RISMedia's Real Estate Magazine

MAR 2018

Real Estate magazine is the industry's leading source for real estate news and information since 1980. Published monthly by RISMedia, Real Estate magazine offers timely and relevant real estate news to the industry's top brokers and agents.

Issue link: http://remag.rismedia.com/i/944619

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Page 72 of 118

68 March 2018 RISMedia's REAL ESTATE F orming a team can have myriad advantages for all agents involved, such as high earning opportunities and the ability to develop more profitable leads than a single agent. It is, however, a complex process that involves a lot of legal consideration. Before forming a team, agents must consider how they will register it as an official business entity, as it will not be legally valid until that is done. "At the time we developed the Linda Rudd Team, there were no additional requirements from the real estate commission other than setting up the team as a specific entity," says Linda Rudd, advisor and team lead of the Linda Rudd Team at Engel & Völkers Hilton Head. There are various options, which can make a differ- ence in how taxes are filed: Sole Proprietorship – While not fully considered a busi- ness entity, this is the simplest way to operate as one because there is no separation between the busi- ness owner and the business. In this case, any in- come and losses are taxed on the business owner's personal income tax return. If structured as a sole proprietorship, business owners are liable for the ac- tions of their employees. In addition, to satisfy an employer-employee relationship, agents must meet the following conditions: 4 The employee and the business owner must have a fiduciary relationship, meaning that the busi- ness owner will have to act in the best interest of their employee. 4 The business owner must allow their employees to act on their behalf, but must still exercise con- trol over them. There are two types of authorities the business owner can choose from: Actual Au- thority or Apparent Authority. While this is the simplest way to form a team, it can also be the choice that carries the most risk. Agents must carefully weigh their options before opening them- selves to potential liability for fraud or negligence. Partnership – An association made up of two or more individuals who act as co-owners in a for-profit business is considered a partnership. When it comes to the IRS, this is not considered a separate entity, allowing prof- its and losses to flow through the partners, and saving the entity from having to pay taxes. Teams with a sole owner cannot be considered a partnership. Having a written agreement in a partnership, while not required, can save agents the headache of solving conflicts, according to the Uniform Partnership Act (UPA) and the Revised Uniform Partnership Act (RUPA). With this business entity, both partners are equally liable for any claims made against the partnership. In order to make details clear to all parties involved, a real estate partnership agreement should include the following: 4 The nature and purpose of the business, along with each individual's roles 4 Amount of start-up capital each partner is con- tributing to the business and any reimbursement agreements 4 The reporting and accounting of profits and losses 4 How much authority each partner has, including signing responsibilities Forming a Team? How to Choose the Right Business Entity by Liz Dominguez Editor's Note: The following article is excerpted from RISMedia's forthcoming 2018 Power Teams Guide to Forming and Running a Winning Agent Team. Stay tuned to RISMedia.com for more details. {Power Teams}

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