About This Episode
Chris Barron walks through eight checks that decide whether a trucking LLC actually delivers the liability protection an operation thinks it has. He starts with articles of incorporation and bylaws, which are worth pulling out every year or two to confirm the annual updates are filed and the corporate structure still matches how the business really runs. Second is individual accounting systems: a separate checking account, and no money flowing between you personally and the entity unless it is documented as a loan.
Third is detailed annual profit and loss reports and tax return documentation, whether the income flows onto a personal return as a single owner or comes back as a K-1 with multiple owners. The point is keeping the entity at arm's length. Fourth is paying insurance out of that entity. The right coverage limit is a conversation with your agent driven by how many trucks you run, how much road exposure you have, and whether the drivers are experienced owner operators or hired hands.
Fifth is certified operators. Barron says call your state DOT rather than assuming farm tags exempt you from a CDL, because after a loss that becomes an opening for the other side. Sixth is proof of third-party insurance before hooking to someone else's trailer or tillage tool. Seventh is an itemized invoice from the LLC to the farm at least annually showing what was hauled and when. Eighth is payroll and labor tracking so workers comp sits with the right entity.
“The last thing you want to do is find out what's appropriate after you have a loss or a problem.”
— Chris Barron
Key Takeaways
Run the LLC as a genuine profit center: its own checking account, its own annual P&L, and its own tax return documentation, whether that is a personal flow-through or a K-1.
Money moving between you and the entity should be documented as a loan, not an informal transfer, or you weaken the separation you paid for.
Insurance must be bought and paid by the entity. Coverage level is an agent conversation driven by truck count, road exposure, and driver experience, and workers comp is part of it.
Invoice the farming operation from the trucking LLC at minimum annually, itemized with what was hauled and when, to prove the entity operates as a real business.
Confirm CDL requirements with your state DOT instead of assuming farm tags cover you, and carry proof of third-party insurance any time you hook to someone else's equipment.
Workers comp needs to sit with whichever entity carries the payroll, including when the farm bills contract labor back to the trucking entity.
Full Transcript
Chris: Welcome everybody to another episode of the Ag View Pitch. You've got Chris Barron here today, and I want to talk to you all a little bit about your trucking LLC, or possibly the lack of a trucking LLC. And so I've got about 8 things I want to kind of COVID here just to make sure that you reduce the risk that you have with your trucking entity. Again, if you don't have it in an LLC, we like to see operations put it in an LLC. But if you do go to the work of, of putting your semis in an LLC, you want to make sure that you do it correctly so that in the event you have a loss, you do have, you know, a pretty good likelihood of, you you know, if you have a lawsuit or something, that, that it's unlikely that anyone would be able to pierce that corporate veil out of the LLC into your personal or other business entities that you have and where you have other assets.
And so with that said, let's start out. Number 1, Articles of Incorporation and bylaws. I'm sure that if you have an LLC, you, you probably have those things structured. It never hurts to maybe once every year, every couple years, pull those out take a look, make sure that you've updated everything annually and, and that the corporate structure is in place as it should be from a legal perspective. Number 2 is individual accounting systems. Just make sure that you got a separate checking account, a separate bank account. Don't allow money to flow back and forth between you as an individual. In other words, you shouldn't be funding money into that entity unless it's a loan. And so you just want to be real careful that as you move money around back and forth, that you're doing it as a loan. And we'll get to a couple other pieces of that here in a second.
Number 3 is detailed annual profit and loss reports and tax return documentation. And so basically what that means is that you have an accounting system for that entity. You have a profit and loss report annually that is filed and you can keep that. And the tax return is there. The tax return is a key thing too, because if you're a single owner, it'll just flow through your personal tax return, but you still have a separate entity even though it's flowing through your personal tax return. If it's a multiple owner, then, you know, you're gonna get a K-1 back. And again, the whole idea is to keep that at arm's length, keep that entity separate, and that usually is sufficient for that. Number 4 is having the insurance paid for out of that entity.
So when you, you buy insurance for the trucks, you want to make sure that, you know, that that insurance is paid for and out of that entity, and that entity covers everything. A lot of times people will ask, you know, what level of coverage should I get? You know, $1 million, $5 million, $10 million? Well, that really is a conversation between you and your insurance agent. And the amount of risk exposure that you have. Are you out on the road a lot? Is there a lot of traffic around? Do you have a lot of trucks? Do you have inexperienced drivers? Do you have very experienced drivers or owner operators? You know, if you're running the trucks primarily or you just have one or two and you're the ones driving it, you know, maybe that liability risk is mitigated a little bit more. And so think a little bit about that though. You know, the other thing too is workman's comp.
If you have somebody driving the truck and you have no workman's comp, you know, and they're a contract laborer, you do have some pretty high level of risk exposure there. So again, just talk to your insurance agent about, you know, what I am doing in my LLC as it relates to my other businesses or myself personally. Is there any gaps in coverage or are there any challenges here, things that I'm not thinking about? And so again, It's that time of year where you should be having your annual insurance renewal and, and, you know, really looking at just kind of an insurance review over all of your businesses anyway. So it's a great time to have that conversation. Number 5 is certified operators. I know some states don't require necessarily a CDL to haul grain seasonally, especially if you're hauling your own grain, you have farm tags.
I would be real careful with that in the event you have a loss. You know, that just gives somebody an excuse to say, well, that's not even a CDL driver that's driving the truck in the first place. If at all possible, personally, I feel like it's a— it's just a good thing to do is to make sure that they're certified. A lot of states, you have to have your CDL to be able to drive. Even in farm tag trucks. Some states that's not the case. So I guess the main thing there is, is to get a hold of the DOT state by state and just ask questions. Find out what is legal and what is not legal.
This isn't a podcast to give you legal advice by any means or insurance advice, but it's to make sure that you have the conversations with insurance agents, you have the conversations with your, your state DOT, and find out what is appropriate, because the last thing you want to do is find out what's appropriate after you have a loss or a problem. And so, you know, that's just some things to think about. The other thing too is just third-party insurance. Be real careful. Farmers are notorious, we are notorious for hooking on to other people's stuff, and we see that a lot with farm machinery too. You know, you know, Farmer A hooks on to Farmer B's tillage tool, takes off down the road, you You know, if something were to happen, if you had a loss, somebody was injured, or if, you know, you damaged property or whatever, and you have two different insurance companies, what's that look like?
And does the other party even have insurance? And so a lot of times I think there's things that we do that we don't think about the potential consequences from some of those choices. And there's just some conversations that could be had on the front end that would fix a lot. Number 7. Itemized invoice documentation. In the event of a loss, it's likely that, you know, attorneys start telling you to quiet down, don't say anything, and there will be audits and reviews and investigations on how you run the business. You know, what happened, what was the situation on the road, you know, everything from the police department and the state police and everything figuring things out if you have a loss or an accident. You do want to make sure again that that LLC is truly ran as its own profit center, as its own business.
If you do not have invoices, and I don't care if you are a farm entity and there's farm tags on there, you need to invoice the farming operation from the LLC at a minimum annually with a documented and itemized invoice that shows you know, what you hauled, when you hauled it, and that type of thing. And it doesn't have to be super, super detailed, but it does have to be an itemized invoice just to prove that, you know, hey, we— this, this isn't just an LLC to make us feel good so we think we're covered in risk, but no, we're actually running this as its own profit center just to, to solidify the business further. And then number 8, the last one, is, is payroll and labor tracking. And again, back to that workman's comp. If you have payroll in a separate entity, make sure that there's workman's comp on those individual drivers. If you have hired drivers, that's very important.
You know, if you are doing contract labor, so if your farm operation's providing contract labor back to that trucking entity, you just want to make sure that that's contract labor that the trucking entity is paying back to the entity that has the payroll in it, and that's where the workman's comp should be. And so again, I'm not trying to give advice here. I'm just trying to make sure that I bring up some things that you may or may not be doing in that Trucking LLC to make sure that you are really getting the protection out of the LLC that you think you have that you may not have. And so again, um, you know, make sure you talk to your insurance agent and ask, do I have any gaps in coverage? Here is exactly what I'm doing. Don't hide anything.
And tell them everything you're doing because if you have a loss and they don't know about it, it's really hard to cover something that you have not, you know, been truthful about or shared that this is what's going on. Same thing with the DOT. The DOT is, you know, out there and, you know, it's one thing to get a ticket for a violation. It's another thing for the state involvement in the event of a loss if somebody's injured or killed. It gets really muddy in the event that you don't have some of these things covered. So I'm gonna wrap up here with the 8 key things. Articles of Incorporation and bylaws, number 1. Number 2, individual accounting systems, your own checking account, number 3. Detailed annual profit and loss reports and tax return documentation, number 4. Having insurance policies paid for within that agent— or within that LLC.
Number 5, certified operators, CDL, or at a bare, bare minimum, communicating with the DOT to make sure that what you are doing and your drivers are legal, both from a liability standpoint and from a state reg standpoint. Number 6, proof of third-party insurance. If you're hooking on to somebody else's trailer, that type of thing, you need to have that with you, or borrowing a tractor or whatever and hooking on to your own trailer. Those types of things. Number 7, itemized invoice documentation. In other words, invoicing yourself or invoicing anybody if you are commercially hauling, obviously. And then number 8, um, proof of payroll or labor tracking documentation, whether it's contract labor that you're bringing into the LLC via one of your other entities where the payroll exists, or payroll within the LLC trucking entity. And the workman's comp along with that.
So that's really all I have. Again, this is not legal advice. It's not advice to tell you, you know, that somebody can't sue you if you have a loss. You can look at somebody wrong and probably get sued in this environment if somebody chooses to. But the whole point here is, as an observation, Shan, I see a lot of instances where people have LLCs with their trucks. They think they're fully covered. And there's some gaps in the armor. And we really don't want to see anybody that we work with or anybody listening to this, you know, pierce that corporate veil because of something that they could have done that didn't get taken care of. If anybody has questions or anything that you think of that I didn't mention here as well, please, please let me know. Send us questions. cbarron@agviewsolutions.com. If you got questions, comments on this, I would love to hear them.
Or any other issues I didn't bring up. With that said, really appreciate your attention today and hope you guys have a great rest of the week, and we will catch you next time on the iView Pitch.