Can a Tennessee LLC use the corporate exemption to sell its own real estate without a broker's license, and what happens if the person doing the selling is paid through profit distributions?

Subject

Opinion No. 14-27, Exemption from the Real Estate Broker License Act, March 6, 2014

Plain-English summary

The chair of the Tennessee Real Estate Commission asked the AG three questions about a specific exemption from the broker licensing requirement. The Real Estate Broker License Act of 1973 generally requires anyone who "for a fee, commission . . . or any other valuable consideration" solicits, negotiates, or attempts to negotiate real estate transactions to hold a broker's license. The Act carves out a narrow exemption in Tenn. Code Ann. § 62-13-104(a)(1)(F) for "a corporation, foreign or domestic, acting through an officer duly authorized to engage in a real estate transaction, where the transaction occurs as an incident to the management, lease, sale or other disposition of real estate owned by the corporation." The exemption is hedged: it does not apply to an officer who performs the brokerage acts as a "vocation" or for compensation "dependent upon, or directly related to, the value of the real estate."

Question 1: does the corporate exemption extend to LLCs? No. The AG read the statute literally, citing earlier AG opinions that had treated LLCs as distinct from corporations in other statutory contexts (AG Op. 11-83 on the Tennessee LLC Act, and AG Op. 98-053 on a criminal statute referring to "corporations"). A Tennessee LLC trying to sell its own real estate through a member or officer therefore must be licensed under the Act.

Question 2: if a member or officer's primary responsibility is performing brokerage acts on the entity's behalf, does it matter how they are paid? No, the exemption already fails. The AG defined "vocation" using Black's Law Dictionary (a "person's regular calling or business"), citing English Mtn. Spring Water v. Chumley for the dictionary-driven approach to undefined statutory terms. If brokerage acts are the officer's primary responsibility, the officer is performing them as a vocation, and the vocation prong of the exemption is broken regardless of how the compensation is structured. The AG also cited Bowden Building Corp. v. Tennessee Real Estate Commission, 15 S.W.3d 434, 441 (Tenn. Ct. App. 1999), which held that corporate officers using the exemption "must not perform such real estate services as a vocation."

Question 3: what if the officer is paid through a distribution of profits, allocated by ownership percentage, where the pool includes proceeds from the property sale? Still no exemption. The phrase "dependent upon . . . the value of the real estate" is broader than "directly related to." When the distribution pool grows with the sale price (a higher price means a bigger pool, which means a bigger distribution to the officer's percentage interest), the officer's compensation is dependent on the property's value. Bowden held that salaried officers can qualify, while commission-paid officers cannot, because commissions are directly tied to sale price. The AG extended that logic: a profit-distribution payment that incorporates sale proceeds is dependent on sale price too.

Currency note

This opinion was issued in 2014. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Why didn't the corporate exemption cover LLCs?

Because Tenn. Code Ann. § 62-13-104(a)(1)(F) is written in terms of "a corporation, foreign or domestic." The AG had already concluded in Op. 11-83 that the Tennessee Limited Liability Company Act creates entities "separate and distinct from corporations," and in Op. 98-053 that a criminal statute referring to "corporations" did not reach LLCs. Same reading here: an LLC is not a corporation, so the exemption does not extend to it.

What was the AG's definition of "vocation"?

Black's Law Dictionary: "a person's regular calling or business; one's occupation or profession." The AG used the dictionary because the Act does not define "vocation," and citing English Mtn. Spring Water v. Chumley, 196 S.W.3d 144, 148 (Tenn. Ct. App. 2005), confirmed that dictionaries are the standard source for the ordinary meaning of statutory terms. If an officer's primary responsibility is brokerage acts under § 62-13-102(4)(A), the officer is exercising a vocation, which defeats the exemption.

What kinds of acts trigger the "vocation" inquiry?

Tenn. Code Ann. § 62-13-102(4)(A) covers soliciting, negotiating, or attempting to solicit or negotiate the listing, sale, purchase, exchange, lease, or option to buy/sell/rent/exchange real estate (or time-share intervals), collecting rents, auctioning, and advertising or holding out as engaged in those activities. The AG noted in footnote 1 that someone who would only be a "broker" under § 62-13-102(4)(B) (the "person employed by or on behalf of the owner . . . to sell the real estate" prong) without performing any (4)(A) act would not have the exemption disrupted by the vocation requirement.

What compensation structures preserved the exemption?

Salary. A flat salary unaffected by sales volume or prices satisfies the compensation prong, because the amount is neither dependent on nor directly related to the value of the property sold. That is the holding of Bowden Building Corp., which the AG followed.

What compensation structures broke the exemption?

Commission and any structure where the payout grows with sale price. Commission is the obvious case (Bowden). The new wrinkle this opinion resolved was profit distributions: if the distribution pool includes proceeds from a sale and is divided by ownership percentage, the officer's share grows with sale price. That makes the compensation "dependent upon" the property's value and defeats the exemption.

So if a Tennessee company wants to sell its own real estate without a licensed broker, how does that work?

The opinion implies a narrow path. The seller must be a corporation, not an LLC. The transaction must occur "as an incident to" the management, lease, sale, or disposition of real estate the corporation owns. The corporation must act through a duly authorized officer. That officer must not handle real estate transactions as their vocation or primary responsibility, and must not receive compensation that varies with sale price. A salaried officer at a non-real-estate corporation handling an occasional disposition of corporate-owned property is the central case the exemption was drawn for.

Why is "dependent upon" broader than "directly related to"?

The statute uses both terms. "Directly related to" captures straightforward commission arrangements where the pay is calculated as a percentage of sale price. "Dependent upon" sweeps wider. Compensation can depend on sale price without being calculated as a percentage of it: a profit distribution to a shareholder whose percentage of total profits varies with whatever the corporation earns, including sale proceeds, depends on the sale price even though the formula does not look like a commission. The AG used the breadth of "dependent upon" to defeat the profit-distribution structure.

Background and statutory framework

The Tennessee Real Estate Broker License Act of 1973, codified at Tenn. Code Ann. Title 62, Chapter 13, requires brokers and affiliate brokers to be licensed by the Tennessee Real Estate Commission. The definition of "broker" in § 62-13-102(4) is intentionally broad to keep unlicensed actors from intermediating real estate transactions for compensation.

The corporate exemption in § 62-13-104(a)(1)(F) reflects a long-standing legislative judgment that an owner-corporation managing or selling its own real estate, through its own salaried officer, is not the kind of intermediary the licensing regime targets. The vocation and compensation conditions keep the exemption from swallowing the rule: a corporation cannot insulate a de facto broker by hiring them as an officer.

The Tennessee Court of Appeals interpreted the same exemption in Bowden Building Corp. v. Tennessee Real Estate Commission, 15 S.W.3d 434, 441 (Tenn. Ct. App. 1999), which held that corporate officers using the exemption "must not perform such real estate services as a vocation" and that commission-based compensation defeats the exemption while salary does not.

The LLC question is a recurring statutory-interpretation issue in Tennessee. The AG has consistently treated LLCs as separate from corporations unless a statute expressly bridges them. Op. 11-83 (Tennessee LLC Act) and Op. 98-053 (criminal political-finance statute) both support that posture.

Citations

• Tenn. Code Ann. § 62-13-102(4)(A) (definition of "broker"; key triggering acts)
• Tenn. Code Ann. § 62-13-102(4)(B) (alternative "broker" prong)
• Tenn. Code Ann. § 62-13-103 (licensure requirement)
• Tenn. Code Ann. § 62-13-104(a)(1)(F) (corporate exemption)
• Tenn. Code Ann. § 62-13-301 (Tennessee Real Estate Commission)
• Bowden Bldg. Corp. v. Tenn. Real Estate Comm'n, 15 S.W.3d 434 (Tenn. Ct. App. 1999)
• English Mtn. Spring Water v. Chumley, 196 S.W.3d 144 (Tenn. Ct. App. 2005)
• Black's Law Dictionary 1604 (8th ed. 2004) (definition of "vocation")
• Tenn. Att'y Gen. Op. 11-83 (Dec. 29, 2011)
• Tenn. Atty. Gen. Op. 98-053 (Mar. 2, 1998)

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2014/op14-027.pdf

Original opinion text

STATE OF TENNESSEE
OFFICE OF THE ATTORNEY GENERAL
March 6, 2014
Opinion No. 14-27
Exemption from the Real Estate Broker License Act

QUESTIONS

1. Does the exemption from licensure under the Tennessee Real Estate Broker License Act of 1973 provided to a "corporation, foreign or domestic" in Tenn. Code Ann. § 62-13-104(a)(1)(F) apply to a limited liability company?

2. If an individual who is a member or officer of an entity that qualifies for the exemption under Tenn. Code Ann. § 62-13-104(a)(1)(F) has the primary responsibility of performing activities on behalf of such entity for which a license is otherwise required under Tenn. Code Ann. § 62-13-102(4)(A) or (B), does it matter for purposes of the exemption whether the individual's compensation is dependent upon or directly related to the value of the real estate as to which the actions are performed?

3. If an individual performs activities for which a license is required under Tenn. Code Ann. § 62-13-102(4)(A) or (B) on behalf of an entity that qualifies for the exemption under Tenn. Code Ann. § 62-13-104(a)(1)(F) but does not perform such activities as a vocation, does the exemption apply to that person if his or her compensation is based on a distribution of profits to the owners of the entity, where the amount of the distribution includes the money received by the entity from the sale of the property and is distributed to all owners based on a percentage of ownership in the entity or some other calculation not directly related to the sale or rental of the property?

OPINIONS

1. No. A limited liability company must be licensed under the Act because the exemption provided by Tenn. Code Ann. § 62-13-104(a)(1)(F) is limited to "a corporation, foreign or domestic." A limited liability company is not a corporation.

2. No, it does not matter; the exemption does not apply. The corporate exemption under Tenn. Code Ann. § 62-13-104(a)(1)(F) expressly does not apply to a person who performs an act described in Tenn. Code Ann. § 62-13-102(4)(A) as a vocation, and a person who performs such acts as his or her primary responsibility does so as a vocation.

3. No. The corporate exemption under Tenn. Code Ann. § 62-13-104(a)(1)(F) expressly does not apply to a person who performs an act described in Tenn. Code Ann. § 62-13-102(4)(A) for compensation if the compensation is dependent upon the value of the real estate with respect to which the act is performed. If the person's compensation is based on a distribution of the corporation's profits that includes money from the sale of property transacted by the person, the amount of the person's compensation is dependent upon the value of the property sold.

ANALYSIS

1. Under the Tennessee Real Estate Broker License Act of 1973 (the "Act"), a "broker" is required to obtain a license from the Tennessee Real Estate Commission. Tenn. Code Ann. §§ 62-13-103 and -301. The term "broker" is broadly defined as follows:

(4)(A) "Broker" means any person who, for a fee, commission . . . or any other valuable consideration or with the intent or expectation of receiving . . . valuable consideration from another, solicits, negotiates or attempts to solicit or negotiate the listing, sale, purchase, exchange, lease or option to buy, sell, rent or exchange for any real estate or of the improvements on the real estate or any time-share interval as defined in the Tennessee Time-Share Act, compiled in title 66, chapter 32, part 1, collects rents or attempts to collect rents, auctions or offers to auction or who advertises or holds out as engaged in any of the foregoing;

(4)(B) "Broker" also includes any person employed by or on behalf of the owner or owners of lots or other parcels of real estate, at a salary, fee, commission, or any other valuable consideration, to sell the real estate or any part of the real estate, in lots or parcels or other disposition of the real estate. It also includes any person who engages in the business of charging an advance fee or contracting for collection of a fee in connection with any contract whereby the person undertakes primarily to promote the sale real estate either through its listing in a publication issued primarily for that purpose or for referral of information concerning the real estate to brokers, or both.

Tenn. Code Ann. § 62-13-102. The Act, however, includes exemptions; one of these exemptions applies to:

A corporation, foreign or domestic, acting through an officer duly authorized to engage in a real estate transaction, where the transaction occurs as an incident to the management, lease, sale or other disposition of real estate owned by the corporation; however, this exemption does not apply to a person who performs an act described in § 62-13-102(4)(A), either as a vocation or for compensation, if the amount of the compensation is dependent upon, or directly related to, the value of the real estate with respect to which the act is performed.

Tenn. Code Ann. § 62-13-104(a)(1)(F). This exemption is limited to both foreign and domestic corporations, and as this Office has previously opined in other contexts, a limited liability company is not a corporation. See Tenn. Att'y Gen. Op. 11-83 (Dec. 29, 2011) ("An examination of the Tennessee Limited Liability Company Act . . . reveals these business entities are intended to be separate and distinct from corporations."). See also Tenn. Atty. Gen. Op. 98-053 (March 2, 1998) (opining that a criminal statute that prohibits the use of funds of a "corporation" for certain political purposes does not apply to a limited liability company). The exemption under Tenn. Code Ann. § 62-13-104(a)(1)(F), therefore, does not apply to limited liability companies.

2. For the exemption to apply, the real estate transaction must "occur[] as an incident to the . . . disposition of real estate owned by the corporation," and the corporation must be acting through an officer who is "duly authorized" by the corporation to engage in the transaction. Tenn. Code Ann. § 62-13-104(a)(1)(F); see Bowden Bldg. Corp. v. Tenn. Real Estate Comm'n, 15 S.W.3d 434, 441 (Tenn. Ct. App. 1999). Furthermore, if the officer "performs an act described in § 62-13-102(4)(A)," the officer is not entitled to the exemption if he or she performs such act as a "vocation" or for "compensation [that] is dependent upon, or directly related to, the value of the real estate." Tenn. Code Ann. § 62-13-104(a)(1)(F); see Bowden Bldg., 15 S.W.3d at 441.

The term "vocation" is not defined by the Act. "In seeking to determine the 'natural and ordinary meaning' of statutory language, the usual and accepted source for such information is a dictionary." English Mtn. Spring Water v. Chumley, 196 S.W.3d 144, 148 (Tenn. Ct. App. 2005). "Vocation" is a "person's regular calling or business; one's occupation or profession." Black's Law Dictionary 1604 (8th ed. 2004). If an officer has the primary responsibility of performing activities that constitute acts described in § 62-13-102(4)(A), then the officer is performing such acts as a vocation. Because the officer has not satisfied the exemption's vocation requirement, the exemption does not apply to the officer regardless of the kind of compensation received. See Bowden Bldg., 15 S.W. 3d at 441 (to satisfy the exemption requirement, corporate officers "must not perform such real estate services as a vocation").

The acts described in Tenn. Code Ann. § 62-13-102(4)(A) include soliciting, negotiating, or attempting to negotiate the listing, sale, purchase, exchange, or lease of real estate, when those acts are performed for valuable consideration from another. A person who would be required to have a license solely on the basis of the definition of "broker" in Tenn. Code Ann. § 62-13-102(4)(B) but did not perform any act described in § 62-13-102(4)(A) would not be excluded from the exemption.

3. To be exempt, an officer performing activities that constitute acts described in Tenn. Code Ann. § 62-13-102(4)(A) must also not perform such acts for "compensation, if the amount of the compensation is dependent upon, or directly related to, the value of the real estate with respect to which the act is performed." Tenn. Code Ann. § 62-13-104(a)(1)(F). Salaried officers (not performing the acts as a vocation) would satisfy this requirement because they are paid the same amount regardless of the sales price, while officers paid on commission would not be exempt because their commission would be directly related to the value of the property. Bowden Bldg. Corp., 15 S.W.3d at 441.

The phrase "dependent upon" is broader than "directly related." If an officer is compensated through a distribution of profits tied to his ownership interest in the corporation and those profits include money from the sale of the property transacted by the officer, the "amount of the compensation is dependent upon . . . the value of the real estate" sold. The sales price would affect the amount of the distribution made to the officer because a higher sales price would result in greater profits to be distributed. Conversely, a lower sales price would result in a smaller distribution. The exemption does not apply to an officer performing acts described in § 62-13-102(4)(A) unless he receives compensation unaffected by sales volume and prices.

ROBERT E. COOPER, JR.
Attorney General and Reporter

JOSEPH F. WHALEN
Acting Solicitor General

NICHOLAS G. BARCA
Assistant Attorney General

Requested by:
The Honorable William "Bear" Stephenson
Chairman, Tennessee Real Estate Commission
500 James Robertson Parkway
Nashville, Tennessee 37243-1151