Legal Forms: Corporation

Definition: A separate legal business entity created under state law, usually formed to insulate the broker and owners of the corporation from personal liability.

Key points:

  • The corporation is owned by the shareholders who contribute money or property in exchange for share(s) in the corporation.
  • The shareholders elect a Board of Directors to oversee the operation of the business; the Board of Directors elect officers to handle the day-to-day operations.
  • At least one individual broker must be affiliated with the corporation for it to be licensed as a brokerage; there can, however, be an unlimited number of licensed brokers affiliated with a corporate brokerage.
  • Salespersons or unlicensed persons may own stock in a corporation that is licensed as a broker, may serve on the Board of Directors or may serve as an officer. If an unlicensed person is an officer, he must submit an affidavit to the Division of Real Estate and Professional Licensing stating that he is not authorized to and will not perform any acts requiring a real estate license. (Ohio Administrative Code Section 1301:5-1-03)
  • Copies of Articles of Incorporation, bylaws, and certificate of good standing must be submitted to the Division along with the corporation’s application for a broker’s license.
  • Corporation can be “C” Corporation or Sub-S Corporation (see below).

Advantages of a Corporation

  • A broker does not have to use only his own assets to create the business, but can generate capital by the sale of stock.
  • The broker(s), officers and directors are generally not personally liable for the debts of the corporation.
  • If more than one broker is licensed with the corporation, the business will not terminate upon the death of one of the brokers or the suspension of one broker’s license.
  • Interest in the corporation can be easily transferred by selling one’s share(s).
  • Responsibility for management of the company and financial risk is not carried alone.

Disadvantages of a Corporation

  • Establishing a corporation is more complicated and costly because it involves the creation of new legal entity, the preparation of governing documents by an attorney and filing requirements with the Ohio Secretary of State.
  • If there in only one broker licensed with the corporation, the business must cease upon the death of that broker or the suspension of his license.
  • Tax issues for “C” Corporation
    • Double Taxation – the corporation is taxed on its income; shareholders also are taxed on earnings distributed as a dividend.
  • Sub-S Corporation
    • S-Corp is not taxed; income, losses & profits are “passed through” to shareholders
    • No personal liability for shareholders
    • Restrictions
      • No more than 100 shareholders, possible to have only 1
      • Restricts types of shareholders – corporation, partnership, etc. cannot own shares
      • No subsidiaries
      • Only 1 class of stock