Do I Need an LLC for My Metal Recycling Company?

Starting a limited liability company (LLC) for your metal recycling company 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 metal recycling company, lawsuits can arise from things like complaints from neighboring properties that the emissions released by your junkyard are toxic and causing health problems.

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

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

Should I Start an LLC for a Metal Recycling Business?

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 Metal Recycling Business

By starting an LLC for your metal recycling business, 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.

Metal recycling businesses will benefit from liability protection because of the risk of personal injuries, property damage, trademark infringement, and libel.

Example 1: A combustible gas explosion occurs at your junkyard, causing pollution in the neighborhood. Occupants of that neighborhood complained that the emission was toxic and caused discomfort, so they collaborate to file a class-action lawsuit against you. In this situation, your LLC status will restrict the case to your business’s assets alone while your personal assets remain safe.

Example 2: You collect metals from homes to sell to big junkyards. While packing metals from someone's home into your waiting truck, a piece falls unnoticed. The homeowner's kid comes walking by and gets cut by the metal you dropped. If the homeowner sues you for it, your business may be affected, but your personal assets will be safe.

Example 3: An NGO advocating for recycling notifies you of their intention to visit, and you approve. They bring volunteers to your scrap yard for sightseeing, but while you show them around, a metal sticking out of a corner injures the team leader. If they decide to sue you, only your business assets will be affected, but your personal assets will be safe.

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 Metal Recycling Business

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 metal recycling business 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

Metal recycling businesses 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 professional 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?

All businesses need insurance to protect their business assets — even LLCs. This is because the limited liability protection from an LLC protects your personal assets, not your business assets.

Metal recycling companies need insurance to cover damages such as theft of the company's recycling equipment and lawsuits.

Common Situations Business Insurance May Cover for a Metal Recycling Company

Example 1: As you transport metals to your recycling machine, some of the material falls off your truck and damages a client’s car. General liability insurance would cover the client’s vehicle repair costs.

Example 2: While dropping off metal at your facility, a client injures herself after using a piece of defective equipment to deposit the materials. General liability insurance would cover the client’s medical bills.

Example 3: An employee damages your recycling facility when he accidentally drives a truck into the side of the building. General liability insurance would cover the cost of repairing the structural damage.

Other Types of Coverage Metal Recycling Businesses 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 metal recycling companies should obtain.

Commercial Property Insurance

If you own the building in which you operate, commercial property insurance helps protect your business-related property from a variety of events, such as theft, vandalism, and extreme weather. It covers the physical structure of your facility as well as repairing or replacing any equipment, scrap metal, and other materials you store there.

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 or death benefits stemming from a work-related accident.

Product Liability Insurance

If you sell your recycled metals to other businesses, product liability insurance can protect you in the event a client claims your products caused them harm. If any of your recycling products malfunction, this coverage would pay your legal costs and any awarded damages stemming from a lawsuit.

Commercial Auto Insurance

Any vehicle you use primarily for business requires commercial auto insurance to protect the vehicle, driver, and others on the road in the event of an accident. Be sure to select a policy that covers not only accident-related vehicle repair costs and medical treatment for anyone injured but also sufficient protection for any business equipment or supplies you carry in your vehicle. This coverage also would pay for damages caused by metal falling off your company trucks and hitting other vehicles on the road.

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. This insurance also will cover costs associated with restoring your company’s reputation.

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, workers’ compensation insurance, commercial auto insurance, and commercial property insurance.

Read our Business Insurance for Metal Recycling Companies article for more info.

Starting on a small scale will cost around $40,000. You will need this money to purchase a license, a van, and tools such as a cutting torch and safety gear. However, if you plan to start a full-scale recycling center, it will cost you a minimum of $250,000.

Visit our How to Start a Metal Recycling Company guide to learn more about the costs of starting and maintaining this business.

Vehicle and machinery maintenance, insurance, payroll, taxes, and accounting are the main operating costs.

Learn more about running a metal recycling business.

A metal recycler sorts scrap metal and sells it to scrap yards.

Learn more about starting a metal recycling business.

A small metal recycling company collects unwanted metals, sorts them, and sells them to a local scrapyard. A larger metal recycling company accepts and processes large amounts of scrap from various locations for reuse by other companies.

Profit margins are generally small and depend on how much scrap metal is collected and what it is sold for.

Learn more about starting a metal recycling business.