Which Entity May Not Be Registered As A Real Estate Brokerage

mike denious

Michael Denious

Stoops, Denious, Wilson & Murray, PLC

Broker Entities
Real estate brokers may conduct business every bit a self-employed broker (sole proprietorship), corporation, full general or limited partnership, a limited liability partnership or limited liability company. At that place are no restrictions on buying of the entity by licensed versus unlicensed individuals, or other entities for that matter. Even so, under A.R.S. § 32-2125(A) any corporation, limited liability visitor or partnership holding a real estate license must designate a "natural person" who is licensed every bit a broker to human activity as the company'due south designated banker. The designated broker, or "DB," must be an officer of the corporation, a partner of the partnership, or a member of the LLC (or a director of the LLC if the company's direction is vested in one or more managers of the LLC). With regard to corporations, the designated broker is not required to serve on the lath of directors or concord stock in the corporation – just equally noted in a higher place, he or she must be an officer.

Salesperson Entities
Every bit whatever licensed broker or salesperson knows, real estate salespersons must operate under the employ of a licensed employing broker and be compensated through that banker. Nevertheless, the real estate statutes specifically let salespersons, associate brokers, and more recently designated brokers, under an employing banker to utilise their own sub-entity, subject to various requirements.

Grade of Entity – The PLC or PC
Salespersons and associate brokers cannot use the LLC or normal (non-professional person) corporation entity. The entities available are either a professional corporation ("PC") or a professional limited liability company ("PLC"). To the extent a designated broker seeks to be licensed as an entity separate from the employing broker of which he or she is the designated broker, he or she may besides utilize a PC or PLC, under the recently-amended A.R.S. 32-2125(B). Use of a PC or PLC entity involves diverse restrictions, but also certain benefits.

Use of an entity allows the amanuensis to receive compensation (commissions) from the employing broker through the entity, which is specifically permitted by A.R.S. § 32-2125(B), and to pay employees and expenses through the entity. The entity may elect to be taxed as either a sole proprietorship or corporation (presumably subchapter Southward) in the case of a single agent fellow member or shareholder, or as a partnership or corporation in the instance of ii or more agent members. It is often advantageous (revenue enhancement-wise) for an individual licensee to form a PLC or PC and elect subchapter S status for the entity.

Farther, the PLC or PC will afford some protection from liability, though these "professional person" entity forms do not offer the wide protection from personal liability offered by an LLC or not-professional corporation.

For example, a member of a PLC will notwithstanding be liable for his or her own malpractice too as for the malpractice of those persons under his or her direct supervision and control while performing professional services on behalf of the entity. A.R.S. § 29-846. Yet, the fellow member(south) of a PLC and the shareholder(due south) of a PC are protected from personal liability for the contractual obligations of the entity (e.g., function lease, car lease, other business concern debts) unless they have personally guaranteed the obligations. As well, they are not personally liable for liabilities of the entity not arising out of professional services (e.g., accidents on business bounds).

The limited protection from personal liability for acts of other persons in the PLC or PC may exist helpful for purposes of avoiding general partnership liability that might otherwise arise under sure circumstances. It is now a common do for agents to combine under "teams" or "groups" to promote their real manor services1. While agents who work together under the same employing broker are not automatically "partners," there is a case to be made that real manor agents who work together and promote themselves every bit "teams" or "groups" and share their commissions have formed a partnership. There are no Arizona cases supporting this proposition, however, nether the general partnership statutes a partnership may be deemed to exist even absent a written agreement or commitment between the "partners"; under the partnership statutes, "the association of 2 or more persons to carry on as co-owners a concern for profit forms a partnership, whether or not the persons intend to form a partnership." A.R.S. § 29-1012(A). Partners are jointly and severally liable for the obligations of their partnership enterprises.

Principals
The "principals" (the members of a PLC or shareholders of a PC) must each agree active real estate licenses. A.R.S. § 32- 2125(B).

Employing Broker
The members or shareholders of the PLC or PC must all be licensed under the same employing broker. An exception exists for a hubby and wife who are members/shareholders and both agree agile licenses, in which example each may have different employing brokers as long as at that place are no other members of the PLC or PC.

Name
A PLC or PC may not utilise a fictitious name – the visitor name must consist of the full or last names of each of its members or shareholders. A.R.S. § 29-845; A.A.C. R4-28-303(F). A PLC must contain the words, "professional person express liability company," or the abbreviations "P.L.L.C.," "PLLC," "P.L.C.," or "PLC." A PC must incorporate the words, "professional corporation," "service corporation," "limited," "chartered," or one of the post-obit abbreviations: "P.C." "P.A.," "S.C.," "Ltd" or "Chtd."

1 Employ of the "team" or "grouping" moniker was previously specifically permitted nether former A.A.C. R4-28-502(K). That provision has been deleted from the present Commissioner'south Rules. The Arizona Department of Existent Estate even so considers such "squad" or "group" designations to be permissible, though they are no longer addressed in the Rules.