Insurance brokers can run their business in a number of legal forms. Often these are individual companies. In such a case, liability cases or the question of the takeover of the company by a successor are of great relevance. The conversion of the individual enterprise into a suitable company can be regarded as an advantageous alternative in several respects. Thus, the income tax of the shareholder can be significantly optimized either with a GmbH or a partnership, such as a GmbH & Co. KG. The general manager’s salary also plays a special role. In addition, a company facilitates the purchase or sale of existing customers. And with a holding company as the parent company for the operating company, an insurance broker can take advantage of even more advantages. In this way, the assets of the operating company can be transferred from their liability shell to the holding company. You pay only 1.5% tax. In addition, the purchase and sale of companies through a holding company is significantly more advantageous.

Many insurance brokers operate a sole proprietorship. That had been the case before, and that has hardly changed over time. There are certainly some aspects that suggest an evaluation of this form of company in the context of a comparison to other alternatives. For example, in the case of inheritance, the transfer of the company is already challenging in terms of the customer base alone. Also the question of liability should always be considered here. Finally, in the event of a claim, a considerable liability can arise with an insurance broker.

It is basically very easy to tailor a new legal dress to such a sole proprietorship. In this way, an insurance broker receives several potential advantages – tax, as well as others. For this reason, in this article we explicitly devote ourselves to design consulting for insurance brokers.

However, there are some important points to consider in the business optimization for insurance brokers. On the one hand, the requirement of authorisation as an insurance broker or as a company dealing with it must always be met. For this purpose, the managing director must be licensed as an insurance broker in a company.

In addition, one should also be able to answer the question of the best possible design of company succession. Because the transfer of a customer base can actually only take place according to the provisions of the General Data Protection Regulation with the express approval of the customers.

This also involves considering what should happen to the company of an insurance broker in the event of an inheritance. In the case of a sole proprietorship, the impact is serious, at least with regard to existing customers and their insurance coverage. In addition, potential heirs would have to comply with all provisions according to § 34d GewO, at least with regard to the professional license as an insurance broker. Otherwise, upon the death of the insurance broker, the insurances he has taken out will lose their validity. Such customer bases have their value. But without positive regulation of legal succession, this value is lost for the heirs.

If an insurance broker wants to give his sole proprietorship to a suitable successor, then this can be arranged in advance. However, this also results in the same consequence with regard to the data protection consent for the data transmission of customers.

Another important aspect of design consulting for insurance brokers is asset protection. Because the assets accumulated in a company could be affected in a loss case. In the case of insurance brokers in particular, this may entail significant obligations to remedy a claim. It does not matter in which legal form an insurance broker operates the company. However, since there are alternatives that offer protection of assets, this idea of optimization is also quite appealing for insurance brokers.

Finally, there are still very tangible tax reasons why an insurance broker should strive for an optimization within the framework of a targeted design. Because by choosing the appropriate form of company, you can save taxes as an insurance broker in many respects. Be it taxing his annual income or optimizing his financial security in old age. But even when buying another or selling your own company, an insurance broker may save taxes if he designs his company accordingly.

Also of tax relevance is the question of the integration of private institutions with operational purposes in the company. Especially when using real estate, a so-called business split can occur. For example, this is the case if an insurance broker uses an office in his home as part of his business. Even if such a division of operations may exist for years without any tax consequences, there may be an extension of the taxable base to the private share in the event of a transfer or conversion of the company. So here, too, there is much to support, especially the tax optimization for insurance brokers.

The most important approach to all the previously considered considerations is to consider which legal form is the most favorable in which constellation. There are two potential alternatives to the sole proprietorship, namely the partnership and the corporation. Because these are the most common representatives, we use the GmbH as a corporation and the GmbH & Co. KG as a partnership. On the one hand, this is due to the fact that both can also be founded as partners with only one natural person, so that a simple change from individual company to company is open. On the other hand, the change of legal dress is also easily possible in both cases.

The GmbH offers insurance brokers several advantages. Firstly, as a manager, one can influence the taxation of the company in the context of the assessment for corporate tax and business tax via a manager’s salary. As a deductible operating expense, the managing director’s salary reduces the company’s taxable profit – sometimes even considerably. At the shareholder level, however, the insurance broker pays both taxes on the executive salary and on the dividend. However, an annual income of about EUR 60,000 is generally considered a lower limit for a tax advantage of the GmbH over a sole proprietorship or partnership.

You can refrain from a profit distribution for the time being, so that the profits remain in the company. They can then be used, for example, to buy further company shares. In comparison, a sole proprietor usually has to make such an acquisition with his already taxed private assets. Thus, he has significantly less financial resources than a GmbH.

Furthermore, the sale of the company in the form of a GmbH is advantageous over a sole proprietorship. Because if an insurance broker wants to sell the customer base established in his sole proprietorship, there is basically the obligation for the buyer to obtain consent from each individual customer to transfer his personal data to him. However, since in practice, despite the immense effort involved, this proves to be pure wishful thinking, this depresses the selling price. In the case of the transfer of company shares to a GmbH, however, this data protection obligation is waived. Because the GmbH is a legal person. It therefore remains unchanged as the actual contracting party; It only belongs to someone else after the sale.

Another essential point is the protection of the insurance broker’s private assets in the event of damage. Because if the private assets and the company assets are separated, only the latter is available for the satisfaction of claims of third parties. However, an insurance broker as a sole proprietor is always liable with his entire assets.

The advantages of GmbH & Co. KG are similar to those of GmbH, although there are certain differences. In order to understand this, we point out that in our view the insurance broker should be a shareholder and the GmbH as a full shareholder of this partnership. This also gives a separation of private assets from that of the company. More precisely, the assets of the full-fledged GmbH, but in which the assets, and thus the liability mass, can be limited to the legally required minimum share capital of EUR 25,000.

Although there is now also a legal basis for partnerships to consolidate profits in the company, it has only rarely led to practical implementation. The reason for this is the high administrative burden. Therefore, the legislator has recently carried out a revision of these requirements, so that the implementation is much easier. However, it remains to be seen whether the economy also makes use of this possibility.

An insurance broker receives a tax advantage by choosing a GmbH & Co. KG instead of a GmbH as a legal form for his company if his annual income is less than EUR 60,000. Because then his personal tax rate leads to a lower taxation than if the profit of the company flows to him as a dividend.

A disadvantage is again the sale or acquisition of a customer base via a GmbH & Co. KG. This is because there is an obligation to comply with the General Data Protection Regulation when passing on customer data.

In contrast, the inheritance or gift of a GmbH & Co. KG does not represent a special hurdle, provided the successor also has an authorisation as an insurance broker.

If an insurance broker has chosen a legal form for his company, the establishment of a holding company as an asset management parent company may also be considered.

First on the tax advantages of a holding company: An insurance broker may view a holding as a savings box for the future. Be it to acquire further companies with the assets accumulated there, or to enjoy the fruits of work at retirement age using tax benefits, the holding makes it possible. In principle, it receives the dividend from its operating subsidiary, if it is a GmbH, tax-free. Only 1.5% of taxes are then incurred at holding company level. Furthermore, the holding company – also with a tax of only 1.5% – can sell operative GmbH tax-advantageously.

But asset protection is also a fundamentally important advantage of the holding company. Because if the profits remain in the operative GmbH year after year, then an insurance broker has left the assets built up by his work to the GmbH in the long term. And there it is thus also in the liability envelope of society. So in a liability case, the property is quite touchable.

A regular transfer of the profits of operative GmbH to the holding company, however, withdraws the assets before access to compensate for possible claims for damages.

Another advantage that the holding company has to offer an insurance broker is the acquisition of real estate for use within the operating company. If the holding company establishes a pure Immobilien-GmbH for the purpose of acquiring and managing such a property, then indirect tax advantages may apply. This involves the deduction of rental costs on the part of operative GmbH. This can deduct the rent as a deductible operating expense from the tax. Immobilien-GmbH, on the other hand, can save trade tax through the so-called extended land reduction. Depending on the amount of the levy on the business tax of the municipality in which the company operates, about 15 % of the tax would be saved on the amount of the rent if the rent were not a deductible operating expense.

If an insurance broker now wants to transfer his sole proprietorship to a GmbH & Co. KG, he must first set up a GmbH. They are needed to fulfill the role of general manager in the future KG. Then the insurance broker together with the newly founded GmbH, which he or she usually heads as shareholder-managing director, founds the GmbH & Co. KG. For this purpose, the insurance broker invests his sole proprietorship in the newly created partnership. The insurance broker, who may now also lead the GmbH & Co. KG, is usually a limited partner. The deposited sole proprietorship is now added to his capital account. This ensures that he is liable only with the assets he deposited, namely the former sole proprietorship. This has established the desired liability protection for the insurance broker on a private level.

As far as the distribution of profits is concerned, however, it is possible to regulate the shareholders’ shareholding in such a way that the insurance broker is entitled to up to 100% of the shares in the partnership. However, it should be noted that Komplementär-GmbH also has its own running costs, which should be covered by a share of the profit.

Finally, a few words about the transformation of a sole proprietorship into a GmbH. More specifically, this process is called an input. In practice, there are two possibilities. Either you set up the GmbH as a capital in kind by bringing the sole proprietorship into the new GmbH instead of the legally prescribed share capital. However, an expert report must confirm the value of the sole proprietorship, which must correspond at least to the minimum share capital of EUR 25,000 required by law. The second option provides for the regular establishment of the GmbH by transferring the share capital to the GmbH. Once this has been done and all other legal and practical hurdles overcome, the second step follows. Because then you bring the up to then parallel existing sole proprietorship by capital increase in the GmbH.

In both cases, the conversion of a sole proprietorship is tax-neutral. But an insurance broker must also observe a blocking period of seven years. Within this period, one should refrain from a sale or another type of transfer of the GmbH in order to maintain tax neutrality. Otherwise, a tax is subsequently incurred on the value of the sole proprietorship, as if it had been sold to the GmbH. However, this applies only for the period remaining from the blocking period. The years that have already passed within the blocking period are counted as a tax-neutral time-proportionate deduction in taxation.

If you have placed it under a holding company as a subsidiary within the blocking period when founding the GmbH, then you must also observe a seven-year blocking period for the holding company.