LLC?

[MrJenkins]

I am a newer life insurance agent of 6 months, looking to create my own Insurance Agency. I will be a one man shop to begin with, looking to grow an agency down the line.

Any pro's/con's on setting up my business as an LLC?

To start, I wanted to create a company name/brand, more for marketing purposes (website, social media, etc...), so I assumed an LLC is the way to go.

Thoughts, feedback and advice are welcome. Thanks!

 

[Tahoe Ray]

I am a newer life insurance agent of 6 months, looking to create my own Insurance Agency. I will be a one man shop to begin with, looking to grow an agency down the line.

Any pro's/con's on setting up my business as an LLC?

To start, I wanted to create a company name/brand, more for marketing purposes (website, social media, etc...), so I assumed an LLC is the way to go.

Thoughts, feedback and advice are welcome. Thanks!

If you want your LLC to be paid, you're going have to get both the entity and yourself licensed.

Not a big deal for one state. It gets expensive if you have several.

 

[Matthew Labb]

If you want your LLC to be paid, you're going have to get both the entity and yourself licensed.

Not a big deal for one state. It gets expensive if you have several.

Exactly. If you want to be paid as a company (LLC) conducting business in one state, you have to be paid as an LLC conducting business in all states you write business in. For alot of agencies this adds up because they are writing business in dozens of states and need two licenses for each.

OP there's plenty of reason for wanting to open an LLC, especially if its affordable in your state.

We have agency owners in CA paying something like $600 a year to operate their LLC, that's a hefty price tag for a start up. Its also a pain in the but to get it set up in CA... but most of them choose the LLC route anyway.

In other states it will be $50 and take an hour to set up.

 

[adjusterjack]

To start, I wanted to create a company name/brand, more for marketing purposes (website, social media, etc...), so I assumed an LLC is the way to go.

A common misconception. No reason you can't build your brand under your own name. John Deere, Orville Redenbacher, Sara Lee, Charles Schwab, Frederick August Otto (FAO) Schwarz to name just a few.

Another misconception is the "protect my assets" thing.

The following is from 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, or monetarily damaged, 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.

And from NOLO:

To have the limited liability protection eliminated by the court you will have to show the following:

First, there must be a unity of interest between the Single Member LLC and its member. In other words, the injured party must show that the SMLLC is not really a separate entity from its sole member. The legal system has special phrases for this situation, such as that the business is a mere alter ego of its owner, or is a mere instrumentality of its owner.

Second, the injured party must show that piercing the limited liability veil is necessary to avoid either the perpetration of a fraud or an injustice. This usually means showing that the SMLLC owner was intentionally using the company to lie to someone or otherwise harm someone.

It's important to understand that both factors—unity of interest and fraud or injustice—need to be present in order for the SMLLC member to lose limited liability protection. Unity of interest, alone, without fraud or injustice, generally would not allow someone with a judgment against an SMLLC to gain access to the member's personal assets.

If you want an LLC, you are free to get one, just understand its limitations.

 

[scagnt83]

LLC provides basically zero protection to an insurance agent.

1. E&O covers claims against you if you screw up professionally.

2. You are personally indebted to the carrier for any chargebacks or debts you have to the carrier. Its part of the contract you sign.

So it provides no protection against lawsuits, because your E&O is your lawsuit protection.
And it provides no protection from the most likely creditor you will have as an agent.

* What it does provide is the ability to file taxes as an S-Corp and have a large amount of your income bypass self employment taxes. That is the main reason for an agent to form an LLC.

 

[DHK]

Only two areas of protection for an LLC:

1) If you recruit agents... and they have chargeback debt... it's limited to your LLC.

2) If you hire employees... and they sue you... it's limited to your LLC.

That's it.

And what @scagnt83 said.

Considering the costs of setting up the LLC, annual filing fees of the LLC, getting name approval for your LLC, and the costs of doing business in multiple states for your entity... it gets costly for very little actual benefits... particularly if you just want it for 'marketing purposes'.

 

[marindependent]

I agree in general with @scagnt83 that is LLCs can provide little protection for agents. And I agree with the two areas that @DHK outlined above. But... I think its more complicated that this and frankly an attorney would be the best place of advice on it.

Much of the value of having an LLC is really depended on what type of an insurance agency that you have. Hiring Employees, Having an Office, Advertising, Events - all of these are exposures that may raise the value of incorporating.

Another way to think of it is this - what could you be sued for that a regular business could be sued for that has nothing to do with being an Ins Agent?

 

[Todd King]

Okay, let's throw in another scenario with the LLC. What about renewals when you die? If you have a licensed partner with the LLC, then the renewals keep coming. What happens when you don't have anything like this set up?

 

[Travis Price]

You can ALWAYS convert to an LLC when your business needs the extra layer of protections from Todd and others.

If you don't want to manage people or have a partner, no need to do the LLC.

My website address is literally my name.

No one remembers Jenkins Family Insurance. You don't have the resources to brand your business like New York Life or AFLAC.

They remember Mr Jenkins, my insurance agent.

 

[Tahoe Ray]

Okay, let's throw in another scenario with the LLC. What about renewals when you die? If you have a licensed partner with the LLC, then the renewals keep coming. What happens when you don't have anything like this set up?

That and if the agency is being paid all of the commissions/renewals, it certainly makes it easier to sell at some point.