I have been hearing that real estate agents are incorporating. What are their pros and cons? What are you thoughts?

I am aware of a number of people who are salaried by their corporations and deposit all commission cheques to the corporation.

Well, the pros and cons list is really quite huge, but here are some basics:

Pros:
- Should you be sued, have huge difficulties, etc, you are now no longer fully liable when you incorporate (hence Limited Liability Corporation). There is only so much money available as is in the company.

- Possible tax benefits. Speak to your accountant about this one, as it's really different on an individual-to-individual basis, but in some cases even with the corportate + personal income tax you can save more as an LLC.

- Professional image: As far as I have noticed, people tend to see incorporated companies as being more professional.

- Ability to trade publicly in future: if you one day choose to put your company up in the stock market, it's much easier to do so when you've been incorporated privately for some time.

Cons:

- Possibly more expensive at tax time: see above - see an accountant for specifics.

- More expensive to start up. I believe it costs around $500 just to apply for incorporation.


That's really about it that I can think of off the top of my head, in terms of major advantages and disadvantages. Personally, I think it's better to incorporate, simply due to the limited liability issue, especially if you have a family. No risk of losing the family home or car that way

A LLC (limited liability company) is actually a form of business structure currently unavailable in Canada. It is a hybrid creature borrowing characteristics from both corporations and partnerships - i.e. Limited liability with the personal tax benefits of a partnership.

In Canada there are organizations called LLPs (Limited Liability Partnerships); however, in Ontario and most other provinces, only lawyers, chartered accountants and certified general accountants may form LLPs.

Real estate agents in Ontario would most likely structure their business as an Ontario corporation. As already mentioned the primary benefit of incorporation is to shield oneself from personal liability. Since a corporation is a separate legal entity it provides a buffer against personal liability - It is important to note, however, that a court will in some circumstances look past the corporate veil and hold its directors personally liable. Another, often less advantages, consequence of a corporation's separate legal personality is that all profits made in the course of business are those of the corporation. That means the corporation must pay tax before distributing any of the profits to its agents/employees/shareholders/etc.(who will then have to pay their own personal income tax).

The cost of incorporation is generally between $500-1200 depending on the complexity of the structure.

A partnership is a very simple form of business structure. The primary benefit being that you can write your business losses (or that of other partners) off against your personal income. The downside being that you are personally liable for any claims that arise against you or your partner.

To determine what structure is best for you it would be necessary to talk to both your lawyer and accountant.

For more info on incorporation see: http://www.ic.gc.ca/epic/site/cd-dgc.nsf/en/cs01357e.html

Limited Liability Partnership Act.(LLP) in Ontario,Canada

Provides that the partners are not personally liable for the negligent acts of another partner or any employee who is directly supervised or controlled by another partner.

However, each partner continues to be personally liable for his or her own actions and for the actions of those under his or her direct supervision or control.

The partnership itself continues to be liable for the professional negligence of its partners and employees. There is no reduction in limitation on the firm’s responsibilities and all its assets remain at risk.

Limited liability partnerships (LLPs) are dealt with in the Partnerships Act which was at one time, available online at:

http://www.e-laws.gov.on.ca/DBLaws/Statutes/English/90p05_e.htm#BK49 .

See especially section 44.2 which requires that the Act governing your profession expressly permits a limited liability partnership to practise the profession.

Since in Ontario, the Real Estate and Business Brokers Act,2002 does not do so, this arrangement is not available to the real estate profession.

Important Notice: This information is provided as basic educational information by the author and is not a substitute for the advice of an expert and/or the advice of a lawyer. There is NO epresentation as to legality, accuracy, correctness of the herein information and the reader is strongly urged to consult a lawyer in the relevant jurisdiction to ensure accuracy before acting on this information .