Incorporating a Personal Real Estate Corporation

A personal real estate corporation is a special type of corporation available to licensed realtors in British Columbia, through which real estate services may be provided. In this article, we discuss the basics of incorporating a personal real estate corporation.
Langley and Surrey Personal Real Estate Corporation Lawyer

A personal real estate corporation, also referred to as a “PREC”, is a special type of corporation available to licensed realtors in British Columbia, through which real estate services may be provided. In this article, we discuss the basics of incorporating a PREC.

This article is not intended to be an exhaustive summary of the law—rather, we highlight some general information with respect to incorporation. The decision to incorporate is personal to the real estate professional and should be based on accounting and legal advice.

British Columbia Realtors are subject to the Real Estate Services Act of British Columbia (the “Act”), which is regulated by the BC Financial Services Authority (“BCFSA”). Specific rules for PRECs are found in the Real Estate Services Regulation (the “Regulation”) and the Real Estate Services Rules (the “Rules”), both established under the Act.

Who can incorporate a personal real estate corporation?

Part 10 of the Regulation allows licensed managing brokers, associate brokers and representatives to apply for and obtain a licence for a PREC.

All real estate professionals who incorporate must maintain two licences: one for the corporation and one for themselves. The licence of the PREC must be at the same licence level and for the same category of real estate services as the licence of the real estate professional. A PREC may only be licensed in relation to the same brokerage as its controlling individual.

A personal real estate corporation is truly “personal”; that is, only the licensed real estate professional who incorporated the PREC may own voting shares or act as a director or officer. The Regulation refers to this person as the “controlling individual”, defined to be the person who is the sole voting shareholder of the company.

Limitations on ownership

Only the controlling individual (who must be a licensed real estate professional) may own voting shares. A PREC may only have one voting shareholder, who is the controlling individual. As well, the controlling individual must be the only director and senior officer of the corporation.

The Regulation allows certain persons to hold non-voting shares of a PREC, namely: (i) the controlling individual’s spouse; (ii) the controlling individual’s child; (iii) a corporation, all of the shares of which are owned by the controlling individual and/or their spouse or children; or (iv) a trust, all of the beneficiaries of which are the controlling individual and/or their spouse or children.

Failure to meet these ownership requirements renders the PREC’s licence immediately inoperative. The Rules state that a PREC must promptly notify BCFSA if it does not continue to maintain the ownership requirements. The penalties for non-compliance can be significant. Accordingly, it is vital to ensure the ownership of a PREC is properly documented in compliance with the Act.

Limitations on activities

Personal real estate corporations are restricted to providing only certain types of business. Specifically, a PREC must not conduct any business other than the provision of real estate services and ancillary services directly associated with the provision of real estate services.

The BCFSA has established examples as to what, in their view, would fall outside “ancillary services directly associated with the provision of real estate services” and thus prohibited activities.  The following are examples of activities that BCFSA considers prohibited:

  • trade in stocks or bonds, other than modest trading in stocks and bonds that constitute a capital gain (as opposed to income from business) and not so extensive that it is regarded as the business of the PREC;
  • ownership of real estate beyond that required by the personal real estate corporation for the provision of real estate services;
  • engaging in the business of real estate development.

The BCFSA examples are intentionally broad, and they are examples only. Therefore, real estate professionals should obtain legal advice before conducting any activities in a PREC other than the direct provision of real estate services, with the appropriate licence.

Incorporation of a personal real estate corporation

One of the first steps to incorporation is to request name approval. The request is submitted to the BC corporate registry. Presently, the registry does not require consent of BCFSA when approving a name request for a PREC; however, the real estate professional must ensure the name complies with the Regulation to be eligible to obtain a licence from BCFSA.

All personal real estate corporations follow the same naming rules. The name must include (i) the legal name, a recognizable short form of the legal name or the licensee name of the controlling individual; and (ii) the words “personal real estate corporation”, and nothing else.

Once the name is approved—which may take several weeks unless a priority request is made—the incorporation formalities may be completed.

As with all incorporations in BC, the incorporator must, before filing an incorporation application, sign (notably, in original ink) an incorporation agreement and articles for the personal real estate corporation. Corporate lawyers regularly prepare these documents and it is advisable to seek legal advice in this regard.

A corporate lawyer can also help with various supporting documents for incorporation, such as: a consent to act as a director, organizational shareholder’s and director’s resolutions, share certificates, and creating the various registers required by the Business Corporations Act, including a central securities register, register of directors and transparency register for the new company.

After incorporation

After incorporation, a PREC is subject to the same annual report filing requirements as any BC company. Every company must annually, within 2 months after each anniversary date of its incorporation date, file an annual report in the form established by the registrar. The annual report is a corporate law requirement and is completely separate from the company’s tax return. For example, if a company was incorporated on July 1 in a given year, then it must file an annual report in each subsequent year between July 1 and August 31. No annual report is due in the year of incorporation. Corporate lawyers regularly assist companies to comply with these annual filing requirements.

As noted above, the provision of real estate services in BC is governed by the Act and regulated by the BCFSA. Licensees must apply for and obtain a license from BCFSA before providing real estate services through a PREC. All licensees are encouraged to review the information on the BCFSA website regarding PRECs. Here you will find important information, including information about allowable activities, license applications and fees, and advertising and other rules governing PRECs. As well, the BCFSA has published resources on the matter.

There are numerous other things the PREC will want to do after incorporation, including but not limited to: applying for a licence with BCFSA, opening a corporate bank account, registering for GST, selecting a financial year-end for the company, and registering with WorkSafeBC. It goes without saying that the assistance of an accountant and a corporate lawyer can be invaluable at this time.

Share:

More Posts

Langley_Surrey_Lawyers_Annual_Reports_Business Law

Annual Reports for BC Companies

In this article, we discuss the Annual Report and other routine annual paperwork that would apply to a typical, privately held British Columbia company.

Leave Us A Message

Please do not send confidential or time-sensitive information through this form. This inquiry does not create a solicitor-client relationship.