LICENSING LAW – INCORPORATION OF
SALESPERSONS AND ASSOCIATE BROKERS
On August 10, 2004, Governor Pataki signed into law Chapter 316 of the Laws of 2004 amending Section 442 of the Real Property Law of the State of New York. The New York State Association of Realtors has promoted legislation requesting that the Department of State consider a change in the licensing law to permit real estate salespersons and associate brokers to form a corporate entity or limited liability company. In the past, the Department of State did not allow these entities to be licensed in a corporate name. The new legislation authorizes a broker to pay commissions to an unlicensed limited liability company or unlicensed corporation if each of the members of the limited liability company or each of the shareholders of the corporation is associated with the broker as a duly licensed salesperson or associate broker. While an associate broker may maintain a separate license as a real estate broker, the practice by such individual is governed exclusively by the provisions of Article 12(a) as pertains to real estate salespersons. In other words, when an individual is licensed as an associate broker, he or she is treated for all purposes as a salesperson and, as such, the license as an associate broker must be held individually.
Under the new law, real estate salespersons and associate brokers must still be licensed individually. This preserves the integrity of the supervisory structure and does not change the relationships, obligations and responsibilities of brokers, salespersons and associate brokers as have existed under the law. The only change in Section 442 limits to whom a broker may pay a real estate brokerage commission. The new law adds a provision specifically allowing a real estate broker to pay a commission for licensed activity to an unlicensed limited liability company or unlicensed corporation where each of the members of the limited liability company or each of the shareholders of the corporation is associated as an individually licensed real estate salesperson or associate broker with the broker. The law also allows more than one salesperson or associate broker, or combination thereof, to form a limited liability company or corporation and to receive into the limited liability company or corporation commissions of all of the salespersons and/or associate brokers so long as each of the members of the limited liability company or shareholders of the corporation are associated with the broker paying such commissions.
When salespersons or associate brokers form a new entity either through a corporation or limited liability company, the principal broker should obtain a statement from the salesperson or associate broker that the corporation or limited liability company which has been formed is an unlicensed entity and is owned solely by the individual or individuals who are affiliated with the broker. A sample statement to be signed before a notary public is as follows:
State of New York )
) ss:
County of ________________ )
John Smith, being duly sworn, deposes and says: - I am a duly licensed salesperson (associate broker) affiliated with XYZ Realty, Inc.
- I have formed a corporation (limited liability company) under the name of (Name of Entity).
- (Name of Entity) is not licensed as a real estate brokerage entity and is owned solely by myself.
- I request that all future commissions payable to me, earned in my capacity as a salesperson (associate broker) with (Name of Entity) be paid to (Name of Entity).
_____________________________
John Smith
Sworn to before me this ___
day of __________, 200__
Notary Public
It is strongly recommended that you speak with your tax advisor to determine if forming a corporation or limited liability company will result in greater tax savings for you. The fact that Section 442 of the RPL has been amended to permit the formations of a corporation or limited liability company does not necessarily mean that this is the best option for you.
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