Personal Real Estate Corporations, Part Three: Corporate Structure & Liability
PREC AUTHORITY AND LIABILITY
As detailed in Part One, the Controlling Registrant must maintain all powers, title, and authority of your PREC. You hold every applicable office and delegation of any powers, title, or authority is strictly prohibited.
REBBA and OBCA regulate director and officer liability for Ontario PRECs. OBCA permits directors to appoint proxies or committees that may share their powers. However, PRECs are not permitted to such leniency; transfer of the Controlling Registrant’s powers is not permitted. Any provisions, agreements, or otherwise that impede, in whole or in part, the ability for a director/officer to manage or supervise the PREC are strictly prohibited.
Existing Corporation or Brokerage
For Registrants with an existing Ontario corporation, conversion into or continuance of said company into a PREC is permitted. But, the existing corporation, and its structure, must adhere to both OBCA and REBBA requirements. Before considering this avenue, note that the existing corporation’s history will become fundamentally connected to your PREC upon conversion or continuance. This includes any and all liabilities, finances, investments, etc. Therefore, it may be beneficial to form a separate entity.
REBBA also permits Agents to convert an existing brokerage into a PREC; however, the brokerage would be required to stop trading in real estate immediately. Further, the brokerage would no longer be a Registrant and the closure of such brokerage would require the Agent to follow any regulatory or internal termination requirements. It is highly recommended that you discuss the possibility of converting your existing business with both your financial advisor and a qualified legal representative.
Holding Companies and Trusts
REBBA allows for the Controlling Registrant to hold equity shares directly or indirectly. This means that it is within your authority to hold shares in your PREC as a holding company or trust. But it is important to note that this decision may impact your tax incentives. Both holding companies and trusts are permitted to hold non-equity, non-voting shares in the PREC in accordance with REBBA regulations; however, trusts are not permitted to hold any equity shares given that the Controlling Registrant must both legally and beneficially own all the equity shares.
An affiliated holding company is permitted to own equity shares in your PREC so long as such corporation is structured exactly like your PREC and the Controlling Registrant holds all voting shares and authority. This structure holds several growth possibilities, specifically with respect to future real estate investments and asset protection. As an equity shareholder, your holding company will be able to draw funds from the PREC as a dividend and, in essence, loan such funds back to the PREC as needed.