What are the Important Provisions, Restrictions and Exemptions for Establishing a Personal Real Estate Corporation (PREC)

February 2, 2021

The Important Provisions, Restrictions & Exemptions of a PREC

A Personal Real Estate Corporation, or PREC, allows a real estate agent to earn their business income through a corporation. Ontario Real Estate Association has compiled a guide to Personal Real Estate Corporations for Ontario REALTORS to assist their members in understanding the PREC regulations. Following are some of the important provisions, restrictions, and exemptions of establishing a PREC:

General Provisions

  1. PREC will be incorporated under the Ontario Business Corporations Act.
  2. The corporation has one single controlling shareholder (a broker or salesperson who owns ALL the equity shares, which are the voting shares).
  3. The controlling shareholder is the president and sole director and officer of the corporation.
  4. The controlling shareholder is registered as a broker or salesperson.
  5. Any non-equity shares (non-voting) must be owned directly or indirectly by the family members (spouse, children, parents, trust for a minor child) of the controlling shareholder or by the controlling shareholder.

Restrictions on Business/Powers

The following criteria are prescribed for the definition of “Personal Real Estate Corporation (PREC)” in subsection 1 (1) of the Real Estate and Business Brokers Act, 2002:

  1. The corporation is incorporated or continued under the Business Corporations Act.
  2. All of the equity shares of the corporation are legally and beneficially owned, directly or indirectly, by the controlling shareholder.
  3. The sole director of the corporation is the controlling shareholder.
  4. The president, being the sole officer of the corporation, is the controlling shareholder.
  5. Each non-equity share of the corporation is,
  6. legally and beneficially owned, directly or indirectly, by the controlling shareholder,
  7. legally and beneficially owned, directly or indirectly, by a family member of the controlling shareholder, or
  • owned legally by one or more individuals, as trustees, in trust for one or more children of the controlling shareholder who are minors, as beneficiaries

Exemptions from Registration, Conditions

The following conditions are prescribed for subsection 5 (3) of the Real Estate and Business Brokers Act, 2002:

  1. The personal real estate corporation’s controlling shareholder is employed by a brokerage to trade in real estate.
  2. The personal real estate corporation does not carry on the business of trading in real estate other than providing the services of its controlling shareholder to the brokerage.
  3. The personal real estate corporation, its controlling shareholder, its non-equity shareholders, its employees, or its agents do not represent to the public in any manner, directly or indirectly, that the corporation carries on the business of trading in real estate.
  4. The personal real estate corporation does not carry on business as a brokerage.
  5. The personal real estate corporation does not receive, directly or indirectly, remuneration for trading in real estate from any person or entity other than the brokerage.
  6. The controlling shareholder does not receive, directly or indirectly, remuneration for trading in real estate from any person or entity other than the personal real estate corporation or the brokerage.
  7. The personal real estate corporation does not, on behalf of the brokerage, directly or indirectly hold any money or other property of a client, customer, or other person in connection with trading in real estate.
  8. There is a written agreement between the personal real estate corporation, the controlling shareholder, and the brokerage governing the relationship between the brokerage and the corporation and its controlling shareholder.
  9. Under the agreement, the personal real estate corporation agrees not to,
  10. hinder or obstruct the brokerage or its broker of record in the performance of their duties under the Act and regulations, or
  11. hinder or obstruct the controlling shareholder in the performance of the shareholder’s duties under the Act and regulations
  12. Under the agreement, the personal real estate corporation agrees to provide whatever assistance may be reasonably necessary to enable the brokerage and its broker of record to comply with their duties under the Act and regulations and to enable the brokerage and its broker of record to ensure that the controlling shareholder is complying with the shareholder’s duties under the Act and regulations.
  13. Under the agreement, the personal real estate corporation agrees to provide whatever assistance may be reasonably necessary to enable the brokerage to determine whether the conditions set out in this section are met.

Liability and Discipline

If you decide to operate your business through a PREC, you will remain personally liable for the services you provide to Ontario’s consumers and will be held accountable for it. A PREC is not a mechanism for avoiding professional liability, you are personally required to meet all professional obligations and responsibilities outlined in the Real Estate Council of Ontario.

GTA Accounting has helped many Real Estate Investors, and Real Estate Brokers reduce their tax burdens. Contact us to find out how we can help you save money on your taxes.

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