Mahoning Valley REALTOR® Online Magazine

By Peg Ritenour, OAR Vice President of Legal Services/Administration

Did you know that Ohio law permits agents to have their commissions paid to a corporation or other legal entity? Ohio License law was changed several years ago to permit this so REALTORS could take advantage of any tax benefits that may exist by incorporating or forming an LLC.

While the small business tax deduction that was in the Governor’s original budget was taken out by the House, the idea may not be totally dead as some members of the Ohio Senate have expressed interest in reinserting a version of a targeted cut into its version of the plan. Either way, REALTORS who haven’t formed such an entity should definitely consider doing so.

Below are some of the key aspects of the license law provisions you need to know as an agent or as a broker whose agents want to form a separate entity:

A licensee’s commissions can be paid to either a partnership, association, limited liability company, limited liability partnership or a corporation in which the licensee has an ownership interest or is an officer.
There is no minimum amount of stock or other ownership interest that an agent must own. Unlicensed persons such as a licensee’s spouse or children can also have an ownership interest in an entity to which commissions are paid.
Agents are not relieved from personal civil liability by incorporating. Prior to paying an agent’s commission to such an entity, the broker is required to verify that the agent is either an officer or has some ownership interest in the legal entity to which they want their commissions paid. The broker also must keep a record of this verification for a period of three years along with the following additional information:
- The name of the licensee who earned the commission, fee or other compensation;
- The amount paid; and
- The name of the entity to which it was paid
Examples of verification would be:
- A copy of the articles of incorporation listing the agent as an officer;
- A copy of a stock certificate demonstrating an ownership interest;
- A copy of the partnership or association agreement;
- A copy of the articles of organization for an LLC
Although not required by statute, a broker may want to ask the agent for a copy of the entity’s authorization to do business in Ohio and ask the agent to sign a statement that they:
- Are an officer, stockholder, etc.;
- That the legal entity is authorized to do business in the state of Ohio;
- That the entity is properly registered and in good standing;
- That the entity and any unlicensed owners of that entity will not engage in any activity that requires a real estate license;
- That they will notify the broker if any of that information changes or is no longer true (i.e., the agent no longer has an ownership interest, the entity is not in good standing, etc.)