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 personal real estate corporation.
This article is not intended to be an exhaustive summary of the law—rather, we highlight some general information with respect to incorporation of personal real estate corporations. The decision to incorporate a personal real estate corporation is personal to the real estate professional and should be based on accounting and legal advice.
BC 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 personal real estate corporations 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 personal real estate corporation.
All real estate professionals who incorporate a personal real estate corporation must maintain two licences: one for the personal real estate corporation and one for themselves. The licence of the personal real estate corporation 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 personal real estate corporation 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 personal real estate corporation may own voting shares or act as a director or officer of the personal real estate corporation. 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 of personal real estate corporations
Limitations on ownership: Only the controlling individual (who must be a licensed real estate professional) may own voting shares of a personal real estate corporation. A personal real estate corporation 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 personal real estate corporation.
The Regulation allows certain persons to hold non-voting shares of a personal real estate corporation, 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 personal real estate corporation’s licence immediately inoperative. The Rules state that a personal real estate corporation 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 personal real estate corporation 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 personal real estate corporation 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 for personal real estate corporations. The following are examples of activities that BCFSA considers prohibited for personal real estate corporations:
- 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 personal real estate corporation;
- 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 personal real estate corporation 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 for the personal real estate corporation. 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 personal real estate corporation; 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 incorporating a personal real estate corporation
After incorporation, a personal real estate corporation 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 personal real estate corporation. All licensees are encouraged to review the information on the BCFSA website regarding personal real estate corporations. Here you will find important information, including information about allowable activities, license applications and fees, and advertising and other rules governing personal real estate corporations. The BCFSA has published other excellent resources on personal real estate corporations, which we recommend reading “A Guide to Personal Real Estate Corporations”.
There are numerous other things the personal real estate corporation 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 a good accountant and a corporate lawyer can be invaluable at this time.