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A Guide to Personal Real Estate Corporations

 

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Managing brokers, associate brokers, and representatives are all eligible to license a personal real estate corporation.

Are you a real estate licensee considering licensing a personal real estate corporation? Perhaps you already have a licensed personal real estate corporation and you are looking for answers to specific questions or for information on maintaining your licence. You’ll find answers to many commonly asked questions about personal real estate corporations in this guide. If your question isn’t covered here, contact the Council at info@recbc.ca to request the information you need.

 

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Benefits and Challenges of Personal Real Estate Corporations

A personal real estate corporation offers licensees the ability to take advantage of the flexibility in income planning and tax planning that incorporation brings. However, there are issues that licensees need to consider carefully before deciding to incorporate and apply for licensing for a personal real estate corporation, and the Council strongly recommends that you seek professional accounting and legal advice to make sure that incorporation is the right choice for your personal situation.

Before you make the decision to incorporate, make sure you are aware of the restrictions to the business activities of a personal real estate corporation that are imposed by the Real Estate Services Regulation. According to section 10.6(1)(e) of the Regulation, a personal real estate corporation may not “conduct any business other than the provision of real estate services and ancillary services directly associated with the provision of real estate services.” An “ancillary service” is a service that supports or is secondary to a main service — in this case, the provision of real estate services.

As a result, personal real estate corporations may only provide real estate services and services whose primary purpose is to facilitate or further the provision of real estate services. This means that personal real estate corporations may not:

  • Trade in stocks or bonds, other than modest trading in stocks and bonds that constitute a capital gain. Trading cannot be so extensive that it is regarded as the main business of the personal real estate corporation.
  • Hold real estate beyond what is required by the personal real estate corporation for the provision of real estate services.
  • Engage in the business of real estate development.

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Accountants

Licensing a Personal Real Estate Corporation
A Four-Step Process

Over the years, there have been a few cases in which licensees were under the impression that their personal real estate corporation was licensed — only to realize that they had not completed all the necessary steps, and the personal real estate corporation was not in fact licensed. Don’t let this happen to you. Make sure you follow all the suggested steps in order to ensure your personal real estate corporation is properly licensed.

 

STAGE ONE: EXPLORE THE BENEFITS

The Council strongly recommends that before you take steps to incorporate and licence a personal real estate corporation, you obtain professional accounting and legal advice to make sure that a personal real estate corporation is the right choice for you.

Licensees who are interested in licencing a personal real estate corporation should discuss it with their managing broker and review the following sources of information:

If you are considering applying for licensing of a personal real estate corporation, keep in mind that:

  • Two sets of licensing fees will be required – one for yourself, and one for the personal real estate corporation. Currently, individual licensing, Errors & Omissions Insurance and Compensation Fund fees total $1330 for a two-year licensing period, so licensees with a personal real estate corporation can expect to pay $2660 every two years.
 

STAGE TWO: LAY THE FOUNDATION
Before you apply for licensing for a personal real estate corporation, you’ll need to incorporate.

As the first step in incorporation, you’ll be asked to reserve a company name with the BC Corporate Registry. The name you incorporate under will be your licensed personal real estate corporation name, so choose wisely, and make sure the name meets the requirements of the Real Estate Regulation for personal real estate corporation names.

  • Read over the article Making the Choice: Naming a personal real estate corporation for more information, or section 10.3 of the Real Estate Regulation.

Once your personal real estate corporation is licensed, you’ll need to immediately begin advertising under the personal real estate corporation name — so it’s a good idea to plan for these changes in advance. Talk to your managing broker about any internal or administrative changes that may need to happen.

Think about the places you’ll need to update with your personal real estate corporation name. At a minimum, they’ll likely include:

  • Business cards
  • Lawn signs
  • Websites, including social media sites

Make sure you’ve planned ahead and made all the necessary changes to begin operating under the personal real estate corporation name as soon as your licence is issued.

 

STAGE THREE: APPLY FOR LICENSING

1. The personal real estate corporation must be incorporated with the BC Corporate Registry before applying for licensing with the Council.

2. Use the checklist below to make sure you have completed and submitted all the following documents to the Council:

 

STAGE FOUR: AFTER LICENSING

Once the personal real estate corporation has been licensed, any future changes to your individual licence must be done in conjunction with the personal real estate corporation.

Use the Application for Personal Real Estate Corporation form to apply for changes to the personal real estate corporation licence, and the Application for Representative, Associate or Managing Broker Licence form for your individual licence. Please submit both completed forms to the Council, along with the applicable fees.

Transfers: If you wish to transfer to another brokerage, you must apply to transfer both your individual licence and the licence of the personal real estate corporation to the new brokerage.

Renewals: Your licence and the personal real estate corporation’s licence will expire on the same date and you must apply for licence renewal for both licences at the same time.

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Phone call

Terminating a Personal Real Estate Corporation Licence

So, you’ve incorporated, applied and received a licence for a personal real estate corporation, and begun practising as a personal real estate corporation. But maybe something changes in your professional situation, or you decide that this licensing arrangement just isn’t working for you. You realize that you don’t want to be licensed as a personal real estate corporation any longer.

Don’t worry. Terminating a personal real estate corporation licence is a simple process:

  • Inform your managing broker that you would like terminate the personal real estate corporation licence. Your managing broker needs to return both the personal real estate corporation licence and your individual licence to the Council, noting on the back of the personal real estate corporation licence that it is no longer required. Please include the $30 fee for amending a licence.
  • You’ll receive your individual licence back, amended to reflect that you are now licensed without a personal real estate corporation.

To find out about the legal requirements for dissolving a corporation, visit the BC Corporate Registry.

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Realtor

“It’s Personal!”
Personal Real Estate Corporations and Controlling Individuals

A personal real estate corporation must be just that: personal. They are subject to strict restrictions regarding ownership and control. As a licensee who wishes to provide real estate services through a personal real estate corporation, you must be the person who controls the Personal Real Estate Corporation—known as the “Controlling Individual.”

The Controlling Individual must be:

  • licensed at the same level and for the same categories of real estate services as the personal real estate corporation
  • licensed to the same brokerage as the personal real estate corporation
  • the owner of all the voting shares of the personal real estate corporation
  • the only director and officer of the personal real estate corporation

 

Non-Voting Shareholders

A personal real estate corporation may have non-voting shares, which may only be owned by yourself (the controlling individual) or:

  • by an affiliated person —your spouse, common-law partner or child (including step-child),
  • a corporation whose shares are owned by you, your spouse or your child
  • a trust in which the beneficiaries are yourself, your spouse or your child.

Liability and Discipline

Even though you may be providing services to clients through a personal real estate corporation, you are still liable for the services provided and you are required to meet all obligations and responsibilities to clients.

If the personal real estate corporation commits professional misconduct or conduct unbecoming a licensee, the Council may discipline the Controlling Individual as if that individual has committed the conduct. And should the controlling individual commit professional misconduct, the Council may also discipline the personal real estate corporation. Suspensions, cancellations, or restrictions on the licence issued to the personal real estate corporation will apply to the licence of the controlling individual, and vice versa.

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Filling in a form

Making the Choice
Naming a Personal Real Estate Corporation

It’s important that the name you give your personal real estate corporation is the name that you, as the controlling individual, wish to do business under. Once you have licensed a personal real estate corporation, all future advertisements must use the name of the personal real estate corporation.

Section 10.3 of the Real Estate Regulation clearly spells out the requirements for the legal name of a personal real estate corporation. The name must include both of the following (and nothing else):

  1. Either the legal name of the controlling individual, or a recognizable short form of the legal name, or the licensee name of the controlling individual, and
  2. The term “personal real estate corporation.”

If you have been using a name other than your legal name for advertising purposes prior to licensing a personal real estate corporation, you should think about how you’d like your advertising to appear once your personal real estate corporation has been licensed.

 

Test Your Knowledge:

Let’s look at the case of Jie Wu:

Jie Wu is a licensee who has registered the name Jeffrey Wu as his licensee name with the Council. For several years, he has been advertising his services under the name Jeffrey Wu.

When Mr. Wu decides to make an application to licence a personal real estate corporation, should he choose the personal real estate corporation name:

  1. Jeffrey Wu Personal Real Estate Corporation, or
  2. Jie Wu Personal Real Estate Corporation?

If Mr. Wu wishes to continue advertising using his licensee name, then the correct answer is a) Jeffrey Wu Personal Real Estate Corporation. If he chooses b) Jie Wu Personal Real Estate Corporation as his personal real estate corporation name, he can no longer be known as Jeffrey Wu with respect to any real estate activities.

Another example is a controlling individual whose legal name is Robert Smith.

Robert Smith’s licensee name is Bob Smith. He can choose one of the following as the legal name of his personal real estate corporation:

  1. Robert Smith Personal Real Estate Corporation (legal name + “personal real estate corporation”)
  2. Rob Smith Personal Real Estate Corporation (recognizable short form + “personal real estate corporation”)
  3. Bob Smith Personal Real Estate Corporation (licensee name of the controlling individual registered with the Council + “personal real estate corporation”).

If Mr. Smith wishes to continue doing business using his registered licensee name, he should choose c) Bob Smith Personal Real Estate Corporation as the personal real estate corporation name.

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 Business Card

Advertising a Personal Real Estate Corporation
Clarity is Key

As soon as you have submitted your application for a personal real estate corporation licence, you should begin reviewing your advertising. You’ll need to make sure you’ll be ready to comply with the Council’s advertising requirements for personal real estate corporations as soon as your licence arrives.

Advertising includes, but is not limited to:

  • websites,
  • business cards,
  • for sale signs,
  • magazine/newspaper ads,
  • bus benches and transit display ads.

The Rules require all advertising to be in the licensee name of the personal real estate corporation, not the individual’s name. For example, if Robert Smith has a personal real estate corporation with the licensee name of Rob Smith Personal Real Estate Corporation, all advertising must refer to Rob Smith Personal Real Estate Corporation, not to Robert Smith, or to Rob Smith PREC.

The term “personal real estate corporation” must be included in the advertisements as part of the personal real estate corporation licensee name. While it isn’t required that the font sizes must be the same, the term “personal real estate corporation” and the name of the related brokerage must be prominent and easily readable in all advertising.

In addition, the name of the related brokerage must be prominent and easily readable in all advertising.

Not compliant prec-non-compliant-ad-1 left-arrow Font too small
Not compliant prec-non-compliant-ad-2 left-arrow Full term “personal real estate corporation” must be used
Not compliant prec-non-compliant-ad-3 left-arrow Missing brokerage name
Compliant prec-compliant-ad    

 

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Meeting

What About My Team?

If you are a member of a team of licensees, and the Council has approved the team name, you may use that team name in advertising, either on its own or in combination with the personal real estate corporation name. Make sure that, whether you choose to advertise using just the team name, or to include the personal real estate corporation name, the name of the related brokerage is always included in any form of advertising.

For complete information on advertising, including guidelines for team names and personal real estate corporations, see the Council’s Advertising Requirements. 

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Cheque

Personal Real Estate Corporations, Teams and the Paying of Remuneration

Licensees can be paid by a personal real estate corporation for the provision of real estate services when the following requirements are met:

  • The licensee is the sole voting shareholder and officer of the personal real estate corporation.
  • Each non-voting share is owned by either the licensee or an affiliated person (the licensee’s spouse or child, a corporation whose shares are beneficially owned by the licensee or a family member, or a family trust of which the only beneficiaries are the licensee or family members).
  • The licensee and the personal real estate corporation are licensed at the same level, with the same related brokerage.
  • The licensee is engaged to provide real estate services to the personal real estate corporation.

 

Case Study: Robert Smith

Robert Smith is a real estate licensee who has made the decision to incorporate and license a personal real estate corporation. He now does business as Rob Smith Personal Real Estate Corporation. But he’s wondering – how will this change the way he receives commissions?

Licensees who, like Mr. Smith, have licensed personal real estate corporations, need to be aware that under the Personal Real Estate Corporation model, the remuneration for providing real estate services flows from the brokerage to the Personal Real Estate Corporation.

Mr. Smith, who operates and controls the personal real estate corporation, is referred to as the personal real estate corporation’s “Controlling Individual.” Remuneration may be paid to the controlling individual from the personal real estate corporation if all of the requirements of section 10.6 of the Real Estate Services Regulation are met. In order to receive remuneration from a personal real estate corporation, both the personal real estate corporation and the Controlling Individual must be licensed, and at the same level and for the same categories of real estate services.

 

 

Remuneration through a personal real estate corporation

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Mr. Smith is also the leader of a team of licensees at his related brokerage, known as the ABC Team, and he wonders if he can distribute commissions to the other team members through his personal real estate corporation.

In situations where licensees have formed teams, the brokerage must distribute remuneration. The licensed team members (or their respective personal real estate corporations) must be paid separately by the brokerage, not by one of the team member’s personal real estate corporations.

Personal real estate corporations may employ unlicensed individuals to perform services which do not require licensing. These individuals may be paid directly by the personal real estate corporation.

 

Remuneration to a Team Including a Personal Real Estate Corporation

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Buying a house

Buying real estate, stocks, loaning money
What’s an “Ancillary Service”?

In order to ensure that the public is adequately protected, professional corporations may only provide services that are overseen and regulated by their related professional body. Chiropractic corporations may only provide chiropractic services. Law corporations may only provide legal services, or services directly associated with the provision of legal services. So when the BC legislature amended the Real Estate Services Regulation to allow licensees to incorporate, section 10.6 (1)(e) was included, clearly stipulating that personal real estate corporations may not “conduct any business other than the provision of real estate services and ancillary services directly associated with the provision of real estate services.”

Since that section was written, the Council has been asked on a number of occasions to define “ancillary,” and has consulted with legal experts to determine the precise meaning of this term. “Ancillary” restricts the services that a personal real estate corporation can provide to real estate services and to services that are subordinate to, and exist to support, real estate services. This means that in addition to real estate services, a Personal Real Estate Corporation can only provide services whose primary purpose is to facilitate or further the provision of real estate purposes.

To put it another way, a personal real estate corporation may not conduct a business that can be run on a standalone basis. For these reasons, a personal real estate corporation may not:

  • trade in stocks or bonds, other than modest trading in stocks and bonds that constitute a capital gain (as opposed to income from business);
  • engage in trading so extensive that it can be regarded as the business of the personal real estate corporation;
  • hold real estate beyond that required by the personal real estate corporation for the provision of real estate services, or
  • engage in the business of real estate development.

However, these restrictions do not apply to the personal real estate corporation’s non-voting shareholders. While a personal real estate corporation may not, for example, build a home and sell it, an affiliated person with beneficially owned non-voting shares in the personal real estate corporation may engage in real estate development, trade in stocks or bonds, and hold real estate.

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Legal Advice

Maintaining Incorporation is a Must

Many licensees who are considering licensing a personal real estate corporation may not be familiar with the details and requirements of incorporation. The Council strongly advises that licensees seek professional legal and accounting advice to ensure they are fully informed of the requirements for obtaining and maintaining incorporated status.

For example, the Business Corporations Act requires corporations to file an Annual Report each year, within 60 days of the date of incorporation. If this report is not filed, the Registrar of Companies may begin dissolution proceedings on the corporation. Should a personal real estate corporation lose its incorporated status, the licence will become inoperative.

Take steps to ensure you’re familiar with all the requirements for maintaining incorporated status, and that you forward all filings relating to your personal real estate corporation to the Registrar of Companies in a timely manner.

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Calculator

The Facts About Fees

Cost of an individual 2-year real estate licence: $1330.00
Cost of a personal real estate corporation 2-year licence: $1330.00


Total cost for a licensee operating a personal real estate corporation: $2660.00

Yes, that’s right. Licensees who choose to license a personal real estate corporation must maintain two licences – one for themselves and one for the personal real estate corporation. Therefore, they can expect to pay double the amount they currently remit to the Real Estate Council for licensing fees, and double the premiums for Errors & Omissions Insurance and the Real Estate Compensation Fund.

Why pay twice? In order to operate a personal real estate corporation, the Regulations establish that the “controlling individual” and the personal real estate corporation must have each obtained a licence. The controlling individual must be licensed at the same level, for the same categories of service, and to the same brokerage as the personal real estate corporation. The individual and the corporation’s licences must have the same expiry dates.

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