Forming an LLC is one of the first steps to formalizing your business on paper. Whether you plan to remain a single-member LLC or add an S Corp election, certain professional industries, like financial services, insurance and real estate, operate under brokerages or licensing boards that set rules on how you can receive payments. These rules may limit whether your income can be directed to an LLC or must be paid to you as an individual.
This article outlines why those restrictions exist and how they can affect your business structure options. Collective does not determine or advise on whether you should form an LLC, but we want to help you understand the questions to ask your brokerage or licensing authority before deciding what structure is right for you.
Why Brokerages May Restrict Payments to an LLC
Brokerages and licensing boards implement payment restrictions primarily focused on licensing, compliance, and liability.
- Licensing and Compliance: Heavily regulated fields require brokerages to ensure that the licensed individual, not just a business entity, is the one performing the work and receiving compensation. This is done to create a clear paper trail for regulatory oversight.
- Liability and Accountability: When payment goes directly to a licensed individual, there is less ambiguity about who performed the services and who bears professional responsibility.
While financial planners and insurance advisors are the most common examples, similar restrictions can affect real estate agents, registered investment advisors (RIAs), securities brokers, and other licensed professionals.
The Risk of IRS Matching Issues
A key challenge arises if your brokerage requires payment to your social security number (SSN) instead of a business’s Employer Identification Number (EIN). This is because the IRS tracks income assigned to a specific Tax ID.
If you form an LLC and use its EIN for business reporting, but your brokerage issues the 1099-NEC to your SSN, the IRS has a record of that income assigned to you personally. This conflict, or mismatch, between the payer's report (1099 to SSN) and your tax filing (reporting income under the EIN) can lead to notices and questions from the IRS.
For a more detailed explanation of how these issues impact tax filing, see our article on IRS Matching Issues: What They Are and How to Avoid Them.
Key Questions to Ask Before You Form
Before deciding on your business structure, it’s recommended to have a conversation with your brokerage or licensing board. Asking these critical questions will help you understand your options and constraints:
| Question | What You Need to Know |
| Can I receive commission payments directly to an LLC EIN? | Get clear confirmation about whether entity payments are permitted. |
| How are 1099s issued—to my LLC EIN or to my social security number? | Confirm who the IRS expects to report the income. |
| Does my professional license allow me to operate through an LLC? | Your license may have restrictions separate from your brokerage's policies. |
| Will forming an LLC affect my E&O insurance? | Confirm that your errors and omissions insurance will cover you operating as an LLC. |
| Have other advisors at the brokerage successfully formed LLCs? | Learning from colleagues' experiences can reveal practical considerations. |
How Collective Supports You
If you work in a regulated industry, Collective can guide you on the necessary steps to take with your brokerage to determine the best structure for your situation.
While we can't advise on whether or not an LLC is appropriate for your industry, if you determine that forming an LLC works for your situation, we make running the administrative side of your business easier.
Collective combines technology with human expertise to simplify the complex back-office work. We provide:
- Guidance on your tax status (single-member LLC or S Corp election) and help with formation if needed
- Automatic monthly bookkeeping to keep your books organized
- Full financial statements and a unified financial view in your dashboard
- Tax reminders and filing support tailored to your tier (Schedule C or Form 1120-S)
- For S Corp members, we handle owner payroll setup and processing
Disclaimer: The information contained in this document is provided for informational purposes only and should not be construed as legal, financial, or tax advice. It is not intended to be a substitute for obtaining legal, accounting, or other financial advice from an appropriate and/or licensed adviser, or for the purpose of avoiding U.S. Federal, state or local tax payments and penalties.