CHOOSING THE RIGHT BUSINESS STRUCTURE FOR YOUR AGENCY by Lindsay Sexton, AgencyFocus + Aaron Stocks, PFS Global
Your entity type and tax election affect how you pay yourself, how much you owe in taxes, how you keep your books, and even how your agency looks when you compare it to others. It’ s incredibly important to choose the entity type that matches your agency’ s goals and sets you up for success.
This guide explains the three most common structures for independent agencies: LLC, S-Corporation, and C-Corporation. You will learn how each one works, the strengths and weaknesses of each option, and when it makes sense to transition as your business grows. We also cover why comparing your numbers to another agency with a different structure can lead you to the wrong conclusions.
UNDERSTANDING THE BASICS
There are two layers to every business structure:
• The legal entity you form with your state.
• The way the IRS taxes that entity. Corporations and LLCs are legal entities, then S corporations and C corporations are tax classifications. Many companies misunderstand this distinction, which leads to confusion later when they try to compare themselves to others.
• An LLC can be taxed as a sole proprietorship, partnership, S corporation, or C corporation.
• A corporation will be taxed as a C corporation by default or can elect to be taxed as an S corporation.
4 KANSAS INSURANCE AGENT & BROKER