Any rules on CORP name for Real Estate agents?

Question

Hi there, I've decided to form a corporation in CA for my real estate investing in January. I will be getting my real estate agent's license in January also, as long as all goes according to plan. I'm choosing Corp over LLC because I will be earning active income vs passive with rehab/flipping and buyer closing costs; I am not holding any rental properties with this corp.

When choosing a name for my corp, are there any rules against what name I can use as an agent? Obviously, I'll try to use something that sounds related to what I am doing, but I don't need to include my name in the title, right? I wouldn't think so, but wanted to make sure.

Also, do you think it would be best to include "Investments" or "Properties" or something like that in the name, or should those terms only be added to investment firms, or rental agencies?

Thanks!

Bryan Zuetel · Answer

@Shawn Regnier, yes, there are many rules promulgated and enforced by the California Department of Real Estate regarding the name for your real estate corporation, if you intend for the corporation to hold a California real estate license.  However, you used the word agent in describing your license.  Are you obtaining a salesperson (agent) or broker real estate license?  You will need a broker-officer of the S Corporation (DRE will only license S corporations, not LLC's), and there are many naming rules.  You can visit the DRE's corporation license page here for more info:

http://www.dre.ca.gov/licensees/Corporation.html

Stanley Bronstein · Answer

@Shawn Regnier Different states have different rules. As @Eamonn McElroy suggested, you need to call your state licensing board.

Oh, and some attorneys can help you with tax advice as well.

Shawn Regnier · Answer

Thank you @Stanley Bronstein

Eamonn McElroy · Answer

@Shawn Regnier

Sounds like you have done your research, and are planning on forming a legal corporation and making an S election for tax purposes.

A reminder, remember to file your S election within applicable time limits (there is relief for late filing but reasonable cause is required), and also to pay out 'reasonable compensation'.

California recognizes the federal S election so no separate state S election is required.

Another note, reasonable comp is not plucked out of the air, or applied at a general percentage level, but determined according both your businesses and your facts and circumstances.  Encourage you to work with your CPA/EA to determine this figure.  Perhaps he/she can run a reasonable comp study for you.

Best of luck.

Shawn Regnier · Answer

Thank you for the response @Eamonn McElroy, I generally read most of your responses to people's questions because I value your opinion. I will be using C Corp, since S Corp is just the designation, and will be the only owner.

I made my decision after reading a bunch of BP threads on the subject of LLC vs Corp, and I really liked a lot of what @Linda Weygant had to say in the threads below, in regard to corporations:

https://www.biggerpockets.com/forums/51/topics/625641-s-corporation-tax-scenarios

https://www.biggerpockets.com/forums/51/topics/430130-s-corp-or-llc-for-flips

https://www.biggerpockets.com/forums/311/topics/434237-why-do-investors-choose-llcs-over-s-corps?page=2

Also, in the third thread I listed, @Albert Bui (a lender from Seattle) also made an interesting point in the last part of his post when he said:

"One big reason is that properties held in S corps or LLC's taxed as scorps (wait whaa, yeah LLC's can be taxed as partnerships, S corps, and C corps) when transferred have to leave at market value which might be a problem if you bought it for 100k and now its worth 180k because, thats a 80k gain you got on your hands when this property is transferred (unless if you transfer or sell it to yourself at cost basis).

The other reasons is like most people said regarding self employment taxes and avoidance of them in totality.

Another reason is you may not want to comingle your liabilities of your buy and hold properties with your active business (wholesaling, flipping, consulting, etc) which may compound your risk for lawsuits.

However, to the contrary I see tons of S-corps with investors or LLC's taxed as scorps for flippers or people who use their scorps for active businesses like hard money lenders and flippers.

The benefit of Scorp is that us conventional lenders like to see income surrounded by a veil of s-corp legitimacy even though its only a couple pieces of paper filed with the state. Magically your income within or flowing from an scorp is somehow more usable or legitimate in a lending context. (hint hint)

Albert Bui, Lender in TN (#345453), TX (#345453), WA (#345453) and CA (#345453)"

Eamonn McElroy · Answer

@Shawn Regnier

I would give your licensing board a call on Monday.  Usually they're the ones that set the rules on what a business name can and can't contain.

An LLC can be taxed as a corp.

How did you decide on a corp?  C Corp or S Corp?

A real estate agent / brokerage trade or business doesn't constitute a 'specified service trade or business' under IRC Sec 199A.

Best to talk to an attorney for the legal perspective, a tax CPA/EA for the tax perspective.

You have Disregarded Entity, C Corp, or S Corp at your disposal for tax, assuming you're the 100% owner.

Any rules on CORP name for Real Estate agents?

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