BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Agent Corporations
Q: I have a Salesperson’s license and am thinking of creating a corporation. I know that a number of agents are doing that. I think it may be for liability reasons or tax reasons. If I do this, how can I use my corporation in my real estate business? What are the pros and cons?
A: First, you must understand that you cannot use your personal corporation in your real estate business in any way. You and your personal attorney may decide to create a corporation for a number of reasons, but real estate practice isn’t one of them.
Under the DRE laws and regulations, a broker can only hire a Salesperson or Broker-Associate individually. A broker cannot hire a corporation. Therefore, all work done by the individual licensee is done as an individual – not as a corporation.
Broker-Associates: Even if a Broker has a corporation that has been properly licensed with the DRE, and that Broker then affiliates with another broker as a Broker-Associate, that Broker-Associate may not use their corporate identity for their Broker-Associate activities.
A Salesperson or Broker-Associate:
1. Cannot use the name of their corporation in their marketing materials or their business cards.
2. Cannot sign contracts in his/her corporation’s name.
3. Will not achieve any professional liability protection from having a corporation if they are sued for their activities as a DRE licensee working for a Broker. This is because when they are engaging in licensed activity, they are doing so in their individual capacity working for their Broker.
4. Can instruct their broker to pay their commissions to their corporation (or anyone else for that matter) by instructing their broker to do so. The DRE treats this instruction as “constructive receipt” of that commission payment by the licensee.
PRACTICE TIP: Be sure that you understand what you are trying to accomplish, and what is not possible, if you decide to create your own corporation.
WEEKLY PRACTICE TIP: DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.
© Copyright Broker Risk Management 2013 5/31/13