A majority of real estate agents work independently as self-employed business people and are connected with an authorized real estate broker. There are different business entities that a real estate agent can select from. This paper offers an analysis of a sole proprietorship and a limited liability corporation and recommends the best entity for a real estate agency business.
A sole proprietorship is a single owner entity and is not a separate legal entity. The proprietor is in sole charge of operations and owns all the business assets, even though the proprietor can hire workers. It is simple and cheap to legally form a sole-proprietorship as it only requires a permit, a normal license and other legal requirements in the locality. A sole proprietorship offers a pass-through taxation and the proprietor does not file an isolated tax return for the entity as the business and the owner are one for purposes of taxes. However, the entity owner is personally liable for liabilities and debts (Cooper et al., 2016).
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A limited liability company offers the tax attributes, informality, and flexibility of a partnership and a corporation’s limited liability. A limited liability company limits the personal liability of the owner for lawsuits and debts. Regarding taxation, the business does not pay tax; instead, the tax credits, deductions, losses, and profits that the business incurs are passed through to the individual tax returns of the owner (Cooper et al., 2016) .
A sole proprietorship entity is an excellent choice for a person who operates as an independent contractor as it is simple and less costly. Nevertheless, the main disadvantage is that a sole-proprietorship does not offer limited liability.
A limited liability company offers the owner a higher level of limited liability for lawsuits and business debts. It is also easier to operate and form, and requires less legal bureaucracies. However, if the business lacks adequate assets to pay for a lawsuit against it, the personal assets of the owner can be taken. Besides, a limited liability company owned by a single owner is taxed like a sole-proprietorship
Thus, as a single real estate agent, it is recommended to select a sole-proprietorship entity over other entities due to its simplicity and inexpensiveness considering that as a single owner in a limited liability company you will still be personally liable for debts and lawsuits and you will still be taxed just like in a sole-proprietorship.
Reference
Cooper, M., McClelland, J., Pearce, J., Prisinzano, R., Sullivan, J., Yagan, D., ... & Zwick, E. (2016). Business in the United States: Who Owns It, and How Much Tax Do They Pay?. Tax Policy and the Economy , 30 (1), 91-128.
