Limited Liability Companies and Realtors, Summer 2012

Limited Liability Companies and RealtorsSUMMER 2012

Definition

A limited liability company (LLC) is an unincorporated business association, a cross between a partnership and a corporation that combines the most favorable attributes of both. The LLC has been designed to provide business owners and managers with a partnership’s flexibility and tax advantages and a corporation’s protection against personal liability.

The Michigan Limited Liability Company Act (LLCA), MCL 450.4101 et seq., was adopted in April 1993 and took effect June 1 of that year, thus making Michigan the first industrial state in the country to have an LLC act.

Benefits of a LLC

• Almost complete flexibility to structure the entity in the way they desire

• Like partnerships and S corporations, the LLC will be treated as a pass-through entity for income tax purposes and will not be subject to income tax at the entity level.

• Owners’ limited liability.

Benefits of a LLC

• The LLC’s owners are known as members and those running the business are known as managers. Neither are personally liable for the LLC’s debts, liabilities, and obligations.

• Continuity of life• Free transferability of interests

Ownership

An LLC is owned by members, who own membership interests which may be evidenced by membership certificates.Members can be:• An individual• A partnership• A corporation• Another legal entity, including an LLC

FORMATION

www.Michigan.gov/lara

Navigate to “Commercial Services”Navigate to “Online Services”Navigate to “Business Entity Search”

FORMATION

www.Michigan.gov/lara

Navigate to “Commercial Services”

• Single Member or Multi-Member• Member managed or (hired) Manager

managed• Operating Agreement

– Purpose– Powers & Decision Making– Distributions– Dissolution & Buy/Sell

FORMATION

Maintain the Limited Liability Provided by the LLC

“Piercing of the corporate veil”• Use of the mere instrumentality

of the entity to conduct business;• Use of the entity to commit a

fraud or wrong; and • An unjust loss or injury to another.


• Was the LLC properly capitalized?• Did the LLC maintain appropriate records

and bank accounts?• Did the LLC keep its funds separate from

those of the owners?• Did the LLC keep appropriate

documentation for any transactions between the owners and the company? e.g. “loans”


Were actions clearly taken by the LLC and not the owner in an individual capacity?• LLC must appear when using name• Sign all documents in representative

capacity

Distributions to Members

LLC distributions are to be allocated among the members in the manner provided in the operating agreement or if the agreement is silent in equal shares to all members.

Distributions from an LLC are prohibited if, after giving them effect, either:• The LLC would not be able to pay its debts as they

become due in the usual course of business • The LLC’s total assets would be less than the sum of its

total liabilities plus the amount that would be needed if the LLC were to be dissolved

Uses in the Context of Real Estate

An LLC has the power to:• Purchase • Mortgage• Sell; and• Lease

Real and personal property in connection with any lawful business purpose.

The transfer of more than 50 percent of the membership interests of an LLC holding real estate will amount to a transfer of the ownership of the real estate itself for real property tax purposes and will release the constitutional cap on real property taxes in Michigan.

Uses of LLC for Realtors ?

• Set up a single member LLC for the benefits described above and have the broker pay all future commissions to the LLC.

• The LLC then makes a disbursement to the salesperson.

Real Estate Licensure Law

NO!Real Estate License Law prohibits a broker from paying a fee, commission or other valuable consideration to an unlicensed person or entity. MCL 339.2512(h).

The Real Estate License Law specifically prohibits a real estate salesperson from accepting a commission or valuable consideration for licensed activity from anyone other than the broker with whom the salesperson is affiliated. MCL 339.2510.

Real Estate Licensure Law

A broker license shall be issued to a legal entity only if theindividual who holds the broker license is identified on theapplication as 1 of the following:

(a) A sole proprietor.(b) A partner in the partnership.(c) A partner in a limited partnership.(d) An officer for the corporation.(e) A member or manager for the association.(f) A holder of a responsible position of authority in any other legal entity authorized by the state of Michigan under which the business is organized.

Associate broker and salesperson licenses shall only be issuedto individuals.

Michigan Administrative Code R 339.22201

Questions

Presented by:

T. SCOTT GALLOWAY

GALLOWAY AND COLLENS, PLLC

26075 WOODWARD AVENUE

SUITE 200

HUNTINGTON WOODS, MICHIGAN 48070

(248) 545-2500

GALLOWAYCOLLENS.COM

OUT FROMUNDERMYHOUSE.COM

[email protected] The content of this handout and the accompanying presentation are for informational purposes only. The information presented does not create an attorney-client relationship and is not intended to provide legal advice. As the law is constantly evolving and each case is fact

specific, you should contact a qualified attorney to review and analyze the facts and law as they relate to your individual circumstance.