LOUISIANA BROKER RESPONSIBLITIES MANUAL GETTING STARTED IN THE REAL ESTATE BROKERAGE BUSINESS OBJECTIVES Getting started in the Real Estate Brokerage business is about taking the right initial steps to ensure success. There are specific legal requirements to the business. It is crucial you understand these before you launch your Brokerage. This lesson is an introduction to the basic requirements of the Real Estate Brokerage business. Upon completion of this lesson, you should be able to: o Identify the different types of licensing required in Louisiana. o Understand the legal forms of business and the basic structure and requirements of each type. Types of Louisiana Real Estate Licenses In Louisiana, there are three types of licenses required to sell property in the state: Company License Sponsoring or qualifying broker license Salesperson License Company License A legal business entity setup to actively market and sell property in the State of Louisiana must be licensed as a broker by the Louisiana Real Estate Commission (LREC). To obtain a Corporate, partnership, or limited liability company real estate broker's licenses, the following must be submitted: o Application with appropriate fee o Designation of a qualifying broker o Evidence affirming corporate or trade name Sponsoring or Qualifying Broker License A sponsoring or qualifying broker must be licensed as a broker issued under current LREC requirements: o You must have been actively licensed as a real estate salesperson for at least four years in any state/jurisdiction. o You must have obtained a high school diploma or equivalency certificate (GED) o You must show proof of successful completion of one hundred fifty (150) classroom hours or its equivalent in courses specified and approved by the LREC. o You must comply with all application procedures required by the LREC. This includes the submission of a criminal background history. o You must pass the broker licensing examination. o You must provide proof of mandatory errors and omissions insurance prior to issuance of license. The LREC requires one hundred fifty (150) hours of pre-licensing education prior to issuance of a broker license. At its discretion the LREC may grant partial credit toward the broker pre-licensing educational requirement. The credit will be based on the date the course was completed and the applicability of the subject matter to current broker educational requirements. No substitution will be allowed for Real Estate 202, the thirty (30) hour course which covers the Louisiana Real Estate License Law, Commission Rules/Regulations, Law of Agency, and Civil Law pertaining to real estate. An additional thirty hours must be completed in Real Estate 203, Broker Responsibilities, or its equivalent. The remaining hours can be obtained in a review of real estate principles/practices or other real estate electives. Broker courses may be obtained through the following sources: Check with the LREC for acceptable course work from other jurisdictions which may be acceptable for credit. 2 Salesperson license Salespersons working under a licensed broker must also be licensed by the LREC. To be issued a real estate salesperson license one must meet the following requirements: o You must be at least 18 years of age. o You must have obtained a high school diploma or equivalency certificate (GED). o You must show proof of successful completion of ninety (90) hours of real estate education in courses approved by the LREC. o You must comply with all application procedures required by the LREC. This includes the submission of a criminal background history. o You must pass the real estate salesperson licensing examination. o You must be sponsored by a licensed real estate broker and provide proof of errors and omissions insurance prior to license issuance. The LREC requires ninety (90) hours of pre-licensing education prior to issuance of a real estate salesperson license. The LREC may grant partial credit toward the salesperson pre-licensing educational requirement for courses completed more than five years prior to the date of application Such credit will be based on the date of completion and the applicability of the subject matter to current educational requirements. Salesperson pre-licensing hours must be in specific real estate courses that include coverage of real estate principles/practices, the Louisiana Real Estate License Law, Commission Rules/Regulations, Law of Agency, and Civil Law pertaining to real estate. Courses may be obtained through State Certified Real Estate schools, Colleges and Universities and through Course work completed in other licensing jurisdictions. Post-Licensing & Continuing Education Requirements The LREC has specific requirements for post-licensing and continuing education requirements for brokers and salespersons. The post-license education requirement states that the student must pass an examination on course content required for that license. Continuing education requires specific course-work be completed annually before a license can be renewed. Applicants with license history from other states Broker or salesperson applicants with license history, past or current, from other states must comply with the following: Submit an official license history verification from the state/jurisdiction in which the license was issued which includes: o Applicant's complete name o Mailing address o Telephone number o Detailed history applicant’s license . This history should include a list of all real estate education completed as well as any information regarding past or pending disciplinary action against the applicant. Examination requirement Examination results from other jurisdictions may serve as a substitute for the National portion of the Louisiana examinations for both brokers and salespersons. The applicant must provide proof of passing an equivalent license examination within five years of the date of application for a license in Louisiana. If a waiver is granted, the applicant will be required to pass only the State portion of the Louisiana salesperson or broker license examination. 3 Criminal background check Since January 1, 2012, all persons applying for a real estate license must provide a criminal background history, as part of the initial application process. To ensure consistency in the background investigative process the LREC has contracted with a third party for the background history investigation. The applicant is required to initiate the background check process by setting up an account with the provider. Look for information about the current provider on the LREC website on how to initiate the process. Legal Forms of Business Introduction When you decide to become a real estate broker you must first decide the form of business entity you are going to establish. Are you going to be a? 1) Sole Proprietor 2) Corporation 3) Partnership 4) Limited Liability Corp. (LLC) 5) Or affiliate with a franchise This decision will have long ranging impacts on matters of taxation, asset protection, accounting and many others. Consultation with a trusted business attorney and CPA will go a long way to making the right decision for your future business. Sole proprietor The sole proprietorship (a business entity owned by one person) is the least expensive and easiest business entity to form. Termination of the entity may occur due to license expiration, inactive status, or death of a licensee. The sole proprietorship has a variety of advantages, including: o Ease of formation o A centralized management regime o No corporate tax The sole proprietorship also has a variety of significant disadvantages as well, including: o Unlimited liability o Limited business life o Difficulty of raising capital It can be difficult because any new capital is based on the ability of the sole proprietor to raise it. There is no stock that can be sold in a sole proprietorship. A sole proprietor must file Schedule C, Profit (or Loss) from a business or profession, with Form 1040 to the IRS. Estimated quarterly tax payments must be paid, as appropriate. 4 Corporation A corporation is a legal entity formed by filing articles of incorporation with the Secretary of State, who issues a charter. Corporations can be foreign or domestic. Domestic corporations are formed within the state; whereas, foreign corporations are created outside of the state. A corporation may issue stock to raise capital. Stockholders elect a board of directors that hires officers to manage the corporation. The stockholders must meet annually. Corporate management is typically centralized or controlled in a top down fashion. Officers must consist of a president, secretary and treasurer, although one person may fill all offices. The directors and the officers of the corporation have a fiduciary (a relationship of trust) relationship with the corporation. The biggest advantage of a corporation is the stockholders do not have liability for the company's business activities. Liabilities attach to the corporation, not personally to officers, directors or stockholders. One of the biggest disadvantage of a corporation is double taxation of profits. Not only does a corporation have to pay tax on its earnings, but its stockholders also have to pay tax on the dividends they receive. If the organization is setup as a Subchapter S Corporation, double taxation can be avoided. Corporate income flows for taxation through individuals (stockholders) at their tax rates. In order for a Subchapter S Corporation to exist, the corporation is limited to a maximum of 75 stockholders. All corporations must obtain a federal employer tax identification number and file appropriate tax returns. Partnership General or limited partnerships are forms of business ownerships that may also be used to operate real estate brokerage firms. As with the corporation, partnerships may also procure a broker's license for their company, as long as the partnership has a qualifying broker. In a general partnership, all partners can participate in the daily management of the organization. Ownership may not be equal. There are a variety of disadvantages with a general partnership: o Transferability is difficult.