On a bipartisan 56-0 vote, AB 687 (Daly; D-Anaheim) passed the California State Assembly.  This bill will allow real estate brokers to incorporate as a limited liability company (LLC), in addition to a C or S corporation.

This is a measure that our industry has been pursuing for years, and the Department of Real Estate notes there is pent-up demand for this change in law, estimating more than 30,000 brokers would seek to incorporate as an LLC, which has become commonplace since first being introduced.

AB 687 updates the statute to reflect that evolution in the industry and allow brokers to operate as an LLC.  Enabling brokerage firms to form as an LLC will allow greater flexibility in management and operations which will be particularly helpful for smaller firms.

AB 687 also will enable a savings of both time and costs for these firms as operating as an LLC means more streamlined entity reporting and filing requirements than a corporation.

Finally, AB 687 will simplify taxation at the entity level as gains and losses are passed through and taxation occurs at the individual owner level.  Although Subchapter S corporations do offer the same income tax pass-through feature, limitations on number and types of owners and other restrictions make the Subchapter S vehicle less readily available.

The realtors have expressed concerns with several portions of the measure, and we hope to work with them to craft language that will allow the policy to move forward.

We thank Assemblymember Tom Daly from Anaheim for being our champion on this important policy change.  The bill will next be heard in the Assembly Appropriations Committee next week.

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