Should I Start an LLC for My Pedicab Business?

By starting an LLC for your pedicab 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.

Pedicab businesses will benefit from liability protection because of the risk of being sued for personal injuries, property damage, and libel. 

Example 1: In the course of a trip, the brakes of your pedicab suddenly fail you. This unexpected event causes you to knock down a few pedestrians. They sustain some injuries and are rushed to the hospital. If these victims sue your business, limited liability protection ensures that you are not personally liable for any liabilities should the case be settled in court.

Example 2: A passenger calls you, claiming that she left her bag in one of your pedicabs by mistake, and you are unable to find it. She reiterates that she did leave it there and presses charges against your business for theft. The LLC structure helps to safeguard your personal assets even if the business is found to be guilty.

Example 3: A client claims that while being driven by you to her destination, noxious fumes from your pedicab’s faulty exhaust triggered a severe asthmatic attack. This led to the loss of wages for her during the days she was hospitalized. Following this, she sues your business. Regardless of the court’s ruling, your personal assets will remain safeguarded from any fees associated with the lawsuit.

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 Pedicab 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 pedicab 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

Pedicab 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.