A Personal Real Estate Corporation is a bargain with the province. Ontario lets a licensed registrant be paid through a corporation, with everything that opens up for tax planning, and in exchange the Trust in Real Estate Services Act, 2002 and Ontario Regulation 536/20 dictate the corporation's shape in unusual detail. Miss the shape and the bargain is off, usually retroactively, usually discovered by the least sympathetic reader available.
Here is the shape, condition by condition.
One controlling shareholder holds all the equity
Every equity share of the corporation must be owned, legally and beneficially, directly or indirectly, by the registrant the corporation exists to serve. Not mostly, not the voting shares, all of the equity. A partner, a spouse, or a holding company sitting on common shares is exactly the kind of arrangement the condition rules out, and share provisions drafted for an ordinary corporation frequently permit it without anyone noticing.
One director, and it is that shareholder
The corporation must have a single director, who must be the controlling shareholder. Articles that allow a board of one to ten directors, the default in many templates, leave room for a structure the regulation does not accept.
One officer, the president, and it is the same person
The controlling shareholder must be the president and the corporation's only officer. A secretary or treasurer position filled by anyone else works against the condition.
Non-equity shares are for family only
The regulation allows non-equity shares, which is where a lot of the family planning happens, but only in the hands of the controlling shareholder or members of their family. A preference share class open to any holder, which is how ordinary templates draft them, misses the restriction.
Nothing may fetter the registrant's control
There must be no agreement or arrangement that restricts the controlling shareholder's power to manage the corporation. Unanimous shareholder agreements and provisions that make ordinary decisions contingent on another person's approval are the classic ways this condition gets broken on paper.
The business is the registrant's services, full stop
The corporation must not carry on the business of trading in real estate other than providing the services of its controlling shareholder, and remuneration flows through the brokerage. It is not a vehicle for holding rental properties, running a management arm, or trading on its own account. Wanting the corporation to do those things is a sign you want a second corporation, not looser articles.
Where this reaches into the articles
Several of these conditions are questions of fact: who actually holds the shares, whether a brokerage agreement exists. But the share classes, the restrictions, the director provisions, and the business scope live in the articles of incorporation, which means a corporation can be offside from the day the certificate was issued, quietly, with every tax filing since relying on a structure that does not qualify. The registry does not check PREC conditions when it issues a certificate; nobody checks them until someone reads the document.
Exactly how each condition should be worded is a drafting question for your corporate lawyer. Whether the document you hold today works for the conditions or against them is something you can find out in about a minute: the free PREC Articles Health Check reads your articles against the RECO conditions and the CRA's tax requirements, entirely in your browser, and the requirements guide walks through the conditions in more depth. Not legal or tax advice; have a qualified professional review before you rely on or file anything.
Written by Capital Toolkit