What Type of Corporation Do I Need to Set Up to Contract with FedEx?
Becoming a FedEx contractor is an excellent opportunity for individuals who want the freedom of owning their own business and the promise of bringing in a steady source of revenue year after year. However, there are several steps you will need to take before you can get started—including establishing a corporation in the state where you will be doing business.
The FedEx independent contractor model requires its contractors to be incorporated as either a C corporation (C corp) or an S corporation (S corp). The “C” and the “S” in the respective names simply come from how each corporation is taxed under the Internal Revenue Code: Subchapter C and Subchapter S.
While the two types of corporations have a lot in common, there are some differences you will need to take into account before you decide which path is right for you. It may be a good idea to work with a qualified business attorney and/or CPA to help you choose and to walk you through the setup process.
What is a C corporation?
All corporations start out as C corporations; this is the default status assigned by the Internal Revenue Service (IRS) when you file the Articles of Incorporation to register your business. With C corps, there are no restrictions on ownership or on the number of stockholders you can have. In addition, there are no restrictions on stock classes, and C corps have a lower minimum tax rate.
However, the biggest disadvantage of C corps is double taxation, meaning your FedEx business revenue will be taxed at the corporate level and then once more at the personal level (since shareholders are taxed again on income received as dividends).
What is an S corporation?
After you have established your C corp, you may then choose to become an S corp (typically for the tax benefits). This will require you to submit a separate form (IRS Form 2553), and there may be some additional paperwork to fill out at the state level. With an S corp, the double taxation issue is avoided because instead of being taxed at the corporate level, all profits and losses are passed to the owners or partners, who are taxed individually.
You can read more here about the pros and cons of C corps vs. S corps.
Can I set up my FedEx business as a limited liability company (LLC)?
No. FedEx does not allow its contractors to be incorporated as LLCs, LLPs, sole proprietorships, partnerships, or limited partnerships (LTDs).
What is the process like to incorporate my FedEx route business?
To establish your corporation, you will first need to obtain a federal employer identification number (FEIN) for the purpose of IRS identification. After that, you will register with the secretary of state and obtain both a state tax withholding ID and a state unemployment insurance number. Finally, you will need to choose a registered agent for your business.
According to FedEx, your route business must also “…remain in good standing in the states/provinces in which it is incorporated and in which it conducts business. FedEx Ground does not contract with businesses that have company names that conflict with or infringe upon FedEx trademark, copyright, and/or brand/customer service interests.”
Of course, incorporation is just the first step in the FedEx approval process, which you can read more about here.
Ready to become a FedEx contractor? Contact KR Capital today.
If you’re interested in owning a thriving business backed by one of the largest logistics companies in the world, KR Capital is your ideal partner. As the nation’s leading FedEx brokerage firm, we are uniquely qualified to help you find available routes in your area and assist with every step of the purchase and approval process.