Steps to follow for establishing a new real estate business
Thursday, June 02, 2011
By Jeffrey Ostlie, Esq.
When deciding to open a new real estate business, careful considerations should be taken to ensure your business is established correctly.
One of the first things that you should do is determine what type of entity will be used to operate your company. You can operate a real estate brokerage as a sole proprietorship, a partnership, a corporation, or as a limited liability company ("LLC”). Today, most business owners opt to organize their real estate firm as a corporation or as an LLC, because both structures provide the benefit of limiting personal liability for company operations. When determining what type of entity is best for your company, you should consult with both your attorney and your tax professional.
It is critical that your corporation or LLC is set up correctly and you properly maintain it on an ongoing basis. Your attorney will assist you in properly setting up your business entity and should instruct you on what steps you should take to comply with corporate formalities. Your tax professional can suggest which type of structure will yield the greatest benefits to you for tax purposes.
Once your business entity is set up and your articles of incorporation or organization are submitted to the Florida Department of State Division of Corporations, your next step is to register your company with the Department of Business and Professional Regulation ("DBPR”) as a real estate brokerage. This can be done by filling out DBPR form RE7 and sending it in to the DBPR, or you have the option of completing your application online at www.myfloridalicense.com.
If you are registering as a corporation or an LLC, there are a couple of things that you need to keep in mind that are unique to real estate companies regarding who can hold certain positions in the company.
Corporations as Real Estate Brokerages
Corporations consist of a board of directors, officers, and shareholders. Shareholders are the "owners” of the company; they are entitled to the profits of the company and have voting rights that they use to elect the board of directors. The board of directors oversees the business and appoints officers to run the day-today operations of the corporation.
When a corporation is registering with the DBPR, anyone who is elected to the board of directors or appointed as an officer must be registered with the DBPR, reflecting his or her position in the corporation. It is critical to understand that a person who holds the position of director or officer must either be registered as a qualifying broker or must be unlicensed. This means that sales associates and broker-associates are prohibited from holding the position of officer or director in a real estate corporation. If an unlicensed person (i.e., a person who does not have a real estate license) serves as an officer or director, his or her activities must be limited to non-sales related activities. This means an unlicensed person is prohibited from managing the sales force, directing advertising, or having any contact with real estate customers.
Shareholders of the corporation do not have to be registered with the DBPR and there are no licensing requirements, meaning a shareholder can be a broker a broker associate, a sales associate, or unlicensed.
LLCs as Real Estate Brokerages
An LLC is similar to a corporation but has fewer formalities. For instance, you are not required to have a board of directors or officers, although you may choose to have them. LLCs are divided into two types: member-managed LLCs and manager-managed LLCs.
In a member-managed LLC, the "owners” of the company, i.e., those individuals who have entitlement to the company profits and voting rights, are called members and, in a member-managed LLC, they are also responsible for running the day-to-day operations of the company and they are referred to as managing members.
As compared to a corporation, you might think of the managing member as combining the roles of shareholders, directors, and officers into the single category of managing members.
Similar to a corporation, when registering an LLC with the DBPR, a managing member of an LLC must either be a qualifying broker or be unlicensed. Again, any unlicensed individual’s activities must be limited to non-sales related activities.
In a manager-managed LLC, the rights and duties of the individuals comprising the entity are split between managers and members. Members are like shareholders in a corporation, in that they have the right to profits and voting power to elect or appoint the managers who run the day-today operations of the company, similar to officers of a corporation. In a manager-managed LLC, sales associates and broker-associates are prohibited from acting as managers of the LLC but are permitted to be members.
So, What’s Next?
Once your corporation or LLC is registered with the DBPR and you are issued your company’s real estate license, you are authorized to sell real estate in the State of Florida; however, most companies will want to take the next step by registering their company with the REALTOR® organizations.
Regardless if your company is formed as a corporation, an LLC, or any other type of structure, in order to join the Orlando Regional REALTOR® Association ("ORRA”) you must fill out the required application.
Unlike when you register with the DBPR and you are permitted to register multiple individuals as qualifying brokers, when you register with ORRA you will designate only a single broker in your company to act as the principal broker or "Designated REALTOR®.” If you have multiple brokers, you will want to carefully select which broker will serve as the principal broker with ORRA. The principal broker will have a great deal of responsibility. He or she will be the primary person authorized to act on behalf of your company in relation to ORRA. In addition, the REALTOR® status of each sales associate in your company flows from the fact that the principal broker holds membership in ORRA, meaning that if the principal broker resigns or is suspended or expelled from ORRA, all other REALTOR® memberships in your firm are subject to termination or suspension as well.
When you register your company with ORRA, you will need to schedule an appointment with the ORRA Membership Department. When you go to your scheduled appointment you will need to bring the following items (forms are located under the "Membership” tab on the ORRA website). A completed and signed ORRA Membership Application. A completed and signed MFRMLS Participation Fee and Activation Agreement. A completed and signed ORRA Principal Broker Form. A copy of your broker’s license. A copy of the firm’s license, issued by the DBPR. Payment for applicable fees and dues.
ORRA member Jeffrey Ostlie is a broker with Realty Executives Seminole; a licensed attorney with the Law Office of Jeffrey D. Ostlie, P.A.; and a managing member of Central Florida Title, LLC. He can be reached at firstname.lastname@example.org.
The information provided in this article was written as reference material only and should not be construed as advice by counsel and/or a substitution for obtaining advice from individual counsel and/or tax professionals.
From the January/February 2011 issue of Orlando REALTOR® magazine.