Has someone told you that it would be a good idea to set up an LLC for your real estate business?
Hopefully that someone was your accountant or attorney, but even if it wasn’t, they aren’t necessarily wrong. But did they give you any details beyond “set it up?” Do you know why or how? The PAR Legal Hotline gets many questions from members who have established a business entity for themselves. So many questions, in fact, that we’ve created an FAQ document for our members to reference when deciding whether a qualified association is right for them.
Yes, I said “qualified association,” which is the name for a business entity created and owned by one or more real estate salespersons or associate brokers for receiving and paying compensation. The QA is the exception to the rule prohibiting receipt of payments from anyone other than one’s broker. If the broker is willing to pay out to a QA (some are not!), section 604 of RELRA specifically allows the payment of compensation to a QA by a broker and the receipt of compensation by an associate broker or salesperson from a QA in which they own an interest.
But a QA isn’t just any old business entity that you set up; there are specific rules that make a QA … well, qualified. A QA must:
- Be one of four specific types of business entities.
- Be incorporated or organized under state law.
- Not hold a real estate license.
- Not advertise itself as providing real estate or real estate-related services.
- Be owned only by licensees affiliated with the same broker.
Simply creating your LLC is not the end of the process! The owners of the QA must register it with the State Real Estate Commission. The commission will want details on the QA ownership and will, if approved, issue an association number and then the owners may start to receive and distribute payments through the QA.
More questions? Download the FAQ and you’ll get the answers. And while the PAR FAQ is a great place to start, PAR strongly recommends that you obtain advice from tax, financial and/or legal experts before establishing a qualified association.