Should I Start an LLC for My Parking Lot?

Starting a limited liability company (LLC) for your parking lot business 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 parking lot business, lawsuits can arise from things like an inability to repay a capital loan due to unprofitability or a customer suffering vehicle damage due to the poor quality of your parking lot’s pavement.

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

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

Do I Need an LLC for a Parking Lot?

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 Parking Lot

By starting an LLC for your parking lot, 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.

Parking lots will benefit from liability protection because of the risk of property damage and workplace accidents.

Example 1: In order to inject some initial capital into your parking lot business, you apply and successfully acquire a loan. Unfortunately, due to the remote location of your parking lot, it is unpopular with drivers and makes very little profit. As such, it is unable to repay its loan, which leads the creditor to sue your business for defaulting on this debt. In the following lawsuit, your personal assets will be protected by limited liability.

Example 2: The flooring of your parking lot is incredibly rough and causes a number of its users to suffer a punctured tire. As a result, one of these vehicle owners decides to sue your business for the property damage they argue you have caused to their car. In the ensuing litigation, any responsibility to pay damages to the plaintiff can only be levied against the business’s assets.

Example 3: After parking their car in your parking lot, a vehicle owner fell down the stairs as they were coated in a slippery finish. Having suffered a fractured skull as a result of their fall, the vehicle owner sues your business. Any requirement imposed on your business to pay the plaintiff damages is limited entirely to the value of the assets owned by your business.

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 Parking Lot

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 parking lot 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

Parking lots 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. This is rendered even more important for parking lot businesses since they typically own very valuable assets, such as the land itself, and take on the risk of having customer property on their lot.

Common Situations Business Insurance May Cover for a Parking Lot Business

Example 1: During winter, a customer slips on the ice in your parking lot before it can be plowed. The fall results in a concussion and fractured arm. General liability insurance would likely cover the injuries.

Example 2: Someone leaves debris in your parking garage’s stairwell, and a customer trips over the debris while hurrying down the stairs. General liability insurance would probably cover any medical treatment they need.

Example 3: A long-time customer notices an old sign on your property that states rates are substantially below what you charge now. They file a false advertising lawsuit, claiming they should’ve only paid the old rate because it’s posted and seeking compensation for their many overpayments. Other customers join and form a class action lawsuit. General liability insurance would likely cover the lawsuit.

Other Types of Coverage Parking Lot 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 parking lot businesses should obtain.

Commercial Property Insurance

Commercial property insurance is often used to insure buildings, but it can insure other structures as well. Coverage can be adapted for a parking lot or garage.

When purchasing property insurance, ensure all of your parking lot’s structures are covered. In addition to the pavement itself, you may need protection for lighting fixtures, a booth, a gate, an elevator, a garage, or other items.

Property insurance is commonly available through a business owner’s policy (BOP).

Data Breach Insurance

Assuming your parking lot accepts credit and debit card payments, data breach insurance is an appropriate coverage to get. It may protect against lawsuits arising from stolen card numbers.

This is particularly important coverage if your parking lot has self-serve payment terminals. Criminals can place skimmers on terminals that are unattended, and skimmers sometimes collect many card numbers before anyone detects the equipment. Data breach insurance might help your parking lot compensate customers who had their card numbers stolen this way.

Workers’ Compensation Insurance

If you employ workers to monitor your parking lot, they’ll need to be covered by workers’ compensation insurance. This protects against illnesses and injuries that happen at work, and it’s a required coverage for employers in most states.

Commercial Umbrella Insurance

Commercial umbrella insurance is a supplemental form of liability coverage that effectively extends the limits of underlying policies. Many businesses purchase this as an affordable way to get additional protection.

For parking lots, commercial umbrella insurance can be especially important. Even minor car-pedestrian accidents can result in significant injuries and drawn-out lawsuits. If such an accident occurs in your parking lot, there’s a chance that one (or several) of the parties involved will sue your business. Supplemental insurance would help you cover the costs of a potentially expensive covered lawsuit.

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.

Read our Parking Lot Business Insurance article for more info.

You should plan to need around $10,000 to launch a moderately-sized parking lot business. However, a small lot could be launched in a minor city for much less than this if you decide to rent. If you plan to offer an indoor parking lot, the startup cost can easily reach millions of dollars, depending on the size and location you select.

Visit our How to Start a Parking Lot guide to learn more about the costs of starting and maintaining this business

The main operating expenses for a parking lot business are payments for the land or garage, payroll, and insurance.

Learn more about running a parking lot.

Parking lot businesses make money by charging hourly or flat rates to park.

Learn more about starting a parking lot.

The cost of starting a parking lot business can vary from under $10,000 to millions, depending on the size of the lot and its location. Regardless of the startup costs, a parking lot can turn a profit if it is in the right area and offers enough parking spaces.

Learn more about starting a parking lot.