Is LLC Or Inc Better For Travel Agency Structure?

Added May 15, 2009 by Ilyce R. Glink and Samuel J. Tamkin

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Summary: When you decide to start your own travel agency, or any other business, you'll want to determine what kind of corporate structure to use and why. Attorneys and accountants can advise on the pros and cons of setting up a limited liability company (LLC) or incorporation. Both an LLC and a corporation can protect assets from creditors from a legal perspective. Accountants may advise you to choose an LLC or corporation for specific tax reasons.

Q: I have a very small travel agency I started last year. I incorporated it because I did not know how to handle it yet and I have since been told I should have made it a limited liability company (LLC). What is the best way to get this legal status changed or does it matter? The company only made $1,000 last year.

A: First, you need to determine whether a change in your corporate structure is necessary. Some accountants prefer a limited liability company (LLC) over a corporation for various reasons. They say that owners will have more flexibility with an LLC, the corporate structure is harder to handle, and LLCs are better for some owners for some tax purposes.

You need to find out what benefits you will obtain by having an LLC over your corporation. Your corporation didn’t make enough money last year to do much for you one way or another. If your gross income was $1,000 last year, the costs of closing down the corporation and setting up a new LLC may exceed the $1,000. If your profit was only $1,000 last year, again, your profits will go away with any change.

Ask your accountant to tell you how your business would be different if you had an LLC over the corporation you now have. You’d want to know whether you’d pay more or less in taxes, and whether there would be any longer-term benefits one way or another, if the business is a resounding success.

From the legal perspective, both an LLC and a corporation should shield your personal assets from creditors, if such entities are run properly.

If the protection of assets from creditors isn’t the issue, then there must be an accounting issue involved. You need to know what the issues are and how changing the corporation would affect them before you make any moves.

We suggest you start your research with a visit to your accountant, followed by a meeting with your attorney.

May 15, 2009

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