AS YOU GREW your business over the years a lawyer or accountant probably convinced you to separate your trucking business, brokerage business, equipment, real estate, and so on into different legal entities. The theory was by separating your businesses into different entities, if one business failed, the others would be protected from any liability or debts from the failed business, and they could survive. It was good advice, and you were smart to take it. It is a healthy asset protection strategy.
That good asset protection strategy needs good maintenance to stay healthy. It is not a strategy that works just by setting it up and then walking away. It takes attention to detail, accurate communication, and avoiding common mistakes to keep the strategy healthy. It needs a checkup, just like we all do from time to time.
Checkup #1: Attention to Detail
In your first checkup, look at the paperwork and paper trails. Go area by area.
- Look at your internal contracts. Do you have contracts between your related entities? Do you have leases between your real estate entity and your operating entity? If trailers get shared by multiple entities, do you have internal trailer interchange agreements in place? Do you have shared service agreements for your support services like Accounting, IT, HR, etc.?
- Look at your external contracts. If you have a separate entity for your shop, are your vendor part and service contracts with the shop entity or with your trucking entity? If you are providing brokerage services with your brokerage entity to a shipper, do you have a broker contract with that shipper in your brokerage entity’s name, or do you have a carrier contract with the shipper in your carrier name?
- Look at your internal transactions. If your HR department is doing HR work for three different entities, is each entity paying the entity that employs the HR team, or is one entity eating all the HR expense? When the brokerage covers a load the carrier cannot handle, but the carrier bills and collects the load from the shipper, who gets the revenue? Who eats the cost? Is there any sharing? When one entity loans money to another, do you document the loan with a promissory note? Are you tracking internal transactions daily, weekly, or monthly, or are you just using estimates? You do not need to make every transaction a cut-throat negotiation, but you should set rates and parameters for the equipment and services the entities provide one another, so transactions can be documented properly.
- Has your legal/corporate administrative team kept director and shareholder meeting minutes for each entity? Are the corporate record books up to date, or does your corporate record book say your secretary is your vice president of sales who retired three years ago?
- Are decisions for each entity made by different people? This will be dictated largely by your size and staff capacity, but to the extent practicable, are there separate decision-makers for each entity at the day-to-day level?
Checkup #2: Accurate Communication
In your second checkup, look at how you communicate your brand and your messages. Look online, look at internal communications, look at marketing efforts, look at written materials and listen to your talk.
Consistent branding is good: consistent color schemes, consistent messaging styles, a consistent brand name, etc., but there is a way to maintain a consistent brand and maintain separation. For example, XYZ Trucking, Inc., XYZ Logistics, Inc., and XYZ Equipment, Inc. XYZ is the brand, and that can be used in a lot of your communication, especially when coupled with something like XYZ Family of Companies, XYZ Network, or XYZ Brands.
But when it comes time to tell a customer you are brokering their load, the customer should know it will be XYZ Logistics, Inc. brokering the load, not XYZ Trucking, Inc.
With that in mind, when you do your communication checkup, ask:
- Do you have separate websites, or at least separate web pages for each entity?
- Do your social media posts help or hurt your entity separation?
- Do your employees know the differences in your entities? Do they know why the difference is important? Do they reinforce the separation when they communicate internally and with the outside world? Do not forget about email signature blocks, email addresses, and so on.
- Do your leaders set a good example in their communications, or do they mix all the entities together and get the names wrong?
Your branding and marketing will not necessarily be as great as they could be if you just listen to the lawyers. Conversely, if your marketing team goes at it alone, this can lead to a blurring of the separation of entities you worked hard to establish. The end goal, however, should be to find a good, healthy balance between marketing wants and legal needs.
Consider this, if you do not describe your entities correctly, how can you expect anyone else to get it right?
Checkup #3: Avoiding Common Mistakes
In your third checkup, look for some of the common mistakes trucking and logistics organizations make.
- Carrier vs. Broker. This is a tough one. Shippers often control the shipment paperwork, they control the contracts, they control the relationship. It is not easy, or even possible sometimes, to get them to separate your carrier arm and your broker arm and respect the differences in the two. But you can still do some things to reinforce the separation between your carrier and broker entities.
- Put shipper contracts in the correct name and for the correct service. You may not have luck with the shipment paperwork but do stand firm on the contract itself. If you are providing brokerage services, do not sign a carrier contract. If you are providing brokerage services, put the contract in your brokerage’s name.
- When you do broker a load, or put it on one of your trucks, make sure the customer knows which service you are providing and through which entity. Emails and email signature blocks can help document this if the shipment paperwork cannot be written correctly by the shipper.
- If your carrier arm and broker arm are both involved in a shipment (e.g., one bills it, one provides the service) make sure each is compensated in some way for their service and risk.
- Avoid mixing on your website. Broker arms start looking like their carrier arms when they promise “door-to-door service,” and “one-stop shopping” with pictures of the carrier arm’s trucks on the broker’s website.
- Carrier vs. Lease Purchase. This is another area where separation lines get blurred. If you have a lease purchase program, that program should stand on its own with its own decision-makers, and its own rules and options. If the relationship between an independent contractor and your carrier arm ends, that should not automatically end that contractor’s relationship with your lease purchase arm, and vice versa.
You built a healthy base for your organization years ago when you separated your businesses into legal entities. Do not let that base deteriorate. Stay healthy. Pay attention to the details, written and verbal. Make sure your team understands the separate entities and why you have them. Make sure they respect that separation in what they write, what they post, what they say, and most importantly, make sure you lead by example in your organization. Your team will keep the entities separate no better than you do.