After years of trying, and months of negotiations with interested stakeholders, we are pleased to report that our sponsored bill, AB 687 (Daly; D-Anaheim) to allow limited liability companies (LLC) to operate as a real estate broker has moved through the Assembly Judiciary Committee and, yesterday, the Appropriations Committee, on bipartisan votes.

Real estate broker licensing was not extended to LLCs when other types of licensing were extended to LLCs over 20 years ago because at that time our industry standard was to operate as corporations.  Over time the business has shifted and now many companies within the real estate industry use LLCs extensively to hold and operate real property.  AB 687 updates the statute to reflect that evolution in the industry and allow brokers to operate as an LLC.

The Department of Real Estate thinks that the bill will be popular with licensees estimating that a third of California’s 130,000 licensed brokers would take advantage of law should it pass.

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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