Mark Pestronk
Q: I am a home-based agent who is hosted by a large agency. My host is urging me to set up my own corporation or limited liability company so that I can have "limited liability." Do you think I should do so, and if so, why? What, exactly, does "limited liability" mean? Should I use an online service such as Legal Zoom?
A: Every at-home, self-employed travel professional should have his or her own corporation or limited liability company (the latter being an "LLC" for short).
There are two key advantages to doing so, and in most states, there are no real disadvantages.
The biggest advantage, by far, is the phrase that you quoted in your question: limited liability. It means that, if someone wins a suit and gets a judgment against your business, the most he can ever get his hands on is what your corporation or limited liability company owns, and not your personal assets such as your house or money in your name.
In other words, your liability (to the judgment holder) is limited to what the company owns.
For example, if you sign, in the name of your corporation or LLC, a hotel contract for 1,000 room nights, and the group pulls out, the most that the hotel can ever get from you is what is in your company's bank account and whatever else your company owns, which might well be nothing at all.
There are exceptions for activities that make you personally liable, such as fraud and failure to remit payroll taxes. In addition, certain creditors, such as your landlord and your host agency, might make you personally guarantee the company's obligation.
However, in general, you will no longer have to worry about losing everything you have if you make bad business decisions.
The second advantage, which is especially important for home-based agents, is that, by using a business name that ends in "Inc.," "LLC" or the like, your business will take on a more professional aura in the eyes of clients and suppliers you deal with. A group contract with "Bill's Travel" just doesn't have the polish that one in the name of "Bill's Travel LLC" would have.
The steps to set up a corporation or LLC are really easy. The setup can be done online at the website of the state government agency in charge of corporations, which is usually the secretary of state.
It is also fine to use a setup service like Legal Zoom, as it will walk you through key questions for you to consider and can refer you to an attorney in your state if you need one.
Once you are set up, be sure to use your company's full legal name in all correspondence, email signatures and contracts, as you will lose the protection of limited liability if the other party is not on notice of your corporation or LLC's existence. Be sure to keep required records and submit required filings.
There are a couple of disadvantages: under the California Seller of Travel Law, an independent contractor cannot be exempt from registration if the contractor operates as a corporation, LLC or partnership. Finally, some states' filing fees, upkeep fees and taxes are rather high.