Producer License Vs Business Entity License

[chicagotom2345]

This is a bit of a technical question.

I am planning out my path to being fully licensed. Class starts on Monday morning.

This question relates to Illinois, but I'm sure it's similar in other states.

IL has two types of licenses. One types is a producer license ($180/2 yrs) the other is a business entity license ($150/2 yrs).

I know I need a producer license but I want to run my business as a corporation (for liability reasons and tax-related reasons). On the producer license form it asks for business entity information. Do I need to get both licenses if I want to act as a corporation or do I just need to fill in the info on my Producer License app?

Can someone clarify the difference between the two.

I am guessing the producer license is only if you want to work for a company or if you are a sole proprietor and I need to do both forms, but I want to be sure.

 

[VolAgent]

Here is a non-technical answer. Call the state. Any advice you get here will almost certainly be wrong.

It amazes me how people continue to ask very technical questions on here that really only the state department of insurance can answer.

 

[LDMik]

Each state maintains its own Department of Insurance (DOI) with its own unique requirements and regulations however; in most instances, if you are planning to conduct business under the corporation name, the corporation will need to be licensed as a business entity. The entity license requires a designated producer (agent) who holds the same lines of authority - in this case, it would probably be you. This goes for resident and non-resident individual and entity licenses; the lines of authority you request in any state must also be held in your resident state.

Also, the corporation will be required to register with the Secretary of State (SOS) in every state where it will conduct business and there will be subsequent compliance requirements - annual filings and returns - that must be handled diligently. In many states, the registration with the SOS must be obtained prior to the approval of the license request at the DOI. Keep in mind that even in the states where the SOS registration is not a prerequisite to the issuance of an entity license from the DOI, the SOS still requires that the corporation maintains their registration and compliance if conducting business in their state.

Failure to maintain compliance with either of these regulatory agencies can and will lead to fines, administrative actions and even license revocation.

 

[DHK]

What liability reasons?

You are (will be) a fully licensed agent and are responsible for your actions and recommendations. You will have NO ADDITIONAL PROTECTION for your business.

The additional protection comes in when you have an AGENCY and you have more licensed agents working for your corporation. THEN you can protect yourself from the negligence of your other agents.

Tax advantages? Yes. Liability protection? Nope.

 

[chicagotom2345]

Here is the answer I got from the state:

"If you are transacting business in IL under the agency name and receiving commissions in the name of the agency you need to obtain a business entity license."

So to answer my question, if you want to operate as a corporation you need both licenses (at least in IL).
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Each state maintains its own Department of Insurance (DOI) with its own unique requirements and regulations however; in most instances, if you are planning to conduct business under the corporation name, the corporation will need to be licensed as a business entity. The entity license requires a designated producer (agent) who holds the same lines of authority - in this case, it would probably be you. This goes for resident and non-resident individual and entity licenses; the lines of authority you request in any state must also be held in your resident state.

Also, the corporation will be required to register with the Secretary of State (SOS) in every state where it will conduct business and there will be subsequent compliance requirements - annual filings and returns - that must be handled diligently. In many states, the registration with the SOS must be obtained prior to the approval of the license request at the DOI. Keep in mind that even in the states where the SOS registration is not a prerequisite to the issuance of an entity license from the DOI, the SOS still requires that the corporation maintains their registration and compliance if conducting business in their state.

Failure to maintain compliance with either of these regulatory agencies can and will lead to fines, administrative actions and even license revocation.

Thank you for the great answer. You make a really great point that there is a lot of extra complexity involved with acting as a corporation.

I would also add that even if I am a licensed producer in a state, and I have a business entity license, and my corporation is authorized to transact business, that may not be all the requirements as some states have state-level business licenses (Nevada for example) that each business entity must have.

This on top of all the periodic legal paper and accounting paperwork.

Again, this is just the sort of answer I was looking for. Thank you again.
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What liability reasons?

You are (will be) a fully licensed agent and are responsible for your actions and recommendations. You will have NO ADDITIONAL PROTECTION for your business.

The additional protection comes in when you have an AGENCY and you have more licensed agents working for your corporation. THEN you can protect yourself from the negligence of your other agents.

Tax advantages? Yes. Liability protection? Nope.

A company does more than just sell insurance. If I operated in an isolated bubble your statement may be true. What if I host a promotional event where someone comes on stage and hurts himself? I could be liable. If acting as a corporation, the corporation (unless I did something really wrong) is liable. Incorporating in a business-friendly state like Nevada (where the corporate curtain has been upheld 99.9999% of the time) I will never be liable.
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After asking for some more clarification, the state told me that it's basically based on the tax ID number. If it has a tax ID number, it needs registration. So if you are a sole proprietor with a DBA from the county and you use your SSN for taxes, all you need is the producer license. If you have a FEIN for your business then it needs the business entity license.

 

[DHK]

A company does more than just sell insurance. If I operated in an isolated bubble your statement may be true. What if I host a promotional event where someone comes on stage and hurts himself? I could be liable. If acting as a corporation, the corporation (unless I did something really wrong) is liable. Incorporating in a business-friendly state like Nevada (where the corporate curtain has been upheld 99.9999% of the time) I will never be liable.

Will you own the building where you will hold such a promotional event? Wouldn't the event coordinator/host have such things for you to sign and pay for to "insure" the event?

In this business, your biggest liability is your customer - and their claims whether you acted in their best interests and disclosed all material facts on your recommendations.

When a customer has a complaint regarding your professional conduct... they go after YOU - regardless of any other legal structure you've created. Why? Because YOU are licensed and are acting under that license.

My suggestion? Contact an attorney that specializes in asset protection and business organization. Specifically for the financial services industry.

 

[chicagotom2345]

Will you own the building where you will hold such a promotional event? Wouldn't the event coordinator/host have such things for you to sign and pay for to "insure" the event?

In this business, your biggest liability is your customer - and their claims whether you acted in their best interests and disclosed all material facts on your recommendations.

When a customer has a complaint regarding your professional conduct... they go after YOU - regardless of any other legal structure you've created. Why? Because YOU are licensed and are acting under that license.

My suggestion? Contact an attorney that specializes in asset protection and business organization. Specifically for the financial services industry.

Look I appreciate your response to my thread. I agree with you that the biggest liability is the customer. There is no question about that -- and you make a very good point.

My point is only that there exist other liabilities. I think we can spend years discussing any and every potential liability. In fact it might take longer because we'll never be able to list them all. The point is they exist and the corporate form is designed to insulate those.

My example was exaggerated to make a point. I could in theory buy insurance for everything that could possibly happen but it would cost much more than incorporating. I could also be careful and hope that I fall into the 95% of agents that will at no time have any serious problems. Those are pretty good odds and so I would never say every agent needs to create a complex legal structure. It's just something that I personally prefer.

Now I do have an undergrad degree in accounting. I am also in law school. I also did take a couple business law classes in college. Now, I'm not saying this qualifies me as an expert or even qualified to give advice -- but it does make me feel confident enough to design a corporate structure in institute it.

The question of whether or not to incorporate has to be made by the individual person. My dream is to build a full-service financial planning company (that includes among other things some forms of insurance like life insurance -- that's why I'm here). I think for me incorporating is a positive step. If however I wanted to sell insurance over the phone and never leave my home office , incorporating might be a waste of time.

Again, thank you for responding to my point. I would love to hear if you disagree with me because this sort of discussion is extremely helpful.