Any form of one-owner business entity now permitted under Section 10-20(e)
by Jeffrey T. Baker, Illinois REALTORS®
Associate General Counsel & Director of Legal Services
Governor Rauner recently signed legislation that is meant to clarify the guidelines regarding the types of entities that licensees may use to directly receive compensation under the Illinois Real Estate License Act. The bill signed by the Governor was the result of negotiations between Illinois REALTORS® and the Department of Financial and Professional Regulation.
Historically, the Act stipulated in Section 10-20(e) that a licensee may elect to use a “corporation solely owned by that licensee” to receive compensation earned by that licensee from their sponsoring brokerage company. For many years, debate has circled that provision of the Act and whether the word “corporation” was to be interpreted strictly, in that only lawfully incorporated corporations would be permitted, or rather whether the word could be read to mean any form of lawful business entity.
Illinois REALTORS® was ultimately successful in persuading the Department that given the prevalence of other, more convenient business forms, the Act should be amended to specifically permit more than one type of business entity. As a result, licensee’s may now choose any form of “business entity” to be directly compensated by their sponsoring broker, so long as the licensee is the sole owner of that entity.
As stated above, the language requiring the business entity to be “solely owned” by one licensee remains the same. Also, it’s important to remember that in relation to licensed activity, these entities, no matter their form, can only receive compensation derived from licensed activity directly from the sole owner-licensee’s sponsoring broker. What this means is that the entity itself cannot be engaged in licensed activity on its own behalf. The current regulations accompanying Section 10-20(e) still provide that these entities may not pursue their own license or employ or sponsor their own licensees. However, the regulations do provide that an entity formed for the purposes set out in Section 10-20(e) may engage in business activity that is not considered real estate licensed activity.
Illinois REALTORS® approve of department initiative on branch licenses
The bill signed by the Governor also included changes to branch office requirements that was initiated by the Department and approved by Illinois REALTORS®. According to the Department, the Governor’s administration is searching for ways to simplify state-run licensing programs and to eliminate unnecessary layers of bureaucracy. One of the Department’s targets was the separate branch office license that every sponsoring broker is required to obtain for each of their separate office locations. The Department proposed, and Illinois REALTORS® approved, a legislative effort to eliminate the branch office license. Instead, the new provision would simply require sponsoring brokers to provide regular notice to the Department of their various office locations and to display the one sponsoring broker’s license in each of the locations. All of the rules for branch offices, with the exception of the separate license, remain the same.
Both of these legislative changes become effective on January 1, 2019. Illinois REALTORS® is continuing to work with the Department in anticipation of the effective date to formulate accompanying regulations and official guidance materials for licensees. As these materials become available, they will be disseminated to all Illinois REALTORS® members.