Running a transportation business is risky, and hauling goods from one part of the state or country to another is even more risky when you factor in accidents, theft, vehicle breakdown and natural disasters. This kind of situation makes it obvious that you need protection for your trucking business regardless of what scale you intend to start the business on.
A trucking business on its own is a business that is involved in moving goods of all kinds from one part of the state or country to another for clients who hire and pay for the services. Do you want to know the legal requirements you need to start a trucking business? If YES, here is a checklist of trucking licenses, permits & insurance. Having provided you with a:
- Trucking Industry Overview
- Market Research and Feasibility
- Trucking Business Plan
- Trucking Marketing Plan
- Trucking Business Name ideas
- Trucking Business Licenses and Permits
- Cost for Starting a Trucking Company
- Trucking Service Marketing ideas
We will consider what it takes to get operating license and permit for your trucking business including insurance coverage and intellectual property protection.
Starting a Trucking Company – Licenses, Permits & Insurance
- The Best Legal Entity to Use for a Trucking Business
When it comes to choosing a legal entity for a business, it can sometimes be difficult to make a choice. This is so because there are so many forms of organization from which you can choose from.
If you are considering choosing a legal entity for your trucking business and perhaps for any other business, you have the option of choosing either a sole proprietorship, a general partnership, a limited partnership, an LLC, a “C” corporation, or an “S” corporation. It is important to clearly state that these different forms of legal structure for business has its own advantages and disadvantages.
Before choosing a legal entity for your trucking business it is important to consider these factors: limitation of personal liability, ease of transferability, admission of new owners and investor expectation and of course taxes. If you take your time to critically study the various legal entities to use for your trucking business, you will agree that limited liability company; an LLC is most suitable. You can start your trucking business as limited liability company (LLC) and in future convert it to a ‘C’ corporation especially when you have the plans of going public.
Upgrading to a ‘C’ corporation will give you the opportunity to grow your trucking business so as to compete with major players in the industry; you will be able to generate capital from venture capital firms, you will enjoy separate tax structure, and you can easily transfer ownership of the company (flexibility in ownership and management structures).
The only reason why you should consider starting a trucking business as a sole proprietor is when you don’t have plans to grow the business beyond just one truck and if you are comfortable with owner’s operator style.
Is a Professional Certification and License Required to Run a Trucking Business?
If you want to operate your own trucking business i.e. if you want to drive your truck yourself, then you ensure you get the proper training and license needed to drive heavy duty trucks et al. In the United States of America, Large trucks and buses drivers require a commercial driver’s license (CDL) before they can be permitted to operate.
In the United States of America, Canada and in most parts of the world truck drivers undergo special trainings on how to handle large vehicle before applying and obtaining their commercial driver’s license (CDL). Aside from the required commercial license (CDL) for your drivers, your trucks must have certificates that shows that they can ply highways too. As such there will always be the need to obtain some professional certification and licenses.
List of Legal Documents You Need to Run a Trucking Business
These are some of the basic legal requirements needed before you can successfully start and run your own trucking business:
- Business and liability insurance
- Commercial Vehicle Operator’s Registration for the truck
- Appropriate driver’s licenses for drivers
- Assistant’s licenses for assistants
- Proof of ownership, proper identification and vehicle license
- Tax Payer’s ID
- Fire certificate
- Certificate of Incorporation
- Business License
- Business Plan
- Non – disclosure Agreement
- Employment Agreement (offer letters)
- Employee’s Handbook
- Operating Agreement for LLCs
You can as well visit the United States Department of Transportation (USDOT), the Federal Motor Carrier Safety Administration (FMCSA) and the Federal Highway Administration (FHWA) to confirm if there is any other legal requirement that you would need. This important because you might be required to get additional permit before you can be allowed to transport toxic substance, chemicals and other hazardous chemicals and materials.
Insurance Policies Needed for a Trucking Business
There are essential insurance policies that you must have in place if you run a trucking business. The truth is that, you wouldn’t be allowed to operate a trucking business in the United States, Canada and in most countries of the world if you do not have certain insurance cover. Besides most people that may want to do business with you can only become comfortable if they know that you have certain insurance policy for your business.
These are some of the basic insurance cover that you should consider purchasing if you want to start your own trucking business in the United States of America or Canada;
- Commercial Auto Liability Insurance
- Physical Damage Coverage
- Motor Truck Cargo Insurance (Comprehensive)
- Bobtail Insurance
- Occupational accident insurance
- Non-Owned Truck Insurance
- General Insurance
- Health / medical insurance
- Liability insurance
- Workers compensation
- Overhead expense disability insurance
- Business owner’s policy group insurance
General liability insurance
General liability insurance is an insurance policy coverage that protects your business from a variety of claims including bodily injury, damage to property, personal injury and other issues that can arise in the course of running your business. It should be noted that some insurance companies combine general liability insurance with property insurance if you get a business owners policy (BOP).
General insurance covers a trucking company for delivering goods to the wrong location, accident in the workplace, the unruly behavior of your truck drivers and other employees that may lead a client to sue your business.
Note that some insurance companies would also require you to get primary liability policy before you can be qualified for general liability. Again, if you are hauling hazardous materials, you may be required to add a pollution endorsement.
General liability for trucking companies typically start at a policy limit of 300,000 dollars. It should be also noted that a trucking company, depending on its size can obtain higher limits if needed.
- Cargo insurance
As long as your business is involved in for-hire trucking of clients’ property, you need this policy. Cargo insurance is an insurance policy carried out on the cargo or freight being shipped by a trucking company. This insurance policy covers the business in case the cargo gets lost or damaged due to fire or collision. Cargo insurance also covers for accidental dumping of cargo and removal of debris or pollution caused by dumping of cargo. This policy also covers for cargo that doesn’t get delivered, and sometimes for late delivery of goods.
In the cargo insurance coverage, you get to set the limit of your coverage. What you choose would determine what your insurance company would have to pay. You can also get to choose the limit of your deductible, which is the amount your business has to pay in case a client files a claim. Even though your deductible reduces the cost of your insurance, but your trucking company must choose a deductible it can afford to pay without closing shop.
Cargo insurance covers for the following types of vehicles, cargo trucks, tractors, trailers, box trucks, cement mixers and dump trucks etc. Cargo insurance typically does not cover freight that involves art, paper, money, jewelry, animals, contraband, tobacco, explosives, alcohol etc, but these restrictions differ between companies.
- Bodily Injury and Property Damage (BIPD)
Bodily injury and property damage are in fact two of the most important insurance policies a for-hire trucking company is expected to have.
The Bodily Injury (BI) aspect of the insurance covers for accidents and injuries that can occur during transit. The claims covered here include medical bills, and pain and suffering claims; while the property damage (PD) aspect takes care of vehicles and property that was damaged in transit through accident.
The BPID insurance equally has limits and you can speak to your insurance agent to decide what limits your business can handle.
- Physical damage insurance
Physical damage insurance is of two types; collision and comprehensive car insurance. These two policies cover for any type of damage to trucks and trailers and they can be purchased separately. Collision insurance covers for vehicle accidents that result from collision or running into an object, while comprehensive car insurance covers a vehicle for fire, theft, vandalism, animal attack, etc. Physical damage insurance can be purchased anywhere between 25 dollars and 77 dollars.
- Excess/Umbrella insurance
This insurance policy is made to provide protection against huge, unexpected and unintended circumstances that haulage companies encounter. This insurance coverage involves higher limits and broader coverage than most primary insurance plans. This policy is generally needed when a trucking company has surpassed its insurance limit with a primary policy or if the company requires larger insurance limits.
Excess/umbrella insurance can sometimes cover for liability over 25 million dollars.
- Bobtail insurance
This policy is also known as non-trucking liability, and it covers your truck when it is not on the road, that is if the truck is not being put to use to transport goods. This insurance policy basically covers for truck inactivity, example when the tuck is undergoing repairs.
What Determines the Cost of Insurance Cover for a Trucking Company?
The cost of truck insurance is determined by several factors which may include;
- The business type and age
- The radius your deliveries cover
- Your vehicle age
- Your location
- The cargo you deliver
- The driving history of your drivers and their age
- The size of your business
What is then the Best Insurance Policy for a Trucking Business?
Like we said earlier, the commercial for-hire trucking business is a very risky business as a lot of things can go wrong, so you need the best insurance policy to protect your business from claims and liabilities.
Finding the best insurance policy for your business is equally very important because a lot of insurance functions are duplicated, so getting the best policy would help you save a lot of money which can be channeled to other aspects of the business.
Shopping for insurance for this business can be very confusing, if not a herculean task because of the various insurance policies available to entrepreneurs in this industry, which all serve varied functions, and is aimed at protecting various aspects of the business from various angles. But if we have to pick out the best insurance policy from the lineup, then it would be the general liability insurance.
Why, you may ask?
This is because general liability insurance inculcates almost all the insurance coverage needed by an average trucking company. It brings them all under one umbrella.
General insurance can cover a trucking company for bodily injury, damage to property, personal injury, wrong delivery of cargo and even loss of cargo. It equally covers for claims that may result from the unruly behavior of drivers and other employees.
Again, depending on your business, some insurance companies may require you to get certain policies before you can be given general liability insurance, example getting pollution endorsement if you are moving hazardous materials. This rule helps to ensure that your business is adequately covered against claims your general policy cannot handle.
When analyzing the above, one gets to discover that with general liability insurance, a trucking company may not need a separate cargo insurance, physical damage insurance, BPID insurance, umbrella insurance etc., because all these policies have been lumped under one policy.
How Much Does It Cost?
General liability insurance in the United States can cost anything from 300,000 dollars upwards. According to commercial truck insurance, the commonest limits available are 1,000,000 dollars per occurrence with 2,000,000 dollars aggregate.
On the flipside…
While it may be correct that general liability insurance gives a better coverage than most other insurance policies, it should be noted that general liability insurance does not cover for every liability that your trucking business is supposed to be protected against, and even if it does, it may not give adequate and in-depth coverage.
Example, general liability insurance may not cover property damage like damage to your building resulting from natural disasters, it does not cover employee claims, it may not cover for employee injury as it only covers for third party injury, and it may not cover for when your truck is out of activity like the bobtail insurance, etc.
Again, general liability may not have the capacity to cover massive freight just like excess/umbrella insurance, and it may not give comprehensive coverage to your clients’ cargo, which basically is the only thing that keeps you in business.
Also, because general liability insurance offer a lot of insurance policies under one umbrella, the premiums tend to be quite expensive when compared to other single insurance policies, in addition to the fact that it might not give you total coverage for your trucking business.
So, while general liability insurance may be good and cheaper for you in the long run, it is also safe to take out other insurance policies that your company may need but which are not adequately or not even covered under this policy. You may decide to get your lawyer or insurance agent to help you so you don’t fall into the trap of acquiring insurance policies that offer duplicate coverage.
Intellectual Property Protection for a Trucking Business
Most of the players in the trucking business do not have a need for intellectual property protection. This is simply because of the point that trucking business does not mandatorily need an intellectual property protection. The real reason why a trucking company may want to file for intellectual property protection is to protect competitors or newbies from making use or copying their logo or business documents et al.
Bottom line is that the business is straight forward and if you are coming into the industry, you have other stuffs to sort out and intellectual property protection should not be one of them; except you have a cogent reason why you want to file for intellectual property protection.