Should I Start an LLC for My Tour Company?
Starting a limited liability company (LLC) for your tour company can provide several benefits.
Most importantly, an LLC structure offers limited liability to its owners, which can protect their personal assets from lawsuits and creditors.
For a tour company, lawsuits can arise from things like workplace injuries, accidental copyright infringements, and traffic accidents (while transporting your customers to a tour’s starting location).
LLCs are also affordable, highly flexible (from a tax point-of-view), and can make your tour company seem more credible.
Recommended: Use Northwest to form an LLC for $29 (plus state fees).
Do I Need an LLC for a Tour Company?
LLCs are a simple and inexpensive way to protect your personal assets and save money on taxes.
You should form an LLC when there's any risk involved in your business and/or when your business could benefit from tax options and increased credibility.
LLC Benefits for a Tour Company
By starting an LLC for your tour company,, you can:
- Protect your savings, car, and house with limited liability protection
- Have more tax benefits and options
- Increase your business’s credibility
Limited Liability Protection
LLCs provide limited liability protection. This means your personal assets (e.g., car, house, bank account) are protected in the event your business is sued or if it defaults on a debt.
Tour companies will benefit from liability protection because of the risk of being sued for personal injuries, property damage, libel, and more.
Example 1: While driving a group of customers to the next location of your tour, an employee accidentally passes a red light and causes a traffic accident. When two of your customers get injured, you respond by immediately firing your driver. Nonetheless, you find out that a lawsuit has been filed against your LLC, claiming that it had a duty of care to hire component, law-abiding drivers that would not recklessly endanger any customers. Regardless of how the lawsuit progresses, your personal assets will remain protected from the claimants as a result of your business’s LLC classification.
Example 2: You acquire a large business loan in order to purchase 10 new tour bicycles, as well as a transportation van for your customers. Since the loan was not personally guaranteed by yourself — and your business is registered as an LLC — the lending party will not be able to sue you personally if your tour company is unable to repay them.
Example 3: When one of your guides falls down and injures their left ankle during a tour, he asks you whether you could offer any compensation. You refuse, and as a result, a medical damages lawsuit is filed against your LLC. Regardless of how the case progresses, your limited liability protection will shield your personal assets from the claimant.
An LLC will also protect your personal assets in the event of commercial bankruptcy or loan default.
To maintain your LLC's limited liability protection, you must maintain your LLC's corporate veil.
LLC Tax Benefits and Options for a Tour Company
LLCs, by default, are taxed as a pass-through entity, just like a sole proprietorship or partnership. This means that the business's net income passes through to the owner's individual tax return.
The business’s net income is then subject to income taxes (based on the owner's tax bracket) and self-employment taxes.
Sole proprietorships and partnerships are taxed in a similar way to LLCs, but they do not offer limited liability protection or other tax options.
S Corp Option for LLCs
An S corporation (S corp) is an IRS tax status that an LLC can elect. S corp status allows business owners to be treated as employees of the business (for tax purposes).
S corp tax status can reduce self-employment taxes and will allow business owners to contribute pre-tax dollars to 401k or health insurance premiums.
The S corp status requires that the business pay the employee-owner(s) a reasonable salary for the work they perform.
In addition, the business might need to spend more on accounting, bookkeeping, and payroll services. To offset these costs, you'd need to be saving about $2,000 a year on taxes.
We estimate that if a tour company owner can pay themselves a reasonable salary and at least $10,000 in distributions each year, they could benefit from S corp status.
You can start an S corp when you form your LLC. Our How to Start an S Corp guide will lead you through the process.
Credibility and Consumer Trust
Tour companies rely on consumer trust. Credibility plays a key role in creating and maintaining any business.
Businesses gain consumer trust simply by forming an LLC.
A growing business can also benefit from the credibility of an LLC when applying for small business loans, grants, and credit.
Northwest will start an LLC for you for just $29 (plus state fees).
How to Form an LLC
Forming an LLC is easy. There are two options for forming your LLC:
- You can hire a professional LLC formation service to set up your LLC for a small fee
- Or, you can choose your state from the list below to start an LLC yourself
Select Your State
- Alabama LLC
- Alaska LLC
- Arizona LLC
- Arkansas LLC
- California LLC
- Colorado LLC
- Connecticut LLC
- Delaware LLC
- Florida LLC
- Georgia LLC
- Hawaii LLC
- Idaho LLC
- Illinois LLC
- Indiana LLC
- Iowa LLC
- Kansas LLC
- Kentucky LLC
- Louisiana LLC
- Maine LLC
- Maryland LLC
- Massachusetts LLC
- Michigan LLC
- Minnesota LLC
- Mississippi LLC
- Missouri LLC
- Montana LLC
- Nebraska LLC
- Nevada LLC
- New Hampshire LLC
- New Jersey LLC
- New Mexico LLC
- New York LLC
- North Carolina LLC
- North Dakota LLC
- Ohio LLC
- Oklahoma LLC
- Oregon LLC
- Pennsylvania LLC
- Rhode Island LLC
- South Carolina LLC
- South Dakota LLC
- Tennessee LLC
- Texas LLC
- Utah LLC
- Vermont LLC
- Virginia LLC
- Washington LLC
- Washington D.C. LLC
- West Virginia LLC
- Wisconsin LLC
- Wyoming LLC
For most new business owners, the best state to form an LLC in is the state where you live and where you plan to conduct your business.
Do LLCs Need Insurance?
All businesses need insurance to protect their business assets — even LLCs. This is because the limited liability protection from an LLC protects your personal assets, not your business assets.
Business insurance can protect your tour company’s assets (e.g., transportation vehicles, kiosk, etc.) against employment law, breach of contract, and negligence disputes. It can protect you if your business is ever accused of infringing a competitor’s intellectual property rights.
Common Situations Business Insurance May Cover for a Tour Company
Example 1: While using the restroom before a tour, a customer falls and breaks his wrist. General liability insurance would cover the injured customer’s medical expenses.
Example 2: You are overheard making negative comments about a competitor’s services and have been named in a defamation lawsuit. A general liability policy would cover your legal representation and court-awarded damages.
Example 3: You are considering expanding to a neighboring town and have applied for a loan. General liability insurance would help fulfill your lender’s liability insurance requirement.
Other Types of Coverage Tour Businesses Need
While general liability is the most important type of insurance to have, there are several other forms of coverage you should be aware of. Below are some other types of insurance all tour companies should obtain:
Commercial Auto Insurance
If you use a business vehicle on public roadways, state law requires you to carry a commercial auto insurance policy. This policy covers the cost to repair or replace third-party property, the company’s damaged vehicle, and any lost/damaged equipment. Because the state-mandated minimums leave many businesses underinsured, you are encouraged to discuss policy coverages at length with your insurance professional.
Workers’ Compensation Insurance
State law mandates that any business with employees must carry workers’ compensation insurance. This coverage pays medical bills stemming from an on-the-job injury and/or illness and a percentage of the employee’s lost wages when their injuries render them unable to work. If a related lawsuit arises, it also ensures the business owner is properly defended in court and covers awarded damages.
In addition to the policies outlined above, there are a few other types of coverage your tour company may require depending on certain aspects of your operations. Some of these might not apply to you, so be sure to ask your agent which policies are right for your business.
Commercial Property Insurance
If your business operates out of a commercial building, you will likely need to purchase a commercial property insurance policy. This policy covers both the structure of your property and any business property lost, stolen, or destroyed in a covered event.
Crime Insurance
Employee dishonesty, fraud, and forgery are specifically excluded from a standard business owner’s policy. Crime insurance provides coverage if a loss occurs due to criminal activity, reducing the chances of a gap in coverage.
Should I Start an LLC FAQ
Choosing the right business structure depends on your business’s unique circumstances and needs. However, unless your business is very low risk (like a hobby), an LLC is likely the better option.
Visit our LLC vs. Sole Proprietorship guide to learn more.
At a minimum, you’ll need general liability insurance, commercial auto insurance if your tours require vehicles, and possibly workers’ compensation insurance.
Read our Small Business Insurance article for more info.
Starting a tour company can be done on a relatively low budget, especially if you are running your business from your own home or through a small kiosk in the heart of your city.
A few items you will need include:
- Scheduling software
- A business website
- Business cards, flyers, and pamphlets
- Business insurance
Visit our How to Start a Tour Company guide to learn more about the costs of starting and maintaining this business.
Payroll, vehicle maintenance, and fuel are the main ongoing expenses. If you have a physical office, you will have lease payments, utilities, and related expenses.
Learn more about running a tour company.
Tour companies make money by charging clients for tours.
Learn more about starting a tour company.
Tour companies, through their guides, provide tours to people and groups and vacation destinations, usually by vehicle (car, boat, bus, etc.). Net profits depend on the total volume of clients, how many tours are fully booked, and overhead costs.
Learn more about starting a tour company.
