Owning your own business - Limited Liability Company (LLC) - Part 3

Written by Posted On Wednesday, 01 February 2023 00:00

Part One: Sole Proprietorship

Part Two: Corporations

As a real estate sales licensee, or broker, you OWN your own business.

What business form have you chosen and why?

Often new licensees are attracted to the conversation and allure of the supposed tax advantages of some forms of ownership, before the new licensee is in a position to form an entity, separate from themselves.

What are the advantages and disadvantages of operating your business as a:

Sole Proprietorship

Corporation (C Corp)

Corporation (Sub Chapter S)

Limited Liability Company (LLC)

Limited Liability Company (LLC)

Legally, an LLC is a Partnership with the limited liability characteristics of a corporation.

LLCs are the newest and fastest form of business entity. They combine the tax advantages of partnerships, "Pass Through" treatment of income and expenses, along with the limited liability aspects offered through corporations.

LLCs are created in accordance with state law and owners are referred to as Members (as opposed to corporations where owners are shareholders). All states permit single Member LLCs, with no maximum numbers of Members. Members may be natural persons or entities.

LLCs offer centralized management, a defined life (drafted with provisions for termination), limited liability for members, and easy transferability of ownership. The LLC operating agreement can only be changed with all of the Member's consent.

Liability protection is one of the most important features of an LLC. All LLC Members are sheltered from liability for business operations and the actions of employees. Members risk losing only their individual investment in the business.

Taxation of an LLC

With "Pass through" treatment for taxation, an LLC pays no income tax at the business level. Profits or losses from the business are Passed Through to the Member's personal tax returns. An LLC only has to file a business tax return if it has more than one member, unlike an S Corporation. LLCs avoid the double tax aspect of corporations.

Unlike an S Corporation, in which the owner can be treated as an employee and receive a reasonable salary, the owner of an LLC is considered to be self employed and must pay the self employment tax on the entire net income of the LLC.

Advantages of an LLC

Pass through taxation - Avoids Double Taxation of Corporations

Limited Personal Liability

Flexibility in operation

Ability to raise funds

Useful for family business and estate planning

Repurchase and buy sell available

Disadvantages of an LLC

Significant variation in state laws

Not allowed in some states for certain professional vocations (A few types of businesses generally cannot be LLCs, such as banks and insurance companies. Check your state’s requirements and the federal tax regulations for further information. There are special rules for foreign LLCs.)

Members taxed as self employed and not as employees


Before you decide to set up an LLC for your real estate business, it is a good idea to consult with a CPA or a Certified Financial Planner about your business and personal goals and objectives. If you are not going to be able to take advantage of the benefits an LLC form of doing business brings, do not spend the money or time setting up an LLC as there is the set up costs, as well as the ongoing costs to maintain.

Also check with your licensing entity to make sure that the type of entity you establish is permitted by law to receive real estate commissions.


Rate this item
(2 votes)

Realty Times

From buying and selling advice for consumers to money-making tips for Agents, our content, updated daily, has made Realty Times® a must-read, and see, for anyone involved in Real Estate.