How Do You Incorporate Your Personal Real Estate Corporation?
As a licensed Realtor in British Columbia you have the option of operating your business through a professional corporation known as a Personal Real Estate Corporation (the “PREC”). This is one of the legal services that our real estate lawyers frequently receive inquiries for.
We are here to guide you through the various requirements of the Real Estate Council of British Columbia (the “RECBC”) and those set out in the Real Estate Services Regulation (the “Regulation”) that you’ll need to comply with in order to set up, and provide services through, your PREC.
FREQUENTLY ASKED QUESTIONS
1. Is now the right time for me to incorporate a PREC?
As the main benefit of incorporating a PREC is to take advantage of tax planning options, we first recommend working with an accountant to develop a strategy on how best to do this before proceeding with incorporation.
2. Can I make investments through my PREC?
The Regulation restricts the type of activities that can be carried on through a PREC to only those activities which are in furtherance of delivering real estate services. Therefore, if you are interested in making other investments or carrying on business activities beyond this limited scope (which may include real estate development, purchasing your own investment property, or trading stocks) it will likely make sense for you to incorporate a Holding Company (the “Hold Co.”) which will own shares in your PREC.
We would be happy to work directly with you and your accountant to ensure that the legal structure is set up in a way which allows you to maximize your tax savings, while also providing flexibility in terms of meeting your future goals.
3. Am I protected from personal liability if I operate my business through a PREC?
The duties and obligations of licensees will apply regardless of whether real estate services are being provided by an individual or through a PREC. Therefore, you will not gain the benefit of limited personal liability when operating through a PREC as would typically apply to a shareholder in a standard corporation.
4. What kind of fees are associated with incorporating a PREC?
a) RECBC Fees
Both you as an individual and your PREC will need to be licensed with RECBC. Therefore, once you incorporate your PREC, you’ll be responsible for maintaining two sets of licensing fees, E&O Insurance fees, and Compensation Fund fees.
As part of your PREC application, you’ll be responsible for submitting pro-rated fees for your PREC based on the number of full months left before your personal license expires. Then, when it becomes time to renew your licenses, both sets of renewal fees will become due at the same time.
b) Legal Fees and Annual Maintenance
In addition to the initial one-time incorporation costs, all corporations are required to file annual reports in order to maintain an active status and good standing.
We would be happy to discuss our competitive rates for both incorporation and assisting you with the ongoing annual maintenance of your PREC.
We recommend speaking to your accountant about the additional fees you’ll incur for preparing and filing your PREC’s corporate tax returns and for any other advice your accountant provides to you.
5. Who can own shares in my PREC?
Only you as the “controlling individual” will be able to act as a director, officer and holder of voting shares in your PREC.
However, you are able to issue non-voting shares in your PREC to an “affiliated person” which the Regulation defines as:
(a) a spouse of the controlling individual,
(b) a child of the controlling individual,
(c) a corporation, all of the shares of which are beneficially owned by one or more of the controlling individual and their spouse or child, or
(d) a trust, all of the beneficiaries of which are one or more of the controlling individual and their spouse or child.
The ability for an affiliated person to hold non-voting shares in you’re the PREC allows for flexibility in terms of issuing dividends to your immediate family members or another corporation, such as a Hold Co., which may be part of the tax planning strategy that you and your accountant develop.
6. What should I name my PREC?
The first part of your PREC’s name must contain either your legal name, a recognizable short form of your legal name, or the name that you’ve registered with RECBC. This will be followed by “Personal Real Estate Corporation”.
For example, if your legal name is Robert Smith but you are registered as Bob Smith with RECBC, you could choose one of the following names for your PREC:
- Robert Smith Personal Real Estate Corporation;
- Rob Smith Personal Real Estate Corporation; or
- Bob Smith Personal Real Estate Corporation.
When choosing a name for your PREC it is important to keep in mind that all future advertising must be done in the name of your PREC.
After you’ve selected your preferred name of your PREC, we will submit a name reservation request to the Corporate Registry.
7. How do I obtain a license for my PREC?
After the incorporation process is finalized, you’ll be able to apply for a license with RECBC.
RECBC requires a number of forms and fees to be submitted as part of the application, and your existing license certificate will need to be submitted to RECBC for amendment. Our team will guide you through the application process to ensure everything is completed correctly to allow for a quick turnaround.
8. What other changes will I have to make once I’ve incorporated my PREC?
As a starting point, you’ll need to touch base with your Managing Broker to let them know that you’re planning to set up your PREC, as they’ll be able to provide you with practical advice on the steps you’ll have to take before your PREC is issued a license. We’ve set out a few of which you’ll need to consider:
(a) GST Number. You’ll need to obtain a GST number for your PREC.
(b) WorkSafeBC. Now that you’re operating through a corporation, you are required to register for WorkSafeBC insurance coverage.
Advertising. We encourage you to review RECBC’s specific requirements on how to properly advertise through a PREC, as you will be required to advertise under the name of your PREC immediately after it is issued a license. Therefore, you’ll want to get things organized and updated in advance. A few marketing items you’ll need to update may include:
- Business cards;
- For Sale/Open House signs;
- Brochures; and
- Social media.
You should consult a real estate lawyer before acting on any of the above information, as the information noted above is general in nature. Contact our real estate lawyers at Morris Law for advice on how to get started with setting up your PREC. Or, contact us using the form below.