To start a cab company, you need a registered business entity, a federal Employer Identification Number, a taxi operating permit from your local transportation authority, commercial auto insurance on every vehicle, and drivers who have cleared background checks and medical exams. Skip any one of those, and you risk fines, vehicle impoundment, or losing the right to operate. The steps below walk through what each piece requires and the order that keeps your application moving.
Pick and Register Your Business Entity
Your first decision is what type of legal entity to form. A sole proprietorship is the simplest and cheapest option, but it leaves your personal savings, home, and other assets exposed if the company gets sued or can’t pay its debts. A general partnership carries the same problem unless you form a limited partnership. Most cab companies choose a limited liability company or a corporation, because the business becomes a separate legal entity: a lawsuit against the company does not automatically become a lawsuit against you.
Forming an LLC means filing Articles of Organization with your state’s Secretary of State. Filing fees range from about $35 to $500 depending on the state. Corporations offer similar liability protection but require more paperwork, including bylaws, a board of directors, and annual meetings. Either way, most licensing agencies will want a certificate of good standing from the state before they process your taxi permit application, so get the entity registered first.
Get an EIN From the IRS
Every cab company needs an Employer Identification Number. This nine-digit federal number is what you use for payroll taxes, federal tax filings, and opening a business bank account.1Internal Revenue Service. Employer Identification Number You can apply online at irs.gov for free and get the number immediately, or file Form SS-4 by fax or mail.2Internal Revenue Service. Get an Employer Identification Number Without an EIN you can’t hire drivers, run payroll, or open the accounts you need.
How the company itself is taxed depends on the entity you chose. Sole proprietors and single-member LLCs report business income on Form 1040 and owe self-employment tax of 15.3% on net earnings. The Social Security portion applies to the first $184,500 in net self-employment income for 2026.3Internal Revenue Service. 2026 Publication 15-A
Apply for Your Taxi Operating Permit
The permit that actually authorizes you to put cabs on the road goes by different names depending on where you operate. Some cities issue a Certificate of Public Convenience and Necessity. Others sell taxi medallions. Others simply grant an operating authority license. Whatever the label, this is the legal right to offer on-demand passenger transportation in a specific area, and many cities cap the total number issued.
You submit a package of documents to your local taxi and limousine commission, transportation department, or municipal clerk. Expect to include proof of your registered entity, your EIN, the names and backgrounds of all principal officers, and details about your fleet size and service area. Discrepancies between your application and supporting documents are one of the fastest ways to get rejected, so check everything twice before filing.
Financial Proof
Licensing agencies want to see that you can actually run the operation. That usually means financial statements showing enough cash to cover startup costs, insurance premiums, and several months of operating expenses. Some jurisdictions require a surety bond instead of or in addition to that proof. A business plan describing your service area, projected revenue, and hours of operation helps the agency assess whether your proposal is viable.
Background Scrutiny
The application will ask about any previous transportation licenses you or your officers have held. Regulators look for past permit revocations, serious regulatory violations, and criminal records among company leadership. Many agencies also require proof of a dedicated dispatch office or physical base of operations. Incomplete submissions get returned without review, so organize the package to meet your agency’s administrative standards.
Outfit and Inspect Your Vehicles
Taxi vehicles must meet standards well beyond what’s required for a personal car. Most jurisdictions impose age limits on fleet vehicles, and many require a uniform color scheme. Each vehicle also needs specific equipment installed and tested before it can be licensed.
The taximeter is the centerpiece. Taximeters must comply with the accuracy tolerances in the National Institute of Standards and Technology’s Handbook 44, which allows no more than 1% overregistration and 4% underregistration on distance measurements.4National Institute of Standards and Technology. Specifications, Tolerances, and Other Technical Requirements for Weighing and Measuring Devices Your local weights and measures office or an authorized meter shop handles calibration, testing, and sealing. A functioning roof light showing availability is standard. Some cities also require security cameras, GPS units, or credit card readers.
Every vehicle goes through a mechanical inspection covering brakes, tires, steering, exhaust, and lighting. Inspections happen before initial licensing and then annually. Vehicles that fail are pulled from service until deficiencies are corrected and a reinspection is passed.
Electric Fleet Incentives
If you’re weighing an electric fleet, a federal tax credit for alternative fuel vehicle charging infrastructure is available through June 30, 2026. Businesses can claim 6% of depreciable installation costs (up to $100,000 per unit), or 30% if the project meets Department of Labor prevailing wage and apprenticeship requirements.5Alternative Fuels Data Center. Electricity Laws and Incentives in Federal The separate commercial clean vehicle credit under Section 45W, which offered up to $7,500 per vehicle under 14,000 pounds, is no longer available for vehicles acquired after September 30, 2025.6Internal Revenue Service. Commercial Clean Vehicle Credit
Buy the Right Insurance
Every cab in your fleet needs commercial auto insurance with passenger liability coverage before it can operate. Personal auto policies don’t cover vehicles used for hire, and no licensing agency will issue a permit without proof of commercial coverage. Minimum liability limits vary, but many cities require at least $100,000 per person and $300,000 per accident. Proof goes to the regulator directly from your carrier as a Certificate of Insurance.
Premiums run significantly higher than personal auto policies because professional driving means far more miles and exposure to accidents. Budget several thousand dollars per vehicle per year, with exact costs shaped by your city, coverage limits, fleet size, and driver records. Any lapse in coverage grounds the affected vehicle immediately and can trigger permanent revocation of its operating permit.
If you hire drivers as employees, nearly every state requires workers’ compensation insurance. Texas is the only state where coverage is optional for most private employers. Operating without required workers’ compensation is typically a criminal misdemeanor, and fines can reach tens of thousands of dollars. You can buy a policy from a licensed insurer, through your state’s compensation fund, or, if your business is large enough, apply to self-insure.
Qualify Your Drivers
Every driver needs the appropriate license for transporting passengers for hire. Some jurisdictions require a commercial driver’s license with a passenger endorsement; others accept a standard license with a chauffeur or for-hire endorsement. A CDL with a passenger (P) endorsement involves completing Entry-Level Driver Training, passing a written knowledge exam on passenger loading and emergency response, and passing a skills test in a passenger vehicle.7Federal Motor Carrier Safety Administration. Medical Examiners Certificate, Form MCSA-5876 Putting an improperly licensed driver behind the wheel is a serious liability, so confirm the local rule.
Licensing agencies also require background checks on every driver. That usually means a certified motor vehicle record showing moving violations, reckless driving, and alcohol offenses, plus a fingerprint-based criminal history check. Drivers with serious felony convictions or recent violent offenses are generally disqualified. As the owner, you’re responsible for making sure every driver clears screening before they start.
Commercial drivers must also pass a physical exam by a medical professional listed on the FMCSA’s National Registry. The examiner completes Form MCSA-5876, covering vision, hearing, blood pressure, and cardiovascular health.8Federal Motor Carrier Safety Administration. Medical Examiners Certificate Form MCSA-5876 The certificate is valid for two years for drivers in good health, but drivers with conditions like hypertension or diabetes may be limited to one-year certificates with annual re-examination.9Federal Motor Carrier Safety Administration. For How Long Is My Medical Certificate Valid
Drug and Alcohol Testing
If your drivers hold CDLs, you must run a drug and alcohol testing program that meets Department of Transportation standards. Federal regulations require testing at several points:
- Pre-employment: a negative drug test is required before a driver can operate any commercial vehicle.
- Random: drivers must be subject to unannounced testing throughout the year. For 2026, the minimum random drug testing rate is 50% of covered drivers, and the minimum random alcohol testing rate is 10%.10U.S. Department of Transportation. Random Testing Rates
- Post-accident: testing is required after crashes involving a fatality, bodily injury with off-site medical treatment (if the driver received a citation), or disabling vehicle damage requiring a tow (if the driver received a citation).
- Reasonable suspicion: a supervisor trained to recognize impairment can order immediate testing.
- Return-to-duty and follow-up: drivers who test positive or refuse a test must complete evaluation by a substance abuse professional and pass a return-to-duty test, followed by at least six directly observed tests over the next 12 months.11Federal Motor Carrier Safety Administration. When Does Testing Occur and What Tests Are Required
Even if your jurisdiction doesn’t require CDLs for taxi drivers, a testing program reduces liability and looks good to regulators reviewing your application.
Serve Passengers With Disabilities
Federal law prohibits taxi companies from discriminating against passengers with disabilities. Under 49 CFR 37.29, you cannot refuse service because someone has a disability, charge higher fares to passengers with disabilities, or refuse to help stow mobility devices like wheelchairs or walkers.12eCFR. 49 CFR 37.29 Private Entities Providing Taxi Service Service animals must be allowed in your vehicles. Refusing a fare because the passenger has a guide dog is a federal violation.
Some jurisdictions require that a percentage of your fleet be wheelchair-accessible. Accessible vehicles must meet the specifications in 49 CFR Part 38, covering lift dimensions, platform weight capacity, and securement systems.13eCFR. Part 37 – Transportation Services for Individuals with Disabilities (ADA) Check your local requirements while you’re still permitting, because retrofitting vehicles later costs significantly more than ordering accessible ones from the start.
Classify Your Drivers Correctly
How you classify your drivers is one of the highest-stakes decisions in this business, and it’s where cab companies get into the most expensive trouble. If you set drivers’ schedules, require specific routes, mandate a dress code, or control how they do their work, those drivers are likely employees under federal law regardless of what your contract says.
The Department of Labor uses an “economic reality” test that focuses on two core questions: how much control you exercise over the work, and whether the driver has a genuine opportunity for profit or loss based on their own initiative and investment. Three additional factors come in when those two don’t point clearly in one direction: the skill level required, the permanence of the working relationship, and whether the driver’s work is integrated into your core business.14U.S. Department of Labor. Employee or Independent Contractor Status Under the Fair Labor Standards Act The IRS runs a parallel analysis looking at behavioral control, financial control, and the nature of the relationship.15Federal Register. Employee or Independent Contractor Status Under the Fair Labor Standards Act
Get this wrong and the numbers add up fast. Under federal tax law, an employer that fails to withhold taxes because it treated an employee as a contractor owes 1.5% of the worker’s wages for income tax withholding plus 20% of the employee’s share of Social Security and Medicare taxes. If you also failed to file the required 1099 forms, those rates double to 3% and 40%.16Office of the Law Revision Counsel. 26 USC 3509 – Determination of Employers Liability for Certain Employment Taxes The Department of Labor can pursue back overtime, and drivers can file their own lawsuits. For a company with a dozen drivers, the exposure easily reaches six figures.
Keep Your Permits Current After Approval
Approval isn’t the finish line. Most operating permits require annual renewal, which means renewal fees, updated insurance certificates, and another round of vehicle inspections. Driver permits also renew on a schedule, and your drivers must keep valid licenses, current medical certificates, and clean records throughout the year. Falling behind can suspend individual vehicles or your entire operation.
Operating without valid permits carries serious consequences: vehicle impoundment, substantial fines, and potential criminal charges. Build a compliance calendar from day one that tracks every renewal date, insurance expiration, medical certificate deadline, and inspection due date across your fleet. The companies that last are the ones that treat compliance as a daily operating function rather than an annual scramble.