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Ask a Lawyer -- LLCs
LLC Question 48
Question: I am a licensed California life insurance agent. Is it legal in CA for me to form an LLC? We already have a EIN number - if it is legal to form a LLC how will it affect our EIN #?
Response: I assume you mean an LLC whose business shall be the sale of life insurance. It appears you are already aware of California Corporate Code Section 17375 which states: "Nothing in this title shall be construed to permit a
domestic or foreign limited liability company to render professional
services ... ." Obviously, licensed professionals such as doctors and lawyers cannot operate their professional practices as LLCs in California due to this limitation. However, it was an open question as to how far this limitation went regarding other professionals. A recent opinion of the Cali. Attorney General, Opinion 04-103, states "that businesses that render services under nonprofessional, occupational licenses may form limited liability companies (LLCs) in California. (Businesses and individuals who render services under professional licenses, however, may not.) The opinion distinguishes occupational licenses -- those based on character, responsibility, good faith, and financial requirements -- from professional licenses, which are based on education, training, and testing prerequisites. It now appears that the professionals who must form a professional corporation if they incorporate in California (doctors, engineers, architects, lawyers, pharmacists, and so on) are the same group of professionals who can’t form an LLC in the state." Nolo.com.
Specifically as to insurance agents, the California Insurance Commission has set forth a special requirement that must be met before any licensed insurance entity may form as an LLC, See link. Namely, the LLC is required to carry errors and omissions coverage, See link. Ergo, it is my conclusion that licensed insurance individuals or entities are excepted from the list of professionals who may NOT operate their business as an LLC (otherwise the Insurance Commission would not have promulgated regulations for the manner in which license insurance entities are formed).
As to the 2nd part of your question, I would assume you need to get a new FEIN for the newly formed LLC; however, I would show the form SS4 you filed with the IRS to get your existing FEIN to your accountant and ask his / her opinion on the matter.
Submitted: 3-2-2006; George, CA
Response: 3-5-2006; JJR
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