Getting Your Agency Licensed the Right Way

The following article was based on a pre-produced video by Senior Marketing Specialists called Agency Licensing; the Right Way. To view this video, you may view it below or find it on our training website; Senior Marketing Specialists University.

Many agents understand that there are different ways to license your agency; including sole proprietorship, partnership, limited liability corporation (LLC), or S and C Corporations. However, many people do not understand the differences between these types of licenses, or which one is the best fit for their agency.

The two most common by far are LLC and S Corporations. So why file for one or the other?

There are multiple reasons why we suggest to agents to go ahead and set up a corporate or agency appointment with carriers. The first reason is for personal tax purposes, as accountants typically recommend that you keep your personal taxes separate from your business taxes. In addition, it also protects your commissions and your business this way.

The second reason is for succession purposes. At a certain point in your life you may reach a moment where you no longer wish to stay in the industry. For example, let’s say you decide to retire. It will be much easier, and sometimes required, to have your appointments set up as an agency or corporation. Some carriers require this in order to sell your business.

What happens if you are currently licensed as an individual, but would like to set up an LLC or S Corporation later down the line?

In a perfect world, we would always suggest that it is best to set this up right at the beginning of your insurance career. If you were to go ahead and set up as an individual and then decide to change it later, it would be a multi-step process and sometimes very lengthy. It involves recontracting for all of your carriers to the agency’s name, moving all of your commissions, and then moving your clients. For some carriers this is easy and automatic, and for others it isn’t. It can sometimes involve individual letters being mailed to every client you have, which is what creates a longer processing time.

What is the difference between an LLC and an S Corporation?

A Limited Liability Company (or LLC) provides the limited liability features of a corporation (meaning your personal assets will be protected) and the tax efficiencies and operational flexibility of a partnership. An LLC is a “legal” name or status, it is not the way your company is taxed.

On the other hand, an S Corporation is designed to avoid the double taxation drawback of regular C corporations. S corporations allow profits, and some losses, to be passed through directly to owners’ personal income without ever being subject to corporate tax rates. So basically, you will not be taxed as an individual and then again as a corporation.

What is best for your agency?

In the past, we have had some specific carriers who have been very particular about the type of agency that you set up. Anymore, over the last several years, we do not currently have any carriers that have a preference between an LLC or S Corporation. It is now personal preference, based on the way you would like to file your taxes. The only thing carriers do require is for your agency to have it’s own separate Tax Identification Number (TIN) from the agent’s social. Carriers will not allow you to contract your agency if your company does not have a separate TIN.

To see more helpful tips on how to properly set up your agency, visit our training site, Senior Marketing Specialists University.

For additional information, give us a call at (800) 689-2800! We would love to hear from you!

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