Most small storage owners set up a legal entity such as an LLC, get an EIN, register with the state and county, confirm zoning and permits, and check sales tax and local license rules. Requirements differ by state and town, so confirm each step with your attorney, your CPA and your local offices.
This is general information, not legal or tax advice. Entity, licensing and tax choices have lasting effects. Review them with your attorney and CPA before you act.
The setup checklist
| Step | What it is | Who to ask |
|---|---|---|
| 1. Choose an entity | LLC, corporation, partnership or sole owner | Attorney, CPA |
| 2. Form it | File with your state | State business office, attorney |
| 3. Get an EIN | Federal tax ID | CPA, IRS |
| 4. Bank account | Business checking, kept separate | Your bank |
| 5. Zoning and permits | Land use, building, signage | City or county planning |
| 6. Local license | Business registration or license | City or county clerk |
| 7. Sales tax | Permit if your state taxes storage or retail | State department of revenue |
| 8. Insurance | Property, liability and more | Insurance agent |
| 9. Lease and forms | Rental agreement, rules, lien notices | Attorney |
| 10. Property title | Who owns the land and building | Attorney, title company |
Step 1: Choose an entity
Common choices
| Entity | Basic idea | Watch for |
|---|---|---|
| Sole proprietor | You and the business are the same | Your personal assets are exposed |
| LLC | Separate legal entity, flexible taxes | State fees, annual reports, needs to be run separately |
| S corporation (a tax election) | Can change payroll taxes | Rules for owners and payroll; ask your CPA |
| Partnership | Two or more owners | Written agreement is essential |
| Corporation | Separate entity with shares | More formalities |
An LLC can help separate your business liabilities from your personal assets, but it does not stop a claim against you personally for your own actions, and lenders often ask for personal guarantees. Courts can look past an entity that is not treated as separate, for example if you mix funds. Keep a separate bank account, sign contracts in the entity's name and keep records.
Ask your attorney
- Which entity fits one facility, and which fits several?
- Should the land and the operations be in separate entities? (Some owners do this; your attorney decides.)
- How will my lender treat the entity?
- Do I need an operating agreement?
- What state fees and reports apply?
- What happens to my entity if I sell?
Ask your CPA
- How will the entity be taxed?
- Does the entity change how I report rental income? See self storage taxes and depreciation.
- Do I need payroll?
- What records do you need from me?
Worked example (illustrative)
Say forming an LLC costs a $100 state filing fee and an annual fee of $50, plus $800 of attorney time for an operating agreement. First-year cost is $950, and each following year $50, ignoring other fees. These are made-up numbers. The point is to compare the cost with the exposure: a facility worth $1,500,000 with a mortgage and tenants on site faces larger risks than the fees. Real fees vary by state; check yours.
Step 2: Federal and state registration
- EIN: Apply on irs.gov, or ask your CPA. Many banks require one.
- State registration: File formation documents with the state agency that handles business entities.
- Registered agent: Most states require an address for legal notices.
- Annual report or franchise tax: Some states require a yearly filing.
- Beneficial ownership reporting: Federal rules in this area have changed several times. Ask your attorney what applies to you now.
Step 3: Zoning and permits
Zoning decides whether you can run storage at all.
- Call the planning department and ask: "Is self storage allowed at this parcel, and what approval is needed?"
- Ask about site plan review, building permits, signage, lighting, fencing, stormwater, driveway access and fire code.
- Get answers in writing.
- For an existing facility, ask whether it is a legal conforming use. A non-conforming use may not be rebuilt after a fire.
- For outdoor vehicle storage, ask about screening and surface rules. See how to start an RV storage business.
- For conversions, ask about change of occupancy. See self storage conversions.
Step 4: Local business license
Many cities and counties require a business license or registration, and some charge a fee. Some require inspections. Call the clerk. Ask what is required for a business that rents space and has no retail, and what changes if you sell locks or boxes.
Step 5: Sales tax
States differ widely. Some tax storage rent, some tax only goods sold, some exempt self-service storage. Some require a seller's permit before you sell locks or boxes. Ask your state department of revenue or your CPA. If you collect sales tax, you must file on a schedule, even in months with no sales. Your bookkeeping needs a sales tax payable account.
Step 6: Operating documents
You need legal documents that work in your state:
- Rental agreement. See writing a good self storage lease. Your attorney should review it.
- Lien notices and forms. State statutes set the steps. See the lien timeline guide.
- Rules and signs. See the rules sign template.
- Privacy and payment terms for online rentals.
Step 7: Insurance and risk
Insurance sits beside your entity: the entity limits some liability, and insurance pays claims. Get quotes for property and liability coverage and review exclusions. See self storage insurance basics.
Step 8: Employees and contractors
If you hire help:
- Ask your CPA about payroll and worker classification.
- Ask your insurance agent about workers' compensation.
- Keep contractor invoices and tax forms.
- Write simple job descriptions and rules for cash handling and access.
Step 9: Taxes and records
- Keep business and personal money separate.
- Save every closing statement, invoice and tax bill.
- Allocate the purchase price between land and buildings with your CPA, since land cannot be depreciated. The IRS explains this in Publication 946.
- Keep a calendar of annual reports, licenses, tax filings and insurance renewals.
Step 10: Cost to start and what to budget
Budget for the legal and registration items before opening day. Ask for quotes and use the feasibility calculator to see how they fit your total. Read how to start a self storage business for the larger budget. See pricing for software costs.
Mistakes to avoid
- Forming an entity but paying bills from a personal account
- Signing the property purchase or lease in your own name when you meant the entity
- Skipping the zoning answer in writing
- Forgetting annual reports and fees, which can cancel an entity
- Using a generic lease form without legal review
- Collecting sales tax without a permit
- Not telling your lender or insurer about the entity
Checklist
- Attorney and CPA consulted about entity
- Entity formed, EIN issued, operating agreement signed
- Business bank account opened
- Zoning and permits confirmed in writing
- Local business license obtained
- Sales tax rules checked with the state
- Insurance bound in the right name
- Lease and lien forms reviewed by your attorney
- Calendar set for renewals and filings
Special setups
Several facilities. Some owners place each property in its own entity so a problem at one site does not reach the others. This adds paperwork and fees. Ask your attorney whether it fits your size and your lender.
Real estate and operations apart. An owner may hold the land and building in one entity and run the business in another, with a lease between them. This can help with liability and with a sale. It needs careful records and legal advice.
Partners and family. Put the agreement in writing: who contributes, who decides, who gets paid, what happens if someone leaves or dies. A short agreement now prevents a long fight later.
Buying a facility. Decide who takes title before you sign the contract, since changing it later can cost money or trigger loan issues. See buying an existing self storage facility.
Keeping the entity in good standing
Calendar the annual report, the franchise or registration fee, the registered agent renewal and any local license renewal. Hold the required meetings or records your state expects. Pay from the entity's account and sign as the entity. A lapsed entity can lose its protection.
This is general information. Laws and fees vary by state and town, so confirm each item with your attorney, CPA and local offices.