If you’re starting a travel agency, or you already have one, you may be ready to form a limited liability company (LLC). LLCs offer many benefits including personal liability protection, pass-through taxation, and management flexibility.
If you’re currently running your travel agency as a sole proprietorship, the biggest drawback is that you do not have personal liability protection. If, for example, a client sues you due to an issue with their vacation, your personal assets are at risk. That’s why many travel agency owners choose to operate as an LLC.
But how do you start an LLC? In this article, you’ll find a step-by-step guide to forming an LLC for your travel agency.
Sites like How to Start My LLC also offer many tips, including how to start an LLC for your travel agency in specific states.
Choose Your LLC Name
Your travel agency name is the identity of your business, so choose wisely. You want something unique and easy to remember but that also says what you do. Brainstorm some names and then ask your family and friends what they think.
Be sure to check your state’s LLC name regulations to make sure your names comply.
Once you have a few name options, you’ll need to make sure they’re available to use. Start by going to your state’s relevant website, usually the Secretary of State’s website, and do a search for the name.
Then you’ll want to visit the U.S. Patent and Trademark Office website to find out if the name is trademarked nationally.
Finally, you’ll need to find out if the domain name that you want is available. You can go to a site like GoDaddy to check.
Most states will allow you to go ahead and reserve the name to make sure that no one else takes it before you get your LLC formed.
Select a Registered Agent
Nearly all states require that you have a registered agent for your LLC, which is a person or company authorized to accept official correspondence on behalf of your travel agency. You can be your own registered agent, but that requires you to be available during normal business hours at your registered address to accept correspondence in person.
To appoint someone else, you’ll first need to check your state’s registered agent requirements. Generally, a registered agent must be at least 18 years of age and have a physical address in the state, or be a company authorized to do business in the state.
Many travel agency owners find it beneficial to hire a national registered agent service to act as their registered agent. They can ensure that you’re notified of important correspondence in a timely manner so that you can stay in compliance with any requirements of the state.
Choose a Management Structure
LLCs can be managed in two ways. They can be member-managed, meaning that all members, who are the owners of the LLC, will be involved in the day-to-day operations of the travel agency.
Alternatively, the LLC can be manager-managed, which means that not all members are involved in the management of the LLC and/or that an outside manager who is not a member will manage the LLC.
Some states require that you specify your management structure when you officially form your LLC with the state.
File Your LLC Document with Your State
In most states, the document you file to officially form your LLC is called the articles of organization, but in other states, it’s called a certificate of organization or a certificate of formation.
In almost all states, you can file this document online, usually on your Secretary of State’s website.
The information required on the document varies by state, but at the very least, it will require your travel agency’s LLC name and address and your registered agent’s information.
Some states also require member or manager names and addresses.
Fees for filing the document vary by state and range from $40 to $500.
Create an Operating Agreement
A handful of states require that you have an operating agreement for your LLC, but most do not. However, it’s a very important document that defines the ownership percentages of the LLC, and how profits and losses are distributed, as well as the roles and responsibilities of the members or managers.
It also contains important provisions about how decisions are made, how member disputes are settled, and how ownership of the LLC can be transferred.
If you own your travel agency with partners, you can see how important it is to have this document in place.
You can find operating agreement templates online or obtain one from an online service like ZenBusiness for a modest fee, but it’s often best to have an attorney’s help when drafting your operating agreement. You’ll want to ensure that all members’ interests are protected.
Choose Your Tax Status
One of the great things about an LLC is that you can choose how your LLC will be taxed. By default, if you are the sole member of the LLC, your travel agency is taxed as a sole proprietorship. This means that the business itself is not taxed. All profits or losses are passed through to you to be reported on your personal tax return.
If your travel agency has multiple owners, the LLC is taxed as a partnership, which again, means the LLC is not taxed, and all profits and losses are passed through to the members based on their ownership percentages.
However, at some point, it may be beneficial for you to have your LLC taxed as an S-Corporation or a C-Corporation. The most common selection is an S-Corporation, which still offers pass-through taxation. The advantage of an S-Corp status is that profits from the LLC are not subject to self-employment taxes.
If your LLC is taxed as a sole proprietorship or partnership, on the other hand, profits are subject to self-employment taxes.
S-Corp status, however, requires that managing members be paid a salary, which brings added administrative costs. Generally, this means that an S-Corp status will only be beneficial when your travel agency reaches a level of income that makes the self-employment tax savings higher than the additional administrative costs.
The decision on tax status is best made with the help of your tax advisor.
Apply for an EIN
Finally, you’ll need to obtain an Employer Identification Number (EIN) for your LLC. You’re required to have one if your travel agency has employees or if your LLC has more than one member. The EIN allows the IRS to identify your business for tax purposes.
You can easily apply for an EIN for free on the IRS website.
Starting an LLC for your travel agency has many benefits, most importantly, the personal liability protection that it offers. Forming an LLC with your state is not difficult, but be sure to follow all the steps so that you don’t run into any issues that could affect the success of your travel agency. If you need help, consult with your attorney and tax advisor so that you get your business off on the right foot.