The document discusses the benefits and formation of limited liability companies (LLCs) under Michigan law. It summarizes that LLCs combine favorable attributes of partnerships and corporations by providing owners protection from personal liability while allowing flexibility in structure. However, the document notes that real estate license law prohibits brokers from paying commissions to unlicensed LLCs, as that would circumvent the requirement that commissions only be paid to licensed individuals.

1. Limited Liability Companies and Realtors
SUMMER 2012

2. 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.

3. 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.

4. 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

5. 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

6. FORMATION
www.Michigan.gov/lara
Navigate to “Commercial Services”
Navigate to “Online Services”
Navigate to “Business Entity Search”

7. FORMATION
www.Michigan.gov/lara
Navigate to
“Commercial Services”

8. FORMATION
• Single Member or Multi-Member
• Member managed or (hired) Manager
managed
• Operating Agreement
– Purpose
– Powers & Decision Making
– Distributions
– Dissolution & Buy/Sell

9. 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.

10. Maintain the Limited Liability
Provided by the LLC
• 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”

11. Maintain the Limited Liability
Provided by the LLC
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

12. 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

13. 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.

14. 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.

15. 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.

16. Real Estate Licensure Law
A broker license shall be issued to a legal entity only if the
individual who holds the broker license is identified on the
application 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 issued
to individuals.
Michigan Administrative Code R 339.22201

17. Questions

18. 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
Scott@GallowayCollens.com
Disclaimer
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.