Mark Pestronk
Mark Pestronk

Q: I am just getting into business as a travel advisor and am in the process of setting up my own company that will be hosted by another agency. What are the most important steps I should take to avoid trouble with clients, suppliers and government authorities?

A:  You are part of a wave of self-employed new entrants into the industry. All of you need sound legal advice to avoid liability, as the travel business is inherently risky.

First, establish your business as a corporation or limited liability company (LLC) under the laws of your state, and become an employee of your company. Even if, as is common, you have been operating so far as a sole proprietor, it is not too late to take this step.

Follow your state's required formalities to maintain the validity of your company, such as adopting bylaws and filing annual reports. Keep your personal finances separate from those of your company and sign contacts in the company's name.

Taking these steps will help protect your personal assets from judgment creditors of your company as well as reduce your chances of being audited by the IRS if you file a separate business tax return. You will also appear more professional in the eyes of suppliers when you contract in your corporation or LLC's name.

Second, take steps to avoid being the victim of credit card fraud by clients, which is unfortunately all too common. If a supplier or host holds you responsible for a charge back, you generally have no defense if your contract imposes such liability on you. Your host may deduct the funds from your commission split, and in extreme cases, the host and supplier may stop doing business with you.

The best fraud-avoidance practices are found on ARC's website, and they are relevant even if you don't have your own ARC appointment. Go to www.arccorp.com and search "red flags."

Third, consider getting errors and omissions (E&O) insurance, which you may be able to purchase or get through your host. Although such insurance does not cover most things that get you into trouble, such as being victimized by credit card fraud, it will cover your legal fees, which could run into tens of thousands of dollars or more if you get sued for negligent advice.

Fourth, comply with the Seller of Travel registration laws of the states where your customers are located. There are five states with such laws: California, Florida, Hawaii, Iowa and Washington. As a hosted advisor, you may be exempt from registration, but you need to be certain.

Fifth -- and this is something you will hear only from me -- avoid booking on public websites. Use only the GDS or websites sanctioned by your host.

The trouble with public websites is that their terms and conditions make you waive your legal rights, and you bind your client to them by booking on the website for your client.

Sixth and most importantly, adopt a disclaimer for client's signature, your invoice/itinerary or your email signature. Models are available at www.pestronk.com/free.

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