Ohio law permits agents to have their commissions paid to a corporation or other legal entity. This allows REALTORS to take advantage of any tax benefits that may exist for them by incorporating. The following are answers to some of the questions asked about this new law change.
1 Q: Does the law only permit an agent to have their commissions paid to a corporation? Could I form a limited liability company if my CPA recommends that instead?
A. HB 272 permits a licensee’s commissions to be paid to either a partnership, association, limited liability company, limited liability partnership or a corporation in which the licensee has an ownership interest or is an officer.
2 Q: Is there a minimum amount of ownership interest that an agent must have?
A. No, there is no minimum amount of stock or other ownership interest required. Therefore, even a 1 percent interest would be sufficient.
3 Q: Can unlicensed persons such as my spouse or children have an ownership interest in a corporation to which my commissions are paid?
A. Yes. The corporation does not need to be wholly owned by licensees.
4 Q: I work as a team with another agent. Could we form a corporation and each own 50 percent?
A. Yes, more than one licensee can have an ownership interest in the corporation to which they direct their commissions be paid.
5 Q: What type of tax savings can an agent realize by incorporation?
A. That depends on each agent’s individual financial situation. Income level, deductions, retirement plans, etc. are all factors that effect whether a corporation or some other structure will produce a tax savings for an individual. In fact for some agents, once the expense of forming and maintaining the corporation is factored in, there may be no tax benefit whatsoever. For this reason it is extremely important for each agent to receive advice from a tax attorney, CPA, or other tax professional before incorporating or forming any other type of business entity.
6 Q: Will I be shielded from personal liability by incorporating?
A. No. The license law clearly states that an agent is not relieved from personal civil liability by incorporating.
7 Q: As an agent if I form a corporation, limited liability corporation, etc., do I have to get that entity licensed by the Division of Real Estate and Professional Licensing?
A. No, HB 272 did not create a new category for licensure of these entities. Instead, you will still be licensed as an individual. The new law merely allows your broker to now legally pay your commissions to whatever legal entity you form.
8 Q: I am licensed as an individual broker with a brokerage, but I really function as a salesperson. I have no ownership interest or managerial position in this brokerage. Can I form a corporation and have my commissions paid to it, or does the new law only allow agents to do that?
A. The new law applies to both individual agents and brokers. Therefore, you may take advantage of the new provisions as well.
9 Q: Can I advertise and conduct business under my corporate name?
A. No, you must still advertise and conduct all real estate activity in your individual name as it appears on your license.
10 Q: As a broker what is required of me if my agent asks that their commissions be paid to their corporation, limited liability corporation, partnership, etc.?
A. You are required to verify that your agent is either an officer or has some ownership interest in the legal entity to which they want you to pay their commissions. You also must keep a record of this verification for a period of three years along with the following additional information:
1. The name of the licensee who earned the commission, fee or other compensation;
2. The amount paid; and
3. The name of the entity to which it was paid
11 Q: What type of verification should I get from the agent?
A. Examples of verification would be:
- A copy of the articles of incorporation listing the agent as an officer;
- A copy of a stock certificate demonstrating an ownership interest;
- A copy of the partnership or association agreement;
- A copy of the articles of organization for an LLC
A broker may want to ask the agent for a copy of the entity’s authorization to do business in Ohio. Although not specifically required by law, a broker may also want to ask the agent to sign a statement that they:
- Are an officer, stockholder, etc.;
- That the legal entity is authorized to do business in the state of Ohio;
- That the entity is properly registered and in good standing;
- That the entity will not engage in an activity that requires a real estate license
And that they will notify the broker if any of that information changes or is no longer true (i.e., the agent no longer has an ownership interest, the entity is not in good standing, etc.)