Creating an LLC as an Agent.

[StarterAgentKG]

Is creating an LLC for you business as an agent worth it. I spoke to an MGA who does FE and he told me he registered his "agency" as an LLC. I have heard that as a 1099 it has tax benefits, plus an LLC protects your assets, however wouldn't E/O insurance do the same.

As an Agent at Agent Contract level for all the fee an LLC will cost is it worth it???

 

[DHK]

If you're contracting agents &/or hiring staff, then there is some asset protection for your actions as a business owner. Otherwise, no additional asset protection, because we're in a licensed profession - and that licensing requires that we are personally liable for our actions and recommendations.

As far as any tax benefits... *may* be a state-by-state consideration. However, LLC's are (generally) a pass-through entity for taxation, so you're going to be looking for things that might be easier to deduct as an LLC than as an individual sole-proprietor.

Generally, it's either a wash, or not worth it as a sole individual agent.

This is not legal or tax advice.

 

[billyb]

I became an S Corporation in 1999 because my CPA advised me to. You only pay the Meicare tax on your salary. Cost me $150 annually in fees. Saved a lot in tax money, but it has an effect on the amount of SS you will receive. In February I am going to start my entitlement and as long as my salary is below maximum earnings allowed I won't be penalized.

 

[adjusterjack]

LLC protects your assets

For a single member LLC that's not entirely the case. The following was written by an attorney on another site:

The LLC form of business, like the corporation, protects the owners of the business from personal liability for the debts of the business. For example, if the LLC enters into a contract with a third party and breaches it, the LLC is liable for that, but the LLC members are not unless they personally guaranteed the contract, which is something that lenders and astute business people often insist upon. The LLC member is always responsible for his own debts and wrongs, including liability for the negligent acts he performs for the business (and for which the LLC might also be liable). There is also the possibility of "piercing the corporate veil" (google it) which is an even bigger risk for single member LLCs.

The LLC form of business does not protect the LLC from being sued. What it does, when the LLC is operated properly, is prevent the owners from being liable for the LLCs debts simply because they are owners. Owners of sole proprietorship and general partnership businesses are personally liable for all debts of the business just because they own the business. Owners of LLCs, LLPs, and corporations are not liable just because they own the business.

But the LLC does not protect owners of the business from everything. For example, an owner of a LLC will be personally liable for any loans/credit of the LLC that the owner personally guarantees. Most lenders/businesses that extend credit to small business will routinely demand those personal guarantees. You are also always liable for your negligence. So if you are negligent while doing work for the LLC and someone is injured, both you and the LLC are liable for that. You protect against that possibility with a good insurance policy. Also, the law makes owners of businesses personally liable for a few specific obligations of the LLC, like certain tax obligations for example. So where does the LLC protect you? You will not be personally liable for contracts that the LLC enters into that you do not personally guarantee. You will also not be personally liable for the debt that arises from the negligence of other employees/owners of the LLC. Again, this assumes you run the LLC properly so that a creditor cannot successfully pierce the corporate veil to go after you personally.

wouldn't E/O insurance do the same

Yes. And does it better than an LLC. Which is why you should have plenty of it.

 

[StarterAgentKG]

If you're contracting agents &/or hiring staff, then there is some asset protection for your actions as a business owner. Otherwise, no additional asset protection, because we're in a licensed profession - and that licensing requires that we are personally liable for our actions and recommendations.

As far as any tax benefits... *may* be a state-by-state consideration. However, LLC's are (generally) a pass-through entity for taxation, so you're going to be looking for things that might be easier to deduct as an LLC than as an individual sole-proprietor.

Generally, it's either a wash, or not worth it as a sole individual agent.

This is not legal or tax advice.

I know it's not legal advice, but what could happen if you have a downline, could you get sued by an agent or for what an agent did.

 

[StarterAgentKG]

For a single member LLC that's not entirely the case. The following was written by an attorney on another site:







Yes. And does it better than an LLC. Which is why you should have plenty of it.

I was more or less told that a good lawyer can get past an llc.

 

[DHK]

I know it's not legal advice, but what could happen if you have a downline, could you get sued by an agent or for what an agent did.

It's not necessarily about being sued (as the actions would be liable to the actual agent, not the entire organization)... but it could be more about unpaid chargebacks that could roll-up the upline.

If you have a rogue agent that does a ton of bad business... and it all gets charged back and your part exceeds the value of your business revenues and reserves, etc... perhaps it could cause YOUR LLC to go BK... but it would be limited to the assets of the business entity rather than your personal assets. Perhaps an extreme example, but there is a poster on the Facebook group that still has to pay back past chargebacks (has a vector mark) because of another agent's actions. I won't say that having an LLC would prevent a vector record, but it would protect your personal assets.

 

[Markthebroker]

I am an independent agent in the process of setting up an LLC. I also write E&O insurance so this is something I am very fluent with. For me I have a lot to protect, so an LLC makes sense, also because of the Dynamex ABC ruling.

You are getting a lot of mostly complete information on here, but there some parts that are hard to understand, or perhaps misleading.

Talk to a cpa and an attorney. Yes, a good cpa or attorney is expensive, but NOT talking to a good one is often much more expensive.

 

[VolAgent]

So there are three issues here. Liability, taxes and possibly employment status as relates to another agency. I'll completely ignore the employment one and focus on liability and taxes. And ultimately, you really should speak with a good attorney and tax advisor.

When it comes to taxes, LLCs are generally organized and treated as a pass through entity. So all income flows to your personal tax return. Depending upon state law and the ramifications of the recent tax changes, it may be of little benefit.

The big one is liability. However, even that is rather limited. First of all, a LLC will never shield you from anything you are personally responsible and liable for. If you did it, the LLC won't protect your personal assets. Now, if you have employees, business property, etc. it may provide value as long as the opposing attorney isn't able to pierce the corporate veil.

Also, as an insurance agent, the LLC is likely to be meaningless when it comes to business debts. When lending to newer and smaller businesses, most lenders will insist upon a personal guarantee. So even if the business goes bankrupt, they can still go after you and any other guarantor's personal assets.

In the end, talk to an attorney and tax advisor about your specific situation.

 

[StarterAgentKG]

Yeah it seems to me like it would only make sense if you were apart of an MLM agency.