Page 71 - The UnCaptive Agent

44 THE UNCAPTIVE AGENT

really a form of legal organization but means that you
simply operate in your own name. You file taxes as an
individual. You don’t even require a separate Federal
Employer Identification Number (EIN). While it’s easy,
simple, and cheap to start this way, it isn’t very practical
for the long-term, as it provides no shield from business
liability. Additionally, your business credit becomes con-
fused with your personal credit. Finally, many insurance
carriers don’t like to contract with sole proprietorships.
The next choice is a partnership. (Obviously, this is
only a choice to make if you have one or more partners.)
The advantages of partnerships are that they are easy to
form and inexpensive to get started. The disadvantages
include the disadvantages of a sole proprietorship. The
most important of which is that you have no limit on
personal liability, but you now have more people who
can create liability for you. Very few agencies operate
as a partnership.
Another option is to form a corporation. A corpo-
ration limits your personal liability. A corporation is
a separate legal entity. A corporation has a life that is
not limited by the life of its owner or owners. There
are many kinds of corporations. The two most com-
monly used for insurance agencies are what are called
a C corporation and an S corporation. Most insurance
agencies that are organized as corporations elect the
Sub-chapter S designation, which allows tax losses and
gains to flow through to the tax return of the corpo-
ration’s owners. In other words, there is no so-called
“double taxation” in a Subchapter S corporation. Sub S
corporations have only one class of stock and no more
than thirty-five shareholders. C corporations, on the
other hand, pay taxes at the corporate level, and then
stockholders (owners) pay taxes again personally. This
so-called “double taxation” can increase the overall tax