inexpensive way to protect your personal assets and save money on taxes.

You should start an LLC when there's any risk involved in your business and/or when your business could benefit from tax options and increased credibility.

LLC Benefits for a Driving School

By starting an LLC for your driving school, you can:

Protect your savings, car, and house with limited liability protection
Have more tax benefits and options
Increase your business’s credibility

Limited Liability Protection

LLCs provide limited liability protection. This means your personal assets (e.g., car, house, bank account) are protected in the event your business is sued or if it defaults on a debt.

Driving schools will benefit from liability protection because of the risks involved with having students operate a vehicle, as well as other general business risks like workplace accidents and libel claims.

Example 1: While conducting a lesson, one of the instructors at your driving school fails to take over from a student after they drove poorly, resulting in a collision with another road user. As a result, this road user suffers a serious case of whiplash and sues your business for negligence. In the ensuing litigation, your personal assets cannot be used to satisfy any damages imposed on your business.

Example 2: One of the students of your driving school is involved in a crash while under the supervision of a driving instructor. As a result of this crash, the student’s car had to be completely scrapped. This led the parent to sue your business, arguing that it was the teacher’s poor instruction that caused the crash. Limited liability would ensure that any responsibility to compensate the plaintiff is limited to the business’s assets only.

Example 3: In order to finance some dual-control vehicles, your driving school business takes out a large loan. However, a more popular driving school opens up down the road and quickly siphons away all your clients. This ensures that your business cannot repay the commercial loan it took out. If the creditor decided to sue your business, limited liability would protect you from being held personally responsible.

Example 4: The parents of one of your students sues your business after an accident, claiming that you were negligent in instructing their child.

An LLC will also protect your personal assets in the event of commercial bankruptcy or loan default.

To maintain your LLC's limited liability protection, you must maintain your LLC's corporate veil.

LLC Tax Benefits and Options for a Driving School

LLCs, by default, are taxed as a pass-through entity, just like a sole proprietorship or partnership. This means that the business's net income passes through to the owner's individual tax return.

The business’s net income is then subject to income taxes (based on the owner's tax bracket) and self-employment taxes.

Sole proprietorships and partnerships are taxed in a similar way to LLCs, but they do not offer limited liability protection or other tax options.

S Corp Option for LLCs

An S corporation (S corp) is an IRS tax status that an LLC can elect. S corp status allows business owners to be treated as employees of the business (for tax purposes).

S corp tax status can reduce self-employment taxes and will allow business owners to contribute pre-tax dollars to 401k or health insurance premiums.

The S corp status requires that the business pay the employee-owner(s) a reasonable salary for the work they perform.

In addition, the business might need to spend more on accounting, bookkeeping, and payroll services. To offset these costs, you'd need to be saving about $2,000 a year on taxes.

We estimate that if a driving school owner can pay themselves a reasonable salary and at least $10,000 in distributions each year, they could benefit from S corp status.

You can start an S corp when you form your LLC. Our How to Start an S Corp guide will lead you through the process.

Credibility and Consumer Trust

Driving schools rely on consumer trust. Credibility plays a key role in creating and maintaining any business.

Businesses gain consumer trust simply by forming an LLC.

A growing business can also benefit from the credibility of an LLC when applying for small business loans, grants, and credit.

Northwest will start an LLC for you for just $29 (plus state fees).

Get Started

How to Form an LLC

Forming an LLC is easy. There are two options for forming your LLC:

You can hire a dependable LLC formation service to set up your LLC for a small fee
Or, you can choose your state from the list below to start an LLC yourself

Select Your State

For most new business owners, the best state to form an LLC in is the state where you live and where you plan to conduct your business.

Do LLCs Need Insurance?

Your LLC, just like all other businesses, requires insurance to protect its assets. This is particularly prevalent for driving schools, which typically own expensive assets such as dual-control vehicles.

In a similar way to how insurance protects the assets belonging to a business, limited liability protects the personal assets belonging to an LLC owner.

Common Situations Business Insurance May Cover for a Driving School

Example 1: A student trips on an extension cord while walking to your restroom and breaks an arm. His parents demand repayment for his medical treatment. General liability insurance would cover the student’s medical bills.

Example 2: If a competitor sues your school for libel, general liability insurance will cover your legal fees and any damages awarded in a settlement.

Example 3: During a tour of your school, a parent slips, falls, and breaks a wrist. She claims her injury is the result of your negligence and files a lawsuit. General liability insurance would cover your legal fees and any awarded damages in a settlement.

Other Types of Coverage Driving Schools Need

While general liability is the most important type of insurance to have, there are several other forms of coverage you should be aware of. Below are some other types of insurance all driving schools should obtain.

Commercial Auto Insurance

Every vehicle you drive for business purposes requires commercial auto coverage. If you use personal vehicles for work duties, your personal car insurance won’t pay for damages to your car or medical treatment for anyone injured in a work-related accident. Commercial auto insurance protects all vehicles you use on the job in the event of an accident.

Professional Liability Insurance

As a driving instructor, it’s possible that one of your students could be involved in an accident and try to hold you responsible. Professional liability insurance would protect you in this situation by covering your legal fees as well as any damages awarded in a settlement.

Commercial Umbrella Insurance

While your general liability insurance policy covers most claims, some accidents or lawsuits may be so catastrophic that they threaten to exhaust the limits of your primary coverage. Commercial umbrella insurance protects you from paying out-of-pocket for any legal fees and awarded damages that exceed your primary policy.

Workers’ Compensation Insurance

Most states require businesses to carry workers’ compensation insurance for their part-time and full-time employees. This coverage protects your employees if they become injured at work or fall ill after a work-related accident. It not only covers an employee’s medical bills and lost wages if they need time to recover but also any disability benefits stemming from a work-related accident.

Should I Start an LLC FAQ

Choosing the right business structure depends on your business’s unique circumstances and needs. However, unless your business is very low risk (like a hobby), an LLC is likely the better option.

Visit our LLC vs. Sole Proprietorship guide to learn more.

At a minimum, you’ll need general liability insurance, commercial auto insurance, and commercial property insurance.

Read our Business Insurance for Driving Schools article for more info.

The startup cost for your driving school will vary depending on whether you want your school’s classroom instruction to be online only or not. If this is not the case, you will need to pay to rent classroom space and pay the teachers’ wages.

Regardless, the largest component of your startup cost will be your specialized teaching vehicles.

Visit our How to Start a Driving School guide to learn more about the costs of starting and maintaining this business.

Most of the ongoing expenses incurred will be those costs associated with ongoing renting of web hosting, marketing, classroom space, and training vehicle maintenance.

Learn more about running a driving school.

Typically, driving school profits stem from charging students flat rates for a driver’s education course.

Learn more about starting a driving school.

Many states require that drivers go through a driver’s training course in order to obtain or renew a license. These courses instruct them on all aspects of driving, traffic rules, and parking.

Schools providing comprehensive education practices have the potential to profit as much as $5,000 a month.

Learn more about starting a driving school.