Starting a professional real estate company in California requires more than just market expertise and strong negotiation skills—it demands careful legal and financial planning. One of the most critical decisions you’ll make is choosing the right business entity, as it impacts liability, taxes, and overall operations. This article breaks down the key considerations for real estate professionals and explores the various business structures available in California to help you make an informed choice.
Business Entities Available in California
California real estate agents and brokers have a variety of business entity options to select from, each with its own advantages and disadvantages. The most common options include:
1. Sole Proprietorship
Overview: A sole proprietorship is the simplest and most common structure for independent real estate agents. It requires no formal registration beyond obtaining the necessary licenses.
Benefits:
- Easy to set up and maintain
- Minimal regulatory requirements
- Direct control over business decisions
Limitations:
- Unlimited personal liability for debts and lawsuits
- Limited options for raising capital
- Taxed as personal income
Best for: Independent agents or small-scale real estate professionals who want minimal administrative burdens.
2. Partnership (General and Limited)
Overview: A partnership involves two or more people running a business together. It can be a general partnership (GP) or a limited partnership (LP) where some partners have limited liability. Real estate brokers can form general partnerships inadvertently by doing business together but licensed brokers cannot be formed as partnerships.
Benefits:
- Shared financial investment and risk
- Pass-through taxation (profits/losses reported on personal tax returns)
Limitations:
- General partners have unlimited personal liability
- Disagreements between partners can affect business operations
- A formal agreement is recommended to outline roles and responsibilities
Not recommended for: Real estate teams or investment groups.
3. Limited Liability Company (LLC)
Overview: An LLC combines the flexibility of a partnership with the liability protection of a corporation. It is a popular choice for real estate investors but is not available for real estate agents and brokers’ licensed activities.
Benefits:
- Limited liability protection for owners
- Pass-through taxation (avoiding double taxation)
- Flexible management structure
- Fewer compliance requirements than corporations
Limitations:
- Higher formation costs than sole proprietorships or partnerships
- Subject to California’s annual LLC tax ($800 minimum franchise tax)
- Ownership transfers may be complex
Best for: Real estate investors seeking liability protection with flexibility. Not allowed for the profession of real estate.
4. Corporation (S-Corp and C-Corp)
Overview: A corporation is a separate legal entity from its owners, providing a level of liability protection. Real estate professionals often choose between an S-Corp or a C-Corp.
Benefits:
- Limited liability for owners
- Potential tax advantages
Limitations:
- Complex formation and regulatory requirements
- C-Corps face double taxation (corporate and personal tax)
- S-Corps have ownership and shareholder restrictions
Best for: Licensed real estate firms or professionals, especially those with multiple agents or employees.
Strategy Law: Experts in Business and Entity Formation
One of the most important choices for California real estate agents is choosing the appropriate business structure. Sole proprietorships are straightforward but do not provide liability protection. Although partnerships offer potential for resource sharing, they also carry legal dangers. LLCs are not permitted for California real estate licensees. Despite their complexity, corporations are best suited for real estate professionals.
At Strategy Law, our expertise in business and entity formation ensures that your new venture is structured efficiently and compliant with all legal requirements, allowing you to focus on growth and development.
This blog is written as of April 2025. Recommendations and legal requirements are changing rapidly, so please continue to review our legal updates or review postings on relevant government websites.
All blogs on this site are for educational purposes only, do not constitute legal advice or opinion, and should not be applied to your situation, or any specific situation, without consultation with counsel. Strategy Law, LLP does not provide any legal advice concerning any matter discussed in a blog except upon formal engagement including, without limitation, execution of Strategy Law, LLP’s formal legal services agreement, and with respect to specific factual situations. No blog constitutes a guarantee, warranty, or prediction regarding the result of any legal matter discussed in the blog or any representation.
