Does your Business Entity have a Real Estate Licence?
Did your accountant, business advisor, or attorney tell you that you "should" form a limited liability company (LLC), a corporation, or a partnership for your brokerage activities? While there may be good business or tax reasons to do so, there are also risks involved.
A License is RequiredWhen a license holder forms a business entity to perform real estate brokerage activities or to receive a commission or fee for brokerage activities, the business entity must have its own Texas real estate broker license. If not, serious penalties and other discipline could result. In addition, the designated broker must be a manager of the LLC, an officer of the corporation, or a general partner in the partnership and must sign the application for a business entity license. If the designated broker does not own 10 percent or more of the business entity, then the business entity must provide proof to the Commission that the entity maintains errors and omissions insurance with a minimum annual limit of $1 million for each occurrence.
EnforcementFrequently, TREC reviews situations where an unlicensed business entity engages in an activity that requires a license. When caught, the penalties can be harsh for any license holders involved in the activity. Sections 11 01.652(b)(11) and (26) of the Texas Occupations Code prohibit paying a commission or fee to, or establishing an association by employment or otherwise with a person other than a license holder if the person is expected or required to act as a license holder. The Rules provide for suspension or revocation of a license and/or administrative penalties of $1,000 to $5,000 per violation per day for such a violation.