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Friday, Mar 29, 2024

Can Firm Receive Portion Of Broker’s Commission?

Question: We are considering listing our company’s sizable distribution center in Camarillo for sale. We’re asking prospective brokers to kick us back a percentage of their commission given certain conditions are met. Is this lawful? Answer: At the risk of offering you a stereotypical lawyer answer, my answer is “yes and no.” It depends on what you are expected to do, if anything, in exchange for the commission split. In California, it is unlawful for a licensed real estate broker to compensate, directly or indirectly, any person for performing any acts requiring a license (e.g. soliciting offers or showing property). Conversely, it is perfectly lawful for a broker to share a commission with a client provided the client isn’t expected to perform services requiring a license. Consequently, your broker is free to split his commission with you, if he so chooses, so long as the split isn’t predicated on you performing services requiring a license. For the benefit of any licensed real estate personnel who may read this column, remember, although referral fees are permissible, you can’t pay compensation to an unlicensed person for licensed services. Q: I value real estate brokers, but I think they add less value if I find the buyer. What advice do you have for me as I contemplate listing my house? A: Although there are several theoretical options, there are fewer practical options given current market conditions. Most competent brokers will balk at signing anything other than an “exclusive right to sell listing agreement” which obligates owners to pay their broker a commission if a sale occurs during the listing term regardless of who sold the property or procured the buyer. Given this reality, my recommendation is to either negotiate a “carve-out” provision (which provides that no commission shall be due if certain identified buyer(s) [who are spelled out] purchase the property) or a “two-tiered” commission schedule (e.g., providing for a lower commission should you find the buyer). Either way, it is critical that you raise this issue up-front, and that whatever agreement you reach is clearly spelled out in writing and made a part of your listing agreement. Q: Do shareholders in a California corporation have an absolute right to inspect any and all corporate records? A: The California Corporations Code allows shareholders to inspect records, but the nature and extent of permissible access depends on the type of records one seeks to inspect and the reasons for the inspection. Shareholders have an absolute right to inspect corporate bylaws and articles. Though not absolute, they also have broad rights to inspect accounting books and records, at the corporation’s home office, during business hours, upon written demand demonstrating ” a purpose reasonably related to such holder’s interest as a shareholder.” Shareholders who hold at least 1% of outstanding stock may inspect a corporation’s federal tax return on file with the Internal Revenue Service. It is also worth noting that the shareholder may delegate its inspection rights to an agent or attorney. California Corporation Code section 1601 also states that the inspecting shareholder, or his/her agent or attorney, may make copies or extracts. These rights cannot be limited by articles or bylaws. Q: When can one file an election converting a C-corporation to an S-corporation? A: For newly formed corporations, an S-election must be filed by the 15th day of the 3rd month of its taxable year. For this purpose, the “taxable year” begins when the corporation commences doing business, or acquires assets, or issues shares, whichever occurs first. Elections are deemed filed as of date of postmark. Generally, if one files outside this window, the election is deemed effective the following tax year. This column contains general information and under no circumstances constitutes legal advice. This information is not provided in the context of an attorney-client relationship and nothing herein creates an attorney-client relationship. Readers should not act upon this general information without first seeking professional advice. Ira Rosenblatt is a business and corporate lawyer and a co-founder and Director of Stone, Rosenblatt & Cha, a business law firm in Warner Center. Rosenblatt has earned Martindale-Hubbell’s highest rating (“AV”) for legal ability and ethics and is listed in Martindale-Hubbell’s National Bar Register of Preeminent Lawyers. He can be reached at [email protected].

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