Can I do business as a sole proprietor while I’m setting up an LLC?

QUESTION: I am interested in leaving my current firm and going out on my own. Ideally, I would like to make this change immediately, but I have not yet set up my own LLC. My friend, who is a broker, told me that I could be a sole proprietor while I set up my LLC, but she also said I could only receive referral fees or represent friends and family unless I designate myself as a BIC and I have not taken the 12-hour class yet. Can you help me out?

ANSWER: First of all, our answer to your question assumes you meet the Real Estate Commission’s experience requirements to be a BIC. If you don’t meet those requirements, it will be very difficult for you to start your own firm. The Commission’s rules do generally require a sole proprietor to designate himself or herself as a broker-in charge. There is an exception to this requirement if the sole proprietor does not: (i) deposit and maintain monies belonging to others in a trust account, (ii) engage in advertising or promoting his or her services as a broker in any manner, or (iii) have any brokers affiliated with him or her in the real estate business. If you don’t fit into the exception to the BIC requirement, you’d need to designate yourself as BIC of any sole proprietorship you may choose to establish.

However, a broker can designate himself or herself as BIC of a sole proprietorship immediately and take the 12-hour BIC class within 120 days following the designation, so you would not need to limit your brokerage activities for any period of time. By the way, the Real Estate Commission offers the 12 hour BIC course across the state multiple times a month.

It does not take very long to set up an LLC, get it licensed with the Commission, and designate yourself as the Qualifying Broker and BIC. You might consider staying with your current firm until the LLC is up and running rather than going through a transitional phase as a sole proprietor. For example, if you entered into a listing agreement while you were operating as a sole proprietor and later began operating the LLC, you’d need to amend the listing agreement to reflect the change in the form of your business.

Your friend was thinking of the exception to the requirement that sole proprietors name themselves as BIC of their proprietorship. Although a broker could conceivably engage in general brokerage as a sole proprietorship without designating himself/herself as BIC, the exception to the BIC requirement primarily benefits brokers who are not active in the business but want to keep their license on active status so they can receive referral fees and perhaps do an occasional transaction.

Release Date: 5/10/2018

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