Buying a Business Vehicle In Your Personal Name vs. Commercial Name
Buying vehicles for your business can be stressful.
In addition to the big questions like “Which type of vehicle is the most reliable?” and “Which is best for my specific operations?” there are also smaller decisions that you probably won’t even consider until you are well into the process and have to decide quickly.
For example: should I buy and register the vehicle in my personal name, or in my business name? Is there a difference between the two options? Am I required to do it a certain way?
Well you’re in the right place -- we can clear all of that up for you.
At Berry Insurance, we have seen plenty of clients who have done both options, and we can honestly say, each has its advantages and disadvantages.
Read on to learn the differences between buying in your personal name or business name so you can weigh the pros and cons and decide which option is best for you.
Buying a business vehicle in your personal name:
Believe it or not, even if you use a vehicle for business purposes, you do have the option of buying and registering it in your personal name.
How the process works:
The process for buying a car in your personal name is simple and works much like buying a personal vehicle.
First of all, as long as a business vehicle is under 10,001 pounds, you are able to buy and register it in your personal name.
You would simply purchase, title, register, and insure it in your name. You are also able to put either standard personal license plates, or commercial license plates on it.
The only thing that’s different about buying a business vehicle in your business name versus your personal name is one step during the process of insuring it.
When getting a personal car insurance policy for a business vehicle in your personal name, you’ll just need to classify the vehicle using a business class code to indicate it will be used for business purposes. If you do not do this, you will likely not be covered if you experience an accident while using the vehicle for business operations. Adding a business class code will likely increase your insurance premium, but the cost would still be less than insuring the car on a commercial policy.
Advantages of insuring a business vehicle in your personal name:
- The process is simpler: Insuring a business vehicle in your personal name takes less steps and less time than insuring it in your business name. You’ll be able to get your vehicle on the road sooner.
- Insurance should be cheaper: When you buy a vehicle in your personal name, you can get a personal auto policy, which is less expensive than a commercial auto policy because it does not take into account factors such as the business operations, travel radius, and more.
Disadvantages of insuring a business vehicle in your personal name:
- Potential liability insurance gap: Because of the risks associated with driving for business, we usually always recommend one million dollars of liability coverage on commercial auto policies. However, personal auto policies typically only offer up to $500,000 in liability coverage, so if you were to get into a severe accident on the job, you might have a coverage gap and be faced with an out-of-pocket expense.
- Personal umbrella won’t apply: Even if you have a personal umbrella liability insurance policy to expand upon your liability coverage, it won’t apply to your business vehicle. Personal umbrella policies only provide coverage to personal assets, so if you get in an accident in your business vehicle, it won’t be covered. However, if you have a commercial umbrella policy, that may apply.
- Lack of separation of business and personal assets: If you have formed an LLC or incorporated your business, one of the reasons you did was probably to separate your personal assets from your business assets. If you are buying a business car in your personal name, you are doing the opposite. This also means that if you get in an accident in this vehicle, you have exposed not only your business from being sued, but also yourself; which means in a worst-case-scenario your wages can be garnished and your home and assets could be taken over.
- You’ll have to re-pay vehicle taxes if you change your mind: We’ve seen this one before. If you change your mind and want your vehicle in your business name, or if you decide to brand your car with business information and have to switch it over to your business name, it will come at an expense. To transfer your vehicle from business to personal, you as an individual will have to sell the vehicle to your business. And even if you only sell it to yourself for $1, you will have to pay the taxes (for the second time) on the value of the vehicle.
Buying a business vehicle in your business name:
If registering a business vehicle in your personal name isn’t for you, you of course have the option to buy it in your business name.
If this is the case for you, here is what you can expect for the process:
How the process works:
While it isn’t a highly complicated process, buying a vehicle in your business name is a little more involved than buying in your personal name.
If you’re buying a vehicle as a business for the first time, you will need a few additional forms, including an IRS form that shows your TAX-ID number and that shows which type of entity your business is, as well as your stamped RTA form.
If you have purchased a business vehicle in your business name before, you don’t need the IRS form, but will still need the stamped RTA form. However, if you already have vehicles registered to the business, you’ll need to make sure all vehicles are registered to the address on file with the Department of Revenue. If your business changes address and doesn’t update with the Department of Revenue, you won’t be able to register your car until it is fixed.
Once you have shown those forms, you can buy, register, and insure as usual.
Advantages of buying a business vehicle in your business name:
- Separation of personal and business assets: As we mentioned above, if you get a business vehicle in your personal name, you are combining your business and personal assets, which many people are wary of (rightfully so). If you buy a business vehicle in your business name, you are maintaining separation of the two. You are also providing more protection against being sued personally if there is an accident involving the vehicle.
- Higher insurance coverages: Again, because of the higher risks of business vehicles, commercial auto insurance tends to provide higher coverage limits, which means you shouldn’t have any gaps in insurance coverage if you experience a car accident.
- You can get a tax write-off: If you buy a car in a business name, then it is a business expense, so you are able to write a portion of it off in taxes.
Disadvantages of buying a business vehicle in your business name:
- Lengthier process: Buying a vehicle in your business name has a few more steps than buying it in your personal name, so the process will take a little longer overall. While personal policies can usually be established in a day, commercial policies can take several.
- More expensive insurance: As we already mentioned, commercial auto insurance is more expensive than personal auto insurance, because it takes more risk into account and provides higher coverages. So if you buy a vehicle in your business name, you will need a commercial insurance policy, which will cost you more than a personal one.
Weigh your options -- the choice is up to you!
When buying vehicles for your business, you have options.
You may decide to go with the simpler, cheaper option and buy your business vehicles in your personal name. Or you may decide you want more secure insurance coverages and a separation of business and personal assets and go with your business name.
Either way, you’ll want to communicate closely with your insurance agent to make sure you have the best coverages to keep you and your business operations protected. Also, since you’re adding new vehicles to your business inventory, it will probably also be a good time to perform a thorough review of your commercial insurance policies to make sure your insurance is up to date and covering you how it should be.
Once you've added vehicles to your policy, it is important for you to acquire the right drivers for your business. To learn all about how you can choose the best drivers for your business, check out this article: How Does Choosing the Right Drivers Affect Your Commercial Auto Policy?