Choosing a Legal Structure for your Agency:
There are three categories to investigate when determining your business organization: sole proprietorship, partnerships and corporations. While a sole proprietorship is the least expensive and easiest to create, it carries a risk of personal liability for the owners. Partnerships and corporations can afford further protection for the owners, but require more paperwork and expense to create. The Illinois Department of Commerce and Economic Opportunity has provided a step by step guide to help you with starting your business. The Internal Revenue Service (IRS) is also a great source to find information on starting your own business, operating the business, and tax information.
Obtain a Business Entity License:
For sole proprietorship, Producer Licenses are issued to the individual. For partnerships and corporations must have a separate business entity license.
Create a Business Plan:
A business plan is vital in determining the credibility of any new business opportunity. Carrier prospects for appointments and E&O insurance providers will require a formal business plan. The business plan consists of a narrative, résumés and several financial worksheets. View a sample business plan and business feasibility checklist here.
Obtain Tax Identification Number (TIN):
The IRS requires a TIN for all entities. This number is used in the administration of tax laws. If your agency is organized as a sole proprietorship, your social security number is your tax identification number. If your agency is organized as a partnership or corporation, you are given a Federal Employer Identification Number (FEIN).
Secure Errors & Omissions (E&O) Insurance:
Prior to being appointed with an insurance company, you need to get E&O coverage. When completing an E&O application for the new independent agency, include information on any business you are bringing with you or use estimations and predictions of the business you plan to write over the next 12 months.
The E&O carriers will also require a business plan and résumé.
The IIA of Illinois offers excellent E&O coverage from a variety of professional liability carriers. Members have access to E&O coverage at a reduced cost. Contact the IIA of Illinois at
(217) 793-6660 for details.
Obtain a Producer Bond:
Any person who holds a producer license is required, by statute, to carry a producer bond. The bond amount is $2,500 or 5% of the premiums brokered in the previous calendar year (whichever is greater) but not to exceed $50,000 total aggregate liability. In addition, the agency must maintain an entity bond unless it is a sole proprietor with no producers.
The IIA of Illinois offers an extremely affordable producer bond for only $15. Click here for details.