Last Updated: May 14, 2024, 12:20 pm by TRUiC Team

Should I Start an LLC for My Water Taxi Service?

Starting a limited liability company (LLC) for your water taxi service 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 water taxi service, lawsuits can arise from things like personal injury suffered by clients and property damage to other vessels during a crash, or the use of a logo that is protected by copyright.

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

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

A water taxi on the water

Do I Need an LLC for a Water Taxi Service?

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

You should form 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 Water Taxi Service

By starting an LLC for your water taxi service, 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.

Water taxi services will benefit from liability protection because of the risk of personal injury, death, property damage, and general business risks. 

Example 1: Your water taxi crashes into a pier while transporting several children on a field trip. Five of them are injured and have to be rushed to the hospital. If their parents sue your business, limited liability protection will ensure that you will not be found personally liable for paying any fines imposed on your LLC.

Example 2: Your water taxi develops a problem that a negligent employee failed to report. On its return from a trip, it crashes into a neighboring vessel, which leads to a lawsuit being filed against your LLC. Regardless of the court’s ruling, your personal assets will remain safeguarded from any fees associated with the lawsuit.

Example 3: A customer's property is damaged during a trip in your water taxi. He sues you for negligence, demanding compensation. Should the court rule in the claimant’s favor, only your business’s assets will be used in providing compensation.

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 Water Taxi Service

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 water taxi service 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

Water taxi services 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 loansgrants, and credit.

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

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 limited liability protection from being an LLC protects your personal assets, not your business assets. 

Water taxi services need business insurance to deal with lawsuits that can arise as a result of collisions, property theft or damage, and personal injuries.  

Common Situations Business Insurance May Cover for a Water Taxi Service

Example 1: During a tour, water sloshes onboard, and a guest slips and falls. The customer believes the driver was steering too aggressively and sues for medical injuries. General liability insurance would cover the legal costs to fight or settle the claim.

Example 2: One of the employees spills a cocktail on a guest, damaging their designer clothes and expensive handbag. General liability insurance would cover the costs to replace the customer’s property.

Example 3: The logo you use for your water taxi service is similar to that of another tour company. The tour company sues for lost business and copyright infringement. General liability insurance would cover the costs associated with fighting the lawsuit or settling out of court.

Other Types of Coverage Water Taxi Services 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 water taxi services should obtain:

Commercial Property Insurance

You’ll need commercial property insurance if you own an office or official retail space where customers can gather prior to the outing. This insurance covers not only the structure but also the equipment you use. Typically, commercial property insurance protects against natural disasters, criminal activity, and fires.

Workers’ Compensation Insurance

All water taxi workers will need workers’ compensation insurance in case they’re injured on the job. This insurance will cover sudden accidents (e.g., slips and falls onboard) and chronic injuries (e.g., chronic shoulder pain from steering the vessel).

Business Interruption Insurance

Your business is dependent on your ability to operate your vessels. If those vessels are unfit for passage due to a covered event, you can rely on business interruption insurance to supplement your income while the taxis are under repair.

Commercial Umbrella Liability Insurance

You can think of commercial umbrella insurance as an extension of general liability insurance since it can only be used when a general liability policy has reached its limits. Because lawsuits can tie up a business’ time and money for months at a time, this insurance can cover expenses associated with a particularly egregious claim against you.

Liquor Liability Insurance

If you serve liquor onboard, this insurance protects your business from expenses associated with an inebriated guest. For example, if a guest becomes too intoxicated to walk and they stumble into another guest, you may be held liable for any injuries that result from the fall. This insurance can help pay for any damages that result.

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 and workers' compensation insurance. You may also need protection and indemnity insurance as well as hull and machinery insurance.

Read our Water Taxi Service Business Insurance article for more info.

You will need a minimum of $35,000 to start your water taxi business. This will suffice if you opt for a used rather than a new vessel. Fuel, insurance, signage, business cards, and other marketing materials account for the rest of the stated budget.

Visit our How to Start a Water Taxi Service guide to learn more about the costs of starting and maintaining this business.

You will need to pay for a boat and any maintenance expenses related to your vehicle. Additionally, you will need to pay for fuel as well as areas to dock your boat while you wait for your next fare. 

Learn more about running a water taxi service.

Water taxi services make money by charging customers a fare for trips. Some water taxis may provide multi-day or seasonal passes, while others may charge a flat rate per trip.

Learn more about starting a water taxi service.

In areas with adequate public supporting facilities, such as docks, located near developed areas, water taxi services can be very successful. With water taxi services now included on some ride-hailing platforms, there is optimism for growth in the industry.

A water taxi service set up in the right location with adequate supporting facilities can be very profitable.

Learn more about starting a water taxi service.

Related Articles

Article Sources

IRS: Limited Liability Company

IRS: S Corporations


SBA: Small Business Guide

SBA: Choose a Business Structure Guide

US Census Bureau: Small Business Statistics

SBA Office of Advocacy: Data on Small Business

FRED: SBA Data for Small Business