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ComplianceJuly 06, 2024

How to start a car sharing business

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Peer-to-peer car sharing is similar to renting out your home or beach house, but in this case, you're renting out your car. 

Many people find that renting a car is a great way to earn supplemental income or offset the cost of owning a car. Rentals can be made through peer-to-peer (P2P) apps like Turo, HyreCar, and Getaround. 

Some car-sharing entrepreneurs even rent out fleets of vehicles, turning their venture into a small business model.

Read on for tips and considerations for starting a car-sharing business.

Car sharing vs. car rental

The P2P car-sharing market is growing due to its ease and flexibility. It allows customers to choose the exact type of vehicle they want to rent – whenever they need it. Additionally, renting a car locally is often more affordable and convenient than using a rental agency, especially for short-term use. Some car owners even offer the option to deliver the vehicle to the user's preferred location, bypassing the wait at a rental counter. 

Car-sharing also provides short-term rental options, allowing users to rent by the minute, hour, or day. In comparison, traditional car rentals usually have a one-day minimum, with the renter having to pick up and drop off the car at specific company locations. Traditional car rentals also have more fixed pricing and a smaller selection of company-owned vehicles. However, traditional car rental companies may be more affordable for longer-term use, particularly with advance planning.

Understand the legal requirements and restrictions

If you’re considering renting out your vehicle(s), carefully review your insurance policy and consult your insurance agent or broker to determine if you are covered for car rentals through P2P sites. 

It's important to note that many personal auto policies do not cover liability arising from personal vehicle sharing or carrying persons or property for a fee. In fact, several states have laws that allow insurers to exclude car-sharing from personal auto liability insurance. This means you may not have coverage through your insurer if a car-sharing renter gets into an accident while driving your vehicle. In such cases, you may need to obtain additional insurance through a car-sharing service program or another insurer that offers commercial auto insurance.

When listing a vehicle with a car-sharing platform, you need to ensure the vehicle meets the platform’s eligibility requirements. For instance, major listing sites may prohibit vehicles that seat more than 10 people, including the driver.

Many states may have their own requirements regarding peer-to-peer car sharing. For example, in Maryland, sharing a vehicle older than 10 years is prohibited. 

Additionally, take time to understand and comply with any local zoning and other laws related to peer-to-peer car sharing, the parking of vehicles on private property, and any potential HOA restrictions.

Discover your value proposition

Before starting a car-sharing business, think about your value proposition. This is a clear explanation for why a customer should rent a car from you rather than a rental agency or other P2P car renter. Your value proposition hinges on the market need that your business meets and what sets it apart from other alternatives. Consider the following:

  • Define your target market: Who is your target customer? Are they individuals seeking a unique car-sharing experience, those looking for a vehicle to run errands, or those looking to carpool the kids to school? How will your car-sharing service distinguish itself?
  • Conduct thorough market research: Rent a car through a car-sharing platform to better understand what works well and what can be improved. Put yourself in the customer's position to ensure that the service provided is as satisfactory as if you were paying for it yourself.
  • Research the competition: What are the existing options in your area? Is there space for your business, or is the market already saturated? Look at the pricing of similar services and aim to price your services competitively or even better.
  • Consider restrictions: Remember that some cities have imposed restrictions on car-sharing services, particularly in places like airports.
  • Be flexible: Understand that there is no one-size-fits-all formula for the "best car." Trucks and SUVs might be suitable for one market but not for another.

Create a business plan

A well-crafted business plan acts as a roadmap to guide you through the process of launching and running your business. It provides a framework for organizing, operating, and expanding your new venture while allowing you to carefully consider the essential aspects of your business. A standard business plan typically includes the following sections:

  • Executive summary
  • Company description
  • Marketing plan
  • Operations plan
  • Management and organization
  • Financial plan

Review startup and ongoing expenses

You’ll need to consider several costs when participating in peer-to-peer car sharing. These may include insurance, maintenance, parking/storage, and cleaning – all of which can impact profitability. 

Additionally, don’t overlook car depreciation. A new vehicle can lose at least 20 percent of its original value in the first twelve months, with the rate varying based on the make and model of the car. Calculating depreciation correctly is imperative to avoid potential audits from the IRS. 

To support deduction claims, keep detailed mileage logs and precise calendar entries for each road trip. Good recordkeeping will reduce the risk of a disallowed deduction. Seek assistance from a professional tax expert to understand more.

As the owner of a car-sharing business, you should be mindful of potential risks such as accidents, damage, or theft when renting out your vehicles and factor in unexpected repairs. Adequate insurance and a clear understanding of the P2P car-sharing platform's terms and conditions are essential to mitigate these risks.

Choose a business structure

When selecting a business structure, remember that it will affect your daily operations, taxes, and the level of risk you are comfortable exposing your personal assets to. Striking a balance between legal protections and potential benefits is essential.

The four most common are:

  • Sole proprietorship: This type of business is owned and operated by one person, with no legal distinction between the owner and the business. As a result, the owner is personally responsible for all debts and obligations incurred by the business. This means that if the business cannot fulfill its obligations or is sued, the owner's personal assets may be at risk. No state filing is required.
  • General partnership: General partnership is the simplest form of partnership, automatically created when two or more individuals engage in a business for profit without the need for state filing.
  • Limited liability company (LLC): LLC is a popular legal business entity. It provides limited liability protection and pass-through taxation by separating business assets from personal assets.
  • Corporation: A corporation is a popular business structure that functions as a separate legal entity owned by shareholders. This setup protects owners from personal liability for corporate debts and obligations.

To form an LLC or corporation you must file Articles of Organization (LLC) or Articles of Incorporation (corporation) with the Secretary of State or other office who handles business formation in your state.

For more information on business entity structures, read Comparing company types and Compare S corporation vs LLC.

Open a business bank account

Separating your personal finances from your business finances is important for establishing business credit for your car-sharing venture. 

In addition, from a tax standpoint, having a business bank account simplifies paying quarterly estimated business taxes, and it is also a legal requirement for certain business structures. For example, any business operating as a distinct legal entity from its owner, such as an LLC or corporation, must have a dedicated business bank account.

Obtain necessary licenses, registrations, and insurance

To list your car on a peer-to-peer site, you must have a personal auto insurance policy and meet the state's minimum coverage requirements. Most car-sharing companies provide insurance policies to protect the owner, renter, and all third parties involved in the rental process.

Your car-sharing business will have various legal obligations based on your business structure and state and local jurisdiction. Most businesses must obtain licenses and permits at the state and/or local levels and register with the state tax department. A growing number of states and local jurisdictions also require the collection of a sales or car-sharing tax from car rental customers.

If you form an LLC or corporation, you will need to fulfil various requirements such as obtaining an EIN, getting a registered agent, and filing a Beneficial Ownership Information report with FinCEN. 

Last, if you do business under an assumed name (also known as a trade name or fictitious business name), you must file a “doing business as” or DBA registration with your state or local jurisdiction. This requirement applies to all businesses, including sole proprietorships, partnerships, LLCs, and corporations.

Note: Business regulations may change over time. For example, local legislators are increasingly considering bills that restrict car sharing or require peer-to-peer car-sharing companies to pay the same taxes and adhere to the same safety regulations as rental car companies.

Track vehicle maintenance and upkeep

It's crucial to maintain a high standard of cleanliness for your vehicle and stay on top of regular maintenance. 

In addition to regular service and maintenance, be sure to perform pre- and post-trip inspections and track and record any associated costs. 

Peer-to-peer car-sharing platforms also require car-sharing business owners to comply with local laws and regulations regarding vehicle safety, condition, and operation. They may also have their own specific guidelines for vehicle maintenance that you must adhere to.

Have good photos

When posting photos of your vehicle for rental, it's crucial to provide clear images of all sides of the exterior, interior, and any extras. Extras can include items like prepaid fuel, food/drink cool bags, infant car seats, chargers, or unlimited miles.

For the best presentation, place your car in front of a clean background and avoid any distractions like people, road signs, or utility poles protruding from the vehicle. When taking photos, aim to shoot right after sunrise and before sunset to minimize the brightness and shadows caused by the sun. If you must take photos during the day, take photos in the shade.

BizFilings can help

Whether you are starting a car-sharing business or incorporating an existing business, it is helpful to know and understand the formation and ongoing requirements each state places on corporations and limited liability companies (LLCs).

Check out our state guides for LLC and corporation. We provide key information on state-specific requirements for forming an LLC or corporation plus ongoing compliance requirements.

Related articles

How to register a business

What is an LLC? Definition and steps on how to form an LLC

LLC vs. Inc: Understanding the differences between an LLC and a corporation 

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Molly Miller
Manager, Customer Service
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