The independent contractor as a corporation: Taking advantage of the law
Thursday, June 05, 2014
In one of my previous articles, I had referenced the concept of the independent agent's use of the corporate structure.
Numerous travel agencies make use of a host agency and, in so doing, become effectively the host's independent contractor. There are many good reasons to also consider use of the corporate structure by the individual agent. In fact, it often makes more sense from a liability standpoint of the independent contractor to exist as a corporation rather than as an individual.
In the regretful possibility of a lawsuit against the individual, it is quite possible to expose one's entire assets to a judgment. These scenarios are not that far-fetched. It may be the case of bad advice, incompetence, debit memos or a host of other lawsuit possibilities. It is often not the direct fault of the agent but of a supplier — perhaps, badly chosen.
This is, of course, another reason to use carefully-crafted waivers and assumption-of-risk language in all of one's contracts and advertising. Sometimes, the agent simply gets scammed as in the case of a fellow OSSN agent who was the target of a carefully-crafted credit card fraud now leading to nearly $100,000 in debit memos and credit card liability. Unfortunately, this is now a personal debt.
The use of a corporation in one of its various forms is good risk management practice. It will not eliminate the lawsuit or possible debt, but it will usually limit the risk to the assets of the corporation and not one's personal finances.
Good risk management practice also means not to place too many assets into the ownership of the corporate travel agency or corporate independent contractor. There have been several cases of travel agencies and corporate independent contractors that used the corporation as a holding company for numerous other ventures, such as the building in which the travel agency operated. When hit with a lawsuit, all of the corporate assets were exposed for collection.
If possible, it is always advisable to separate various business entities into their own corporate structure. That means the use of multiple corporate structures and leasing the office space of the agency from another corporation even if ownership of both the building and agency are effectively controlled by the same individual.
Of course, the reverse advantages are also true. Why expose the travel agency to the risks of a lawsuit against the building for an event that may have nothing to do with travel? In the case of a home office, one's house is generally protected by various homestead and bankruptcy laws, but why avail oneself of these in the first place? The cost of corporate formation in most states is generally well under $1,000, and that includes state fees and the corporate book.
Plan the risk management practices of your business as carefully as you would craft a wealthy client's dream itinerary. The extra time and cost will keep your business itinerary sailing smooth seas, and you won't need to avail yourself of the services of one of those late-night television bankruptcy attorneys.
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