Illinois LLC or Corporation for Real Estate Agents

Illinois law lets a sponsoring broker pay an agent's commission to a business entity that the agent solely owns, and that entity does not need a real estate license. The rule is in Section 10-20(e) of the Real Estate License Act of 2000 (225 ILCS 454), and it applies only when the entity was formed for the purpose of receiving the compensation the licensee earned. Nothing in that subsection forces you to form one. If you want to know how to choose your first brokerage, that decision comes first, because the sponsoring broker is the one who decides how your pay is handled and what the written agreement says.

This guide covers the state side only. It walks through what the License Act says about paying an entity, what the Illinois Limited Liability Company Act and the Business Corporation Act require to register one, and what the state expects of it every year afterward. It does not cover tax, and it is not legal advice. An attorney, a tax professional and your sponsoring broker confirm how any of this applies to you.

What the License Act Says About Paying an Entity

Start with the rule that surprises most new agents. A licensee in Illinois may perform activities as a licensee only for the licensee's sponsoring broker, and may have only one sponsoring broker at any one time. Those rules are in Section 10-20(a). The same section requires the sponsoring broker to have a written employment or independent contractor agreement with each licensee it sponsors. The agreement has to address the terms of the relationship, including supervision, duties, compensation and the termination process.

So the starting point is a contract between you and your broker, not between your company and your broker. The Act speaks of the licensee throughout, and when it allows an entity into the picture, it does so as an exception to that basic structure.

The exception for a solely owned entity

Section 10-20(e) opens with the words "" It then says the sponsoring broker may pay compensation directly to a business entity solely owned by that licensee that has been formed for the purpose of receiving compensation earned by the licensee. The word is "may." The subsection gives permission. It does not create a duty for the broker to agree, so whether your broker will pay an entity is a question for your broker and your written agreement.

The same subsection answers the licensing question. An entity that receives compensation this way is not required to be licensed under the Act. It must be owned solely by the licensee. There is one other ownership pattern allowed. The entity may be owned by the licensee together with the licensee's spouse, but only if the spouse and the licensee are both licensed and sponsored by the same sponsoring broker, or the spouse is not also licensed. A spouse who is licensed under a different sponsoring broker does not fit either pattern.

Notice what the subsection does not do. It says "business entity" and it does not list entity types. It does not name an LLC, a corporation or anything else, so this guide cannot tell you that one type qualifies and another does not. The LLC and the corporation both appear below because both are common ways to set up a business in Illinois, and the Act's wording does not rule either one out. If the type matters to your situation, ask the attorney who sets up the entity to read Section 10-20(e) with you.

Why the other compensation rules still matter

Section 10-20(e) is a narrow door, and the rest of Article 10 still stands around it. Section 10-5(b) says a licensee sponsored by a broker shall not accept compensation for performing activities under the Act except from the broker who sponsors the licensee, "except as provided in this Section." Section 10-15(a) says no compensation may be paid to an unlicensed person in exchange for performing licensed activities in violation of the Act. Section 10-15(b) adds that nobody can bring a court action for compensation for licensed acts unless that person was duly licensed at the time the acts were done.

Read together, these rules point one way. Section 10-20(e) lets your earned pay go to an entity, and it says nothing that replaces the license. The licensed activity is still yours, done under your sponsoring broker, and Section 20-20(a)(15) lists performing licensed activities for a broker other than your sponsoring broker as a cause for discipline. Section 20-20(a)(38) lists paying or failing to disclose compensation in violation of Article 10 as another. The Department of Financial and Professional Regulation may reprimand, suspend, revoke or fine up to 25,000 dollars per violation under Section 20-20(a). Our guide to Illinois Real Estate Referral Fees and Compensation Rules goes through the rest of Article 10, including who may pay whom.

The Act defines compensation broadly. Section 1-10 says it means valuable consideration given in exchange for an activity or service, and the list includes commissions, referral fees, bonuses, a retainer fee and salary. Because the definition is that wide, treat anything of value that moves because of licensed work as compensation until a professional tells you otherwise.

Forming an Illinois LLC, Step by Step

The Limited Liability Company Act (805 ILCS 180) is the statute that governs an Illinois LLC. Its steps are short, and each one comes from a specific section.

Who can organize one and what the articles say

Section 5-1 says one or more persons, other than natural persons under 18, may organize an LLC by executing and delivering articles of organization to the Secretary of State. The organizers do not have to be members. Signing the articles is an affirmation, under penalty of perjury, that the facts stated in them are true. An LLC must have one or more members, so an agent who owns the company alone is a one-member LLC. The statute also says the LLC is a legal entity distinct from its members.

Section 5-5 lists what the articles of organization must contain. There are seven required items:

• The purposes for which it is organized, which may be stated as any or all lawful businesses.
• The name of its registered agent and the address of its registered office.
• A confirmation that the company has one or more members, or will have on the date a delayed filing takes effect.
• The name and business address of all managers and any member who has the authority of a manager.
• The duration, which is perpetual unless the articles say otherwise.
• The name and address of each organizer.

The articles may also carry other provisions the members choose, as long as they are consistent with law. The LLC exists when the Secretary of State files the articles, or at a later time stated in the articles that is not more than 60 days after filing. The company can change its articles later.

The name rules

Section 1-10 sets the naming rules, and they are specific. The name must contain "limited liability company," "L.L.C." or "LLC." It may not contain "Corporation," "Corp.," "Incorporated," "Inc.," "Ltd.," "Co.," "Limited Partnership" or "L.P." It has to be distinguishable, on the Secretary of State's records, from other LLC names, foreign LLC names, reserved names, registered assumed names and corporate names.

The Secretary of State decides whether a name is distinguishable. Section 1-10(f) says a name is not distinguishable solely because it adds "limited," "liability" or "company," or because it differs only by articles, conjunctions, contractions, abbreviations, or a different tense or number of the same word. A name that differs from an existing one only by those small changes is not treated as distinguishable.

A reserved name costs 25 dollars to apply for under Section 50-10. That section puts the filing fee for articles of organization at 150 dollars, and 400 dollars for a series LLC. The Secretary of State's forms and fee schedule are the place to confirm the current figures before you file.

Trade names and the assumed name process

Many agents want to market under a name that is not the exact LLC name. Section 1-20 handles that. To use a true assumed name, the LLC files an application that states its true name, its state of organization, its intent to do business under the assumed name and the name it proposes to use.

The right to use an assumed name lasts from filing until the first day of the anniversary month in the next calendar year divisible by five. Renewal happens through an election on the annual report, in the 60 days before expiry, with a fee. The consequences of skipping the process are written into the statute. A company that puts forth a sign or advertisement using a name other than the one under which it is organized or authorized is guilty of a petty offense, with a fine of not less than 501 dollars and not more than 1,000 dollars, and each day of continuing violation counts as another offense.

The registered agent

Section 1-35 requires every LLC to continuously maintain a registered agent and a registered office in Illinois. The agent has to be an individual resident of Illinois or another person authorized to transact business in the state. If the agent resigns, the resignation takes effect no sooner than 30 days after the notice is filed, and a new agent has to be on record within 60 days after the resignation notice. Changing an agent or registered office address with the state costs 25 dollars under Section 50-10.

Forming an Illinois Corporation

The Business Corporation Act of 1983 (805 ILCS 5) works differently, and the differences show up in the paperwork. A corporation has incorporators, shares, directors and officers. An LLC has organizers, members and managers.

Section 2.05 says one or more incorporators may organize a corporation, and each must be a corporation or a natural person at least 18 years old. The articles of incorporation under Section 2.10 must state the corporate name, the purpose, the address of the initial registered office and the name of the initial registered agent, the name and address of each incorporator, and how many shares of each class the corporation may issue. They must also state how many shares it proposes to issue without a further report to the Secretary of State and the consideration it will receive for them. Section 1.10 says the incorporators sign the articles, and that reports required by the Act go on forms prescribed and furnished by the Secretary of State.

The name rule differs from the LLC rule. Under Section 4.05, a corporate name must contain, as a separate word or abbreviation, "corporation," "company," "incorporated" or "limited." Like an LLC name, it must be distinguishable on the Secretary of State's records from other corporation names and from LLC names. A corporation must also keep a registered office and a registered agent at all times under Section 5.05.

After the articles are filed, Section 2.20 describes the organizing steps. The initial directors then meet to adopt by-laws if the shareholders have not, and to elect officers. The notice of an organizational meeting must be written, at least three days ahead, unless the people entitled to it waive that notice in writing.

This guide gives no corporation filing fee, because the fee section of the Business Corporation Act was not among the pages read. The Secretary of State's current forms list it.

Keeping the Entity in Good Standing

Forming the entity is a one-time step. The annual report is the recurring one, and missing it has a named consequence.

The annual report

Under Section 50-1, an LLC files an annual report that lists its name, its registered agent and registered office, its principal place of business address, and the name and business address of all managers and any member with the authority of a manager. It is made on the Secretary of State's form and signed by a manager, or by a member the members designate if there is no manager. The report and its fees are due within the 60 days immediately before the first day of the anniversary month. The anniversary month is the month in which the articles of organization were filed. The LLC annual report fee is 75 dollars, plus a penalty if it is delinquent.

A corporation has a similar duty under Section 14.05, with more to report. Its annual report lists the registered office and agent, the principal office, the names and addresses of directors and officers, the shares authorized and issued by class, and the paid-in capital in dollars, plus a statement used for the annual franchise tax. Section 14.10 sets the same timing, which is the 60 days immediately before the first day of the anniversary month.

What happens if you miss it

The Secretary of State may dissolve an LLC administratively under Section 35-25 if it fails to file its annual report and pay the fee before the first day of the anniversary month. Other listed grounds are failing to pay other fees or charges, failing to maintain a registered agent, misrepresenting a material matter in a filing, not answering the Secretary of State's interrogatories, and a returned payment that is not replaced. Section 12.35 gives a corporation a parallel list, and its first ground is failing to file the annual report and pay the franchise tax before the first day of the anniversary month.

Dissolution has a direct effect on how the company can act. Under LLC Section 35-3, a dissolved LLC continues only for the purpose of winding up its business, with the exceptions that section lists. Reinstatement of an LLC costs 200 dollars under Section 50-10.

Now connect that to the License Act. Section 10-20(e) lets your broker pay "a business entity solely owned by that licensee that has been formed for the purpose of receiving compensation." Putting the annual report deadline on your own calendar is the way to keep that question from coming up.

What the entity does and does not change

Section 10-10 of the LLC Act says the debts and liabilities of the company are solely the company's, and a member or manager is not personally liable solely by reason of being or acting as a member or manager. The next subsection narrows that. It says the protection does not limit personal liability imposed under other law, including agency law, contract law and tort law, or court-imposed remedies such as piercing the company veil. It says a member or manager may be liable under other law for his, her or its own wrongful acts or omissions, even when acting or purporting to act on behalf of the company.

For a licensee, that last point matters. The License Act's duties attach to your license, and Section 20-20 lets the Department discipline a licensee for violations. Section 10-10(c) does add that failing to observe the usual company formalities is not a ground for imposing personal liability on members or managers for the company's liabilities, but only for liabilities of the company.

The entity also does not change who is responsible for supervision. Section 10-20 puts the licensee under the sponsoring broker's written agreement, and Section 10-20(d-5) says that where the agreement clearly establishes an independent contractor relationship, the Act's specific provisions control the licensee's conduct of brokerage activities. The brokerage agreement is the document the Act ties to your conduct, so read it closely before you start.

A short comparison from the statutes

• Who forms it: LLC, one or more organizers, not natural persons under 18. Corporation, one or more incorporators, 18 or older if a natural person.
• What it is called in the filing: LLC, articles of organization. Corporation, articles of incorporation.
• Who runs it on paper: LLC, managers and members. Corporation, directors and officers.
• Name must include: LLC, "limited liability company," "L.L.C." or "LLC." Corporation, "corporation," "company," "incorporated" or "limited," or an abbreviation.
• Registered agent: required for both, continuously.
• Annual report: required for both, due in the 60 days before the first day of the anniversary month.

The sources are silent on which one is better for a licensee, and this guide does not rank them. Cost, tax treatment and the sponsoring broker's preferences all sit outside what the statutes say. Our guide to Taxes for Illinois Real Estate Agents: 1099 and SE Tax covers the tax side, and a tax professional can say how an entity changes it.

A worked example

Picture a newly licensed agent who plans to form an LLC called Maple Street Home Services LLC and asks the sponsoring broker to pay commissions to it. The steps run in order. The agent reads the independent contractor agreement with the sponsoring broker, since Section 10-20(c) requires one. The agent confirms the name is distinguishable on the Secretary of State's records and that it carries "LLC." The agent names an Illinois registered agent and a registered office, signs the articles of organization as organizer and files them with the filing fee. Once the articles are filed, the agent tells the sponsoring broker the entity exists, and the broker decides whether to pay it under Section 10-20(e), since the Act says "may." The agent then marks the annual report window on a calendar, which opens 60 days before the anniversary month.

If the agent wanted to market as "Maple Street Realty," that would need a separate assumed name filing under Section 1-20. Skipping that filing is the kind of mistake that carries the fine described above.

The Bottom Line

You do not have to form an entity to work as an Illinois agent. The License Act requires a license, a sponsoring broker and a written agreement. It then lets that broker pay compensation to a business entity that you solely own, or that you own with a spouse under the narrow rules in Section 10-20(e), if the entity was formed to receive what you earned. The entity needs no license, and the broker is not required to pay it.

If you do form one, the state side is a defined list. No source read for this guide shows a separate Rockford or Winnebago County rule for forming one, so state law controls.File the articles, keep a registered agent, file an assumed name application before you advertise under another name, and file the annual report in the 60-day window before your anniversary month so the Secretary of State does not dissolve the company. The tax decision, the choice of entity type and the question of whether your broker will pay it are all for a tax professional, an attorney and your broker. When you are comparing brokerages, ask each one how it handles pay to an entity, and read how to choose your first brokerage before you decide. Our Illinois Real Estate Guide: Every Gambino Realtors Article lists every guide in this series, from Gambino Realtors, in business in Rockford since 1923.

That covers the rules in order. Here are the questions agents ask most often before they file anything.

Frequently Asked Questions