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Flashcards in Chapter 5: Types of Business Formations Deck (44)
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1
Q

Businesses that may register as a real estate brokerage

A
  1. Limited Liability Company
  2. Corporation for Profit
  3. Not-for-Profit Corporation
  4. Limited Partnership
  5. Limited Liability Partnership (LLP)
  6. Sole Proprietorship
  7. General Partnership
2
Q

Limited Liability Company

A

professional service corporations, professional limited liability companies, or individuals, all of which are licensed and authorized to render the same professional service, can form a limited liability company for profit. Members are liable only for the acts of their agents or employees but not for the acts of other members.

3
Q

Limited by professional licensure

A

limited liability companies may not engage in any business other than that permitted by their professional licensure. A company or individual not licensed in the profession for which the limited liability company was formed cannot be a shareholder.

4
Q

Relationship must be severed

A

the limited liability company relationship must be severed with any member, officer, shareholder, agent, or employee who becomes disqualified to continue practice in their licensed profession. Failure to do so is cause for judicial dissolution of the limited liability company.

5
Q

Registration LLC

A

a limited liability company is registered with the Secretary of State and its name is required to be on file.

6
Q

LLC organization name

A

can be the name of one or more of the shareholders or individual members, and must contain the word “chartered.” However, in the case of a professional association, the words “professional association” or the letters “P.A.,” and, in the case of a limited liability company, the words “limited liability company” or the abbreviation “LLC” must be included.
- the word “company,” “corporation,” or “incorporated” may not appear in the name. identification is limited to the word “chartered,” “professional association,” or “P.A.”

7
Q

LLC incorporation by a sales associate or broker associate

A

may form, and be registered as, either a professional association (PA) or limited liability company (LLC). The license, however, will be issued only in the legal name of the individual. The formation of a professional association or limited liability company will not allow such individuals to serve as officers in a brokerage corporation or as partners in a brokers partnership.

8
Q

LLC may register

A

with the department, and conduct real estate brokerage activities in the same manner as a real estate brokerage corporation.

9
Q

Corporation for Profit

A

is an artificial person created by law. The owners of the corporation are issued shares of stock in the corporation and are known as stockholders. The stockholders elect a board of directors to manage the affairs of the corporation. The board appoints corporate officers, such as a president, vice president, secretary, and treasurer, to carry out the day-to-day business of the corporation. One person can form a corporation in Florida, own all of the stock, and hold all of the positions and officers’ positions on the board of directors.

10
Q

The corporate veil

A

the board of director’s members and officers are not individually liable for their actions in connection with corporate business. The law views the actions as those of the artificial person; the corporate veil protects the individuals from personal liability. The corporate veil can be pierced to allow action against individual officers, directors, and stockholders in cases, which involve fraud or civil wrong doings, called torts.

11
Q

Domestic Corporation

A

Florida- a corporation created under Florida law. To form, a proposed charter (or articles of incorporation) must be filed with the Secretary of State in the Department of State.

12
Q

Foreign Corporation

A

another state- any organized under the laws of another state.

13
Q

Alien Corporation

A

another country- any organized under the laws of another country.

14
Q

Corporate Charter

A

the corporate charter specifies the name, life span, and powers of the corporation.

15
Q

Corporate Name

A

must include the word “corporation,” “company,” “incorporated,”, or the abbreviation “Corp.,” “Inc.,” or “Co.” No business is allowed to use the word “company” in its name unless it is formed legally as a corporation or unless the words “not Inc.” are added.

16
Q

Life Span and Powers

A

life span can be for a set period-of-time or be perpetual. The powers are the activities in which the corporation is authorized to engage, such as lending money or brokering real estate.

17
Q

Corporation Dissolved

A

can be dissolved by the stockholders, courts, or failure of the corporation to file an annual report and pay the applicable fees as required by the state. However, a corporation is not dissolved because of bankruptcy.

18
Q

A real estate brokerage corporation must

A

provide proof of legal corporate existence prior to its initial registration with the Department. The corporation and the names of all officers and directors of the corporation must be registered. At least one corporate officer must have an active real estate broker’s license.

19
Q

Corporate Licensure

A

all corporate officers and directors, who provide real estate services to the public either directly or indirectly, must hold an active real estate broker’s license. Brokers who have an inactive license and unlicensed persons who serve as corporate officers or directors may not perform real estate services, but must be registered with the Department. A sales associate or broker associate may not be an officer or director in a real estate brokerage corporation. Anyone can be a stockholder whether they are licensed or not.

20
Q

Vacancy of Broker

A

in the event that a corporation has only one active broker and the broker dies, resigns, or is otherwise removed from the position, the vacancy must be filled within 14 calendar days. During this time period, the corporation may not acquire any new brokerage business but may conclude existing business. No new brokerage business may be acquired until a new active broker is appointed and registered. Failure to do this will result in cancellation of the corporate registration. Additionally, the real estate licenses of corporate officers, directors, and sales associates will automatically be placed in an involuntarily inactive status.

21
Q

What’s the difference between real estate corporation and a real estate brokerage corporation?

A

a real estate corporation may buy and sell real estate for its own purposes, but may not provide real estate brokerage services for others. A real estate brokerage corporation is registered with the Department to perform real estate services for others.

22
Q

Not-for-Profit Corporation

A

a proposed charter must be filed with the Secretary of State to create this. This type of corporation may buy, sell, and lease real estate in limited amounts for its own use. Employees of the corporation may perform services of real estate for the corporation without possessing a license, provided that they are paid only on a salary basis. A licensee who deals with a not-for-profit corporation should seek the advice of an experienced attorney. These corporations are frequently charitable organizations that are subject to various restrictions that affect their ability to buy or sell real estate. A not-for-profit corporation may register with the Department as a Real Estate Brokerage Corporation, providing real estate services to the public.

23
Q

Limited Partnership

A

consists of at least one general partner and at least one limited partner. A general partner is jointly and severally liable just as a general partner in a general partnership. A general partner is also personally liable for all the activities of the partnership, and conducts the business of a limited partnership. A limited partner has limited liability. They can lose their investment, but are not personally liable beyond the extent of that investment. To acquire an interest in the partnership, a limited partner must make a stipulated investment of money, real property, or personal property, but not services. The limited partner must not take part in the management or control of the business. If the limited partner takes an active role in the business, or if the name of the limited partner appears as a part of the partnership name, the limited partner loses their limited status and becomes a general partner with personal liability.

24
Q

A certificate of limited partnership must

A

be filed with the Secretary of State at the Department of State to form a limited partnership. A real estate brokerage limited partnership must have at least one general partner that is an active licensed broker. A general partner may either be an unlicensed registered person, or hold an active or inactive broker’s license. A limited partner may be anyone who is not licensed or holds an active or inactive license. A limited partner who has an active license may perform real estate brokerage services on behalf of the partnership, but may not take part in the management. A sales associate or broker associate may not be a general partner. This partnership must be registered with the Department.

25
Q

Limited Liability Partnership (LLP)

A

a partner in this is only jointly and severally liable for acts and debts incurred or in connection with partnership business. Individual partners and their employees or agents are not liable for the acts or debts of other individual partners, as is the case with general partnership. Must be registered with the Secretary of State. The words “limited liability partnership” or the letters “L.L.P.” or “LLP” must be included in the name. The partnership is required to carry liability insurance in a minimum amount equal to $100,000 for each partner. Liability of the partners or the partnership is not limited to the amount of the insurance. A limited liability brokerage partnership may register with the Department and operate as a brokerage partnership under the same requirements as a general partnership.

26
Q

Sole Proprietorship

A

is a business formed by an individual. The individual is personally liable for his or her actions, and can be sued individually. A sole proprietor is also liable for the acts of his or her employees when the acts are within the scope of the employee’s employment. Filing papers or documents with the state is not required to form a sole proprietorship. A sole proprietor can buy and sell real estate for use in his or her own business. Real estate is held in the personal name of the sole proprietor. A sole proprietor can register and operate as a real estate broker if he or she has a current active and valid broker’s license. A broker can operate in his or her personal name or under a trade name.

27
Q

General Partnership

A

often simply called a partnership, is a business formation in which two or more people agree to share the profits or losses of a business. A partnership agreement can be expressed or implied, orally or in writing. No documents need to be filed with the state to create a partnership. In forming a partnership, the interests of the partners are not required to be equal. For example, one partner can have a 50% interest while the other two partners each have a 25% interest. Not all partners are required to work actively in the business. For example, one partner could invest money, real property, or personal property only, while the other partners actively work the business.

28
Q

General partnership principal characteristic

A

The principal characteristic of a partnership is that each partner is personally liable for the partnership business and, therefore, may be sued individually. The acts of one partner within the scope of the partnership business are also binding on other partners whether they knew about or took part in the acts or not. Partners are jointly (together) and severally (individually) liable for all debts and liabilities of the partnership. If a partnership is sued, the partners are named personally and as partners of the partnership. A partnership may buy and sell real estate in the name of the partnership.

29
Q

Partnership is dissolved

A

by any of the following events: the death, withdrawal, or addition of a partner; agreement of the partners; the bankruptcy of any partner or the partnership; or by court order.

30
Q

A real estate brokerage partnership must have

A

at least one partner licensed as an active broker. A broker with an inactive license and an unlicensed person can be partners, but cannot perform real estate services. However, they must register with the Department. Each partner who provides real estate services to the public either directly or indirectly must hold an active broker’s license. A sales associate or brokers associate cannot be a partner in a real estate brokerage partnership. A real estate brokerage partnership must be registered with the Department in the name of the partnership. In the event that a partnership has only one active broker, and the broker dies or resigns, the vacancy must be filled within 14 calendar days. During this time period, the partnership may conclude any business which was already in progress, but may not acquire any new brokerage business.

31
Q

no new business

A

may be performed until a new active broker is appointed and registered. Failure of the partnership to appoint another active broker within the 14-day period will result in cancellation of the partnership registration. The real estate licenses of all partners and sales associates will automatically change to inactive status.

32
Q

What’s the difference between a real estate general partnership and a real estate brokerage partnership?

A

A real estate general partnership may buy and sell real estate for its own purposes, but may not provide real estate brokerage services to the public. A real estate brokerage must be registered with the Department and may provide real estate brokerage services for others.

33
Q

Businesses That May Not Register as a Real Estate Brokerage

A
  1. Joint Venture
  2. Corporation Sole
  3. Cooperative Association
  4. Business Trust
  5. Unincorporated Association
34
Q

Joint Venture

A
  • is similar to a partnership in some respects. The participants in a joint venture are jointly and severally liable; however, a joint venture is a temporary business that involves a single transaction or a predetermined number of transactions. Since their relationship is temporary, the participants cannot bind one another to any new transactions. A joint venture can be formed either orally or in writing. No documents must be filed with the Secretary of State to create a joint venture. A joint venture can provide real estate brokerage services if composed of separate real estate brokers. In this situation, the joint venture is not required to register with the Department since the brokers are already licensed and permitted to perform services of real estate.
35
Q

Corporation Sole

A

is formed under common law principles for religious purposes. A corporation sole is not required to file any documents with the state. It can buy and sell real estate for its own use, but the title of the property is not taken in the corporate name. An appropriate clerical personage takes title as the sole titleholder. In the event of the death or removal of the sole titleholder, title passes to his or her successor in office. Anyone who deals with a corporation sole should exercise caution as title to real property owned in such fashion can be subject to various restrictions. A corporation sole may not register as a real estate brokerage corporation.

36
Q

Cooperative Association

A

is a corporation formed under Florida statues to engage in limited commercial business. To create a cooperative association, documents must be filed with the Secretary of State. A cooperative association is formed by a group of businesses that wish to market or promote a specific product. Citrus growers, for example, have formed co-ops to enable them to market citrus products effectively. A cooperative association may buy, sell, and lease real estate for its own use. It may not register as a real estate brokerage corporation.

37
Q

Business Trust

A

also known as a common law trust or Massachusetts Trust, is created by filing a declaration of trust with the Secretary of State. Units in the trust, similar to shares of stock, are sold to the public as securities and must receive the approval of the Florida Securities Commission under the Department of Financial Services. Unit holders make a stipulated investment per unit. A board of trustees manages the trust. The trust may buy, develop, and sell its own real estate. Usually, the unit holders and trustees are not liable for debts of the trust beyond the extent of their investment. However, unit holders are liable for the return of distributions made when the trust is insolvent. A business trust may not register as a real estate brokerage corporation. Anyone who performs services of real estate on behalf of a trust must have an active real estate license.

38
Q

Unincorporated Association

A

results if individuals group together for some purpose without creating one of the previously discussed organizations. Frequently, homeowner associations or community improvement associations are unincorporated associations. An unincorporated association poses a risk for their members because they are treated like partners who are jointly and severally liable for all actions of the association. When an unincorporated association purchases real estate, a trustee holds title. Anyone who deals with an unincorporated association should exercise caution due to its peculiar nature. An unincorporated association may not register as a real estate brokerage corporation.

39
Q

Ostensible Partnerships (Quasi-Partnership)

A

(or quasi-partnership) is not a true partnership. It is created when two or more parties, such as brokers, act or operate in a manner that deceives or misleads someone into believing that a partnership exists. Once a party has been deceived or misled, the ones who created the impression of a partnership become jointly and severally liable. One party can become liable for the acts of the other parties if the public is misled into believing that they are partners. A court can judge a party liable for the actions of all of the parties as if a true partnership exists. Furthermore, the Commission can take disciplinary action against all of the parties involved.

40
Q

Each Broker Must Have Clearly Separate Status

A

The real estate license law does not prohibit two or more brokers from sharing the same office space; however, each broker must clearly indicate his or her separate status. Each must use a separate desk, telephone, stationery, and must have an individual business sign as required by statute. The may share the expense of a secretary.
All advertising must clearly indicate the separate status as well. Advertisements which reflect that a registered broker is a member of a franchise organization do not fall under the meaning of an ostensible partnership or quasi-partnership.

41
Q

Trade Names (or Fictitious Names)

A

is a name under which a person transacts business, other than the person’s legal name. An individual broker, partnership, or corporation may conduct business under a trade name or fictitious name by filing an application to register the name with the Department of State, Division of Corporations. The name must be advertised one time in a newspaper that is distributed within the county where the offices of the business are located.
A sole proprietor real estate broker who desires to use a trade or fictitious name is exempt from registering the name with the Department of State but must register the name with the DBPR.
No trade or fictitious name may be used by a sales associate. They must register under their true name only.

42
Q

Real Estate Syndicates

A

is an organization formed for the purpose of real estate investment. The most common legal entity used in real estate syndication is a limited partnership. Buying shares of stock in a corporation that invests in real estate is another common form of syndication. Syndications may also be formed as investment trusts, general partnerships, joint tenancies, and tenancies in common.
A licensee should be cautious when dealing with legal entities other than individuals to avoid violation of securities laws. Advice of an experienced attorney should be elicited before dealing with such entities. For example, many condominiums were formed and operated under rental management agreements with the individual unit owners. These were marketed as investment properties, not for owner-occupancy, and those handling such sales must possess a securities license as well as a real estate license.
A real estate licensee can list and sell property owned by a limited partnership, but cannot list or sell an interest in the partnership. A licensee can list and sell property owned by a corporation, but cannot list or sell shares of stock in the corporation.

43
Q

Businesses That Provide Protection from Personal Liability

A
Any of these businesses is required to file documents that identify who those persons are with the Secretary of State. The following business formations provide some form of protection and must file with the Secretary of State:
•	Corporation for profit
•	Not-for-profit corporation 
•	Limited liability corporation
•	Cooperative association
•	Limited partnership 
•	Limited liability partnership
•	Business trust
44
Q

Businesses Whose Participants are Jointly and Severally Liable

A
These businesses do not have to file documents:
•	Sole proprietorship
•	General partnership
•	Joint venture (joint adventure)
•	Corporation sole
•	Unincorporated association