LLC is an acronym for a business entity otherwise known as a Limited Liability Company, and the acronym PLLC is short for Professional Limited Liability Company. Both of these entity types are creatures of state law, originally created by the legislature of the state of Wyoming and now available in all 50 states. The people who are owners of these types of entities are called “Members”.
The IRS doesn’t recognize the LLC or PLLC as an entity for income tax filing purposes, so anyone who owns one of these must choose a filing status for their company to use when filing federal income taxes. This means when you have an LLC or PLLC, you must choose to file its federal income tax as a sole proprietorship (only available to single-member LLCs/PLLCs), a partnership (only available to multi-member LLCs/PLLCs), an S-Corporation (only available to LLCs/PLLCs with 100 or fewer members), or a C-Corporation.
Recently I was asked what the difference between an LLC and a PLLC was for a REALTOR®. To be honest, I had to do a little bit of research, because the laws in Tennessee have recently changed. It used to be that the people who could use the PLLC designation for their businesses were limited to doctors, lawyers, accountants, and architects. In the last few years though, real estate professionals were added to that list. But language put out by the Tennessee Association of Realtors seemed to conflict with my understanding of how PLLCs operate, so I contacted the Tennessee REALTORS® Legal & Ethics Hotline for clarification.
Clear As. . .Well. . .Mud
DISCLAIMER: This information was true and correct in November of 2022, but laws change and could make the information below no longer correct.
I explained some background first by reminding these nice people at the hotline (in case they didn’t know) that a PLLC has one advantage over the LLC: when 2 or more professionals of the same profession (2 lawyers, 2 accountants, etc.) are in a PLLC together, and one of the members commits malpractice, that malpractice does not spread over to the other member(s). In other words, the non-bad-actor is not financially liable for the bad actor’s malfeasance, even though they are both members of the same company. But in an LLC, that is not the case. In an LLC, when one person commits a bad act, the entire LLC entity is liable for that one member’s malfeasance.
I also wanted to know from the hotline folks if a non-licensed person could act as a Manager of a PLLC. Lots of REALTORS® have assistants who run the day-to-day operations of their companies, so I wanted to know how “official” this management position could be in a PLLC. Normally, LLCs and PLLCs can designate a person to act as an official Manager of the company (rather than be “Member-Managed”). That Manager can be a Member of the LLC but doesn’t have to be. LLCs are very flexible.
The hotline representative’s first response to my questions was that if REALTORS® want to open PLLCs for their businesses, they have to be the sole owner of that PLLC, meaning they cannot have a partner. They are only able to have a Single-Member PLLC.
This Does Not Make Sense
My first thought was, “Ummm. . .no. This doesn’t make sense.” The only advantage to having the P in that LLC is if you have a partner or a multi-member LLC. They didn’t answer the second part of my question regarding Managers of the company.
When I brought this conflict and the fact that they didn’t answer my second question to their attention, this is the second response I received:
Below is the statute:
62-13-315. Receipt of compensation of broker, affiliate broker, or other licensed person by business entity.
(a) A broker, affiliate broker, or other person licensed by the real estate commission may receive compensation directly to a business entity that:
(1) Is solely owned by that broker, affiliate broker, or other person; and
(2) Has been formed for the purpose of receiving compensation earned by that broker, affiliate broker, or other person for acts regulated by this chapter.
(b) A business entity formed for the purpose stated in subdivision (a)(2) is not required to be licensed under this chapter so long as the sole owner of the business entity is licensed by the real estate commission. [end of statute]
The term “solely,” as you said, likely means a PLLC would not be beneficial or practical.
The law is silent on a non-licensee managing the LLC, but the LLC would have been formed for the purpose of receiving compensation earned by the licensee and no other purpose so I do not believe the need for managers was contemplated.
In conclusion, it appears as though there’s zero point in REALTORS® opening PLLCs for their businesses, and whether they can have a non-licensed person act as a manager of their LLC is completely unknown.
So, there you have it. For real estate professionals in Tennessee, it still doesn’t make sense to open a PLLC for your business. And whether it makes sense to open an LLC is also suspect, because there’s always those dreaded Franchise and Excise taxes to worry about. If you want to know more about forming LLCs and PLLCs in Tennessee, Florida, New York, or Wyoming, feel free to fill out our INTAKE FORM and we’ll get back to you within 24 hours.