Insurance agency LLCs: the member you admit can make the manager a federal criminal

A person convicted of a felony involving dishonesty or a breach of trust who participates in the business of insurance commits a federal crime, punishable by up to 5 years. So does the individual in the insurance business who “willfully permits the participation” (18 U.S.C. § 1033(e)(1)). In an insurance agency LLC, the person who admits a new member is usually the licensed managing member. If the manager knowingly admits a member with an old embezzlement conviction and no regulator’s written consent, the second crime belongs to the manager.

The consent route exists. A prohibited person may participate with the written consent of an insurance regulator, and the consent must specifically refer to the subsection (§ 1033(e)(2)). Whether a purely passive member who never touches a policy “participates” is not settled. But the agency that finds out after the admission is already in the wrong order.

In an insurance agency LLC, the admission clause of the operating agreement is where a federal crime gets committed or avoided.

How an LLC gets an agency license

Most states follow the National Association of Insurance Commissioners’ Producer Licensing Model Act. A business entity, which the model defines to include an LLC, that acts as an insurance producer must hold its own producer license, and under an optional subsection that every state reviewed here has some version of, it must designate a licensed producer responsible for its compliance (Model Act § 6(B)). That person is the designated responsible licensed producer, usually called the DRLP.

The model does not say the DRLP must be an owner. Some states add that. Illinois and Texas require the DRLP to be listed as an owner, partner, officer or director, according to the National Insurance Producer Registry’s state pages. Florida requires a licensed and appointed agent in active full-time charge of each location. New Jersey requires one or more designated responsible producers whose licenses cover every line the entity writes. A producer the agency simply employs can fail the Illinois and Texas test.

New York: an LLC officer is legally nobody

New York’s licensing statute was written for corporations and partnerships. A corporate license names officers and directors as sub-licensees, a firm’s license names its members, and the sub-licensees are responsible for the entity’s compliance (N.Y. Ins. Law § 2104). The Department of Financial Services requires at least one sub-licensee who is an officer, director, partner, member or manager.

For LLCs, that last list matters more than it looks. In a 2003 opinion, the department’s general counsel said “a person who is called an ‘officer’ of an LLC may not be a sublicensee,” because New York law gives LLCs no officers or directors. Members and managers are the equivalents. A later 2003 opinion allowed a non-member manager to serve.

In New York, a producer who holds the title of president of an insurance agency LLC cannot be its sub-licensee unless the producer is also a member or a manager.

The structuring consequence: a New York agency LLC should name each sub-licensee as a member or a manager in the operating agreement. Corporate titles borrowed from a template do not count. A member-managed LLC whose only member is another company has no natural person who can serve, and should be manager-managed.

Florida: no agent in charge, no business, and the license expires on day 91

Each Florida agency location “must be in the active full-time charge of a licensed and appointed agent,” and the agency may not conduct the business of insurance at a location unless an agent in charge is designated and providing services “at all times.” A change of agent in charge must be reported within 30 days. If the agent in charge leaves and the agency has not designated a replacement within those 30 days, and the failure continues for 90 days, “the agency license shall automatically expire on the 91st day” after the agent left (Fla. Stat. § 626.0428(4), as amended in 2026).

Read in order, the rule is stricter than its numbers. The location must stop writing business the moment it has no agent in charge, because the agent must be there “at all times.” The 30 days is a filing deadline. Day 91 is when the license dies.

In Florida, an agency location with no agent in charge may not write business that day, and the agency license expires on day 91.

The agent in charge carries real exposure. That agent is accountable for violations committed by anyone under his or her supervision while acting for the agency, though not criminally liable unless the agent personally committed the act or knew or should have known of it (§ 626.0428(4)(e)).

Florida also polices who may run the agency. The department must deny, suspend or revoke an agency’s license if a majority owner, partner, manager, director, officer or anyone else who manages or controls it has had a license in the insurance business denied, suspended or revoked (§ 626.6115). Owners and LLC members who direct or participate in management are listed on the application and fingerprinted, unless already licensed and appointed (§ 626.172(2)). A new federal employer identification number means a new agency license, and licenses and appointments are not transferable to another person (§ 626.441).

New Jersey: no licensed officer left, the license goes back

New Jersey requires an agency to notify the Department of Banking and Insurance within 30 days when it adds or removes any officer, director, partner or owner of 10% or more, with fingerprints for new unlicensed resident principals. If a departure leaves the entity with no licensed officer, director, partner or designated responsible producer holding the needed authority, the license becomes inactive and “shall be returned immediately” (N.J. Admin. Code § 11:17-2.12(c), (d), read on a code mirror).

New Jersey has no grace period. A one-producer agency whose producer leaves has no license that afternoon.

California: an LLC agency posts security a corporation does not

California issues organizational licenses, and only the licensed natural persons named on the license may act under it (Cal. Ins. Code § 1656). An LLC that holds a license must also, at licensing and at all times after, carry insurance or post cash or securities for claims of at least $100,000 multiplied by the number of licensees rendering professional services for it, with a minimum of $500,000 and a maximum of $5,000,000 (§ 1647.5, read on a code mirror). If it falls out of compliance, the license can be made inactive. No equivalent requirement for corporations was found in the sections reviewed.

An agency with three licensees needs $500,000, not $300,000, because of the floor. With eight it needs $800,000.

A California insurance agency formed as an LLC must carry at least $500,000 of security for claims, a cost the same agency as a corporation does not face.

The structuring consequence: in California, the choice between an LLC and a corporation for an agency has a hard price. A corporation taxed as an S corporation avoids the § 1647.5 requirement and keeps pass-through treatment.

California presumes control above 10% of the voting securities of a licensed organization, and the commissioner may deny or revoke the organization’s license if a controlling person has a felony conviction, has committed fraud or dishonest business conduct, or has been found liable for fraud, conversion or breach of fiduciary duty (§ 1668.5, read on a code mirror). The 30-day notice of ownership changes in § 1656.1 is written for corporations, stockholders of 10% or more, officers and directors. It does not mention LLC members or managers.

Texas, Illinois, Pennsylvania and Georgia

Texas closes the corporate gap by statute: an LLC is licensed and regulated under every provision that applies to a licensed corporation (Tex. Ins. Code § 4001.004). At least one officer and every person acting as an agent for the entity must be individually licensed, and no officer, director, member, manager or other controlling person may have had a license suspended or revoked by a financial or insurance regulator (§ 4001.106). The agency reports the addition or removal of an officer, director, partner, member or manager within 30 days (§ 4001.252, read on a code mirror).

Illinois requires at least one designated responsible licensed producer, who must also be listed as an owner, partner, officer or director, according to the National Insurance Producer Registry. Pennsylvania requires every licensed agency to have at least one designated licensee and, according to the same registry, does not track owners who are not designated licensees. Georgia, as its insurance commissioner’s office describes the statute, bars a person whose license was refused, revoked or suspended from owning an agency or holding 10% or more of it.

Passive members take profits, never commissions

The model act lets an insurer or producer pay commissions to an agency or to “persons who do not sell, solicit or negotiate insurance” (Model Act § 13(D)), and Illinois adopted that rule (215 Ill. Comp. Stat. 5/500-80(d)). That is what lets an agency LLC collect commissions and distribute profits to members who never sell. Other states draw the line tighter.

New York’s general counsel has said unlicensed owners may share in profits only “in the form of dividends declared in the usual course of the business,” and may not “receive any share in the commissions” (DFS opinion 05-09-01). Florida lets an agent share commissions “only with other agents appointed and licensed to write the same kind or kinds of insurance,” and the penalty is revocation (Fla. Stat. § 626.753). Texas bars paying an unlicensed person a referral fee “based on that customer’s purchase of insurance” (Tex. Ins. Code § 4005.053(c)(2)).

An LLC allocation that pays an unlicensed member by the production of a book of business looks like commission sharing, and in Florida commission sharing costs the license.

LLC operating agreements are built to allocate income any way the members want. That flexibility is the problem here. An allocation that gives an unlicensed member a share of the commissions on accounts the member referred, or an override on a particular producer’s book, or a per-policy kicker, is a share in commissions dressed as a distribution.

The structuring consequence: pay unlicensed members only pro rata by units or capital, out of net profits after expenses, on a regular schedule. Put producer-specific economics in licensed members’ compensation or guaranteed payments, never in a passive member’s allocation.

Florida’s statute shows the corporate gap again. It protects renewal commissions paid to “any incorporated insurance agency” when one of “its stockholders has ceased to hold a license” (§ 626.753). It does not mention LLCs or members. An LLC agency should not assume the safe harbor covers it.

Death, divorce and the renewal stream

A producer’s license dies with the producer. The renewal commissions do not. The model act allows renewal and other deferred commissions to anyone who was licensed when the sale was made (§ 13(C)), and Texas follows it (§ 4005.053(b)). New York’s general counsel has allowed an estate administrator to take a percentage of the commissions the buyer of the business earns on renewals, but nothing on new business (DFS opinions 04-12-12 and 06-10-04).

The model act also offers a temporary license of up to 180 days, without an exam, to a surviving spouse or personal representative, or to a member or employee of a licensed entity after the death or disability of the person designated on its license, so the business can be sold (Model Act § 11). Whether and how a particular state offers it should be confirmed with that state.

When a licensed member dies, the estate inherits an economic interest in renewals, not the ability to write new business.

The structuring consequence: write the death and divorce provisions so the transferee takes an economic interest only, the remaining licensed members buy it within the temporary-license window, and the price is computed on renewals in force rather than on new business after the death.

Selling the agency

Appointments never transfer. Each producer needs an appointment from each insurer it represents (Model Act § 14), and in Florida a license or appointment is valid only for the person named. In an asset sale, the buyer’s agency needs its own appointments with every carrier, and in Florida a new employer identification number means a new agency license.

A sale of membership interests keeps the license and the appointments, but it has its own trap: the carrier contracts. A review of one carrier’s agency contract by the Independent Insurance Agents and Brokers of America found that it required notice of “any sale or transfer of ownership” and let the carrier terminate in its sole discretion on such a sale. Who owns the expirations, the customer records that are the real asset of an agency, is usually a matter of contract. Illinois is an exception: it declared by statute in 2001 that expirations belong to the insured and the agency firm (215 Ill. Comp. Stat. 5/507.2, as enacted; confirm its current text).

The structuring consequence: diligence every carrier contract for change-of-ownership and expiration terms before choosing between an asset sale and an interest sale. An interest sale is usually the cleaner path for license continuity, but even admitting a minority member can be a “transfer of ownership” under some carrier contracts.

The bottom line

Admitting a member with a dishonesty felony to an insurance agency without a regulator’s written consent can make the licensed person who admits them a federal criminal.

In New York, only a member or manager of an LLC can be its sub-licensee; an LLC officer cannot.

Florida bars business at a location with no agent in charge and expires the agency license on day 91; New Jersey requires the license back immediately.

California requires an LLC agency to carry at least $500,000 of security for claims, which a corporation does not.

Unlicensed members may share profits pro rata, never commissions, so production-based allocations to passive members are a license risk.

Several state safe harbors were written for corporations and stockholders, and an LLC agency should not assume they cover it.

What this page does not cover

The four ownership models that run through every licensed business are on who is allowed to own a licensed business. Transfer and buy-sell drafting generally is on transfers and buy-sell. Insurers themselves, managing general agents, surplus lines brokers and title agencies are not covered. Agency license fees were not confirmed on official schedules for this page and are not given.

Last verified October 2026.