Q: I am planning to start up a small tour operation, focusing on adventure travel and unique and authentic travel experiences. My business will be Internet-based. Can you tell me the steps that I would need to take to become legal and the contracts that I would need to have? If I already own a retail agency, can I also use the agency to operate my tours?
A: In my law practice, there has recently been an explosion of similar questions. Young entrepreneurs entering into the travel industry are overwhelmingly choosing to operate tours of all kinds.
The tour business in the U.S. is largely unregulated. You do not need any federal, state or local licenses to run tours to any destination, although you may need state registrations to sell your tours.
If you do not already operate a travel agency, then the first legal step that you need to take is to have your business become a corporation or limited liability company (LLC). You can do this yourself by filing the appropriate forms at the website of your state government agency in charge of corporations, which is usually the office of the secretary of state.
The purpose of incorporation is to protect your personal assets from liability to clients and suppliers, in case your company cannot pay its debts. Every major travel company has taken this step, and I know of no reason why you should not do so, too.
For corporations, draft organizational minutes electing yourself as sole stockholder (or sole owner in the case of an LLC), director, president, secretary and treasurer, and adopt bylaws. You can find sample forms for minutes and bylaws by Googling "sample forms for ____ corporation" where the blank is for the name of your state.
Next, obtain a federal tax ID from the IRS. Then, do the same at your state government taxing authority. Learn about withholding taxes and due dates for all tax returns.
If you plan to sell travel to residents of California, Florida, Hawaii, Iowa or Washington, you should register as a tour operator in those states. California is stricter than the other states in requiring that your registration be effective before you sell to its residents.
Become familiar with the trust account, bond, letter of credit, solicitation and refund rules of those states, and comply with them in order to avoid penalties.
Most importantly, adopt a tour-participant agreement (also known as a disclaimer or terms and conditions) that is tailored to your needs as an Internet-based company and protects you to the maximum extent allowed by law. Require written contracts with each land operator that you use, requiring the operator to indemnify you against its acts or omissions. If you sell through retail agencies, adopt an agreement covering the retailer's duties and entitlement to commissions.
For the three agreements discussed above, consult an attorney experienced in travel law. Don't just copy another operator's forms.
Consider buying tour operator's errors and omissions insurance. It will protect you if you are sued for negligence, and it will cover your attorneys' fees.
If you already own a travel agency, then you should establish your tour operator as a separate corporation or LLC. Having separate entities will shield each from liability for the other's debts or errors.
Mark Pestronk is a Washington-based lawyer specializing in travel law. To submit a question for Legal Briefs, email him at [email protected].