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PREC: 4 letters between you and personal liability.
A guide to signing contracts as a corporation.
Eli Zbar
July 29, 2024
Many realtors operate through a Professional Real Estate Corporation (PREC), and other entrepreneurs operate through their own corporations. There's plenty of good reasons to start a PREC / corporation, from tax efficiency, to branding, and most important - shielding yourself from personal liability.
In this newsletter, you'll learn how to properly sign a contract on behalf of your PREC (or any corporation), and review a recent lawsuit between two realtors where one failed to correctly sign on behalf of their PREC, then was found personally liable in court.
Failing to properly display your corporation’s name can result in personal liability, rendering your PREC (or any corporation) essentially worthless. Simply starting and owning a PREC is not enough to avoid personal liability. You must comply with the technical requirements of the BC Business Corporations Act in everything your PREC does, or you risk being held personally liable.
Corporations & Limited Personal Liability
Corporate law changed forever with the 1896 case of Salomon v A Salomon & Co Ltd [1896] UKHL 1, a UK case, affirmed in Canada, that still stands for the doctrine of separate legal personality for corporations, meaning, shareholders of a corporation are not personally liable for more than their investment in the corporation.
The contours of the doctrine of separate legal personality have shifted over the years, now shareholders can be personally liable for certain environmental damage, fraud, and unpaid tax. The general principle of Salomon remains — when properly used, a corporation shields individual directors and shareholders from personal liability.
No PR(ot)EC(tion): the Recent Case of Roome v Kaiser, 2024 BCSC 940
In 2019, two BC realtors, Ms. Roome and Mr. Kaiser decided to start a real estate team together. Mr. Kaiser operated through a PREC. The relationship went sideways, Ms. Roome sued Mr. Kaiser and his PREC. The BC Supreme Court rendered judgement in May 2024 in Ms. Roome’s favour.
Mr. Kaiser argued the court-ordered damages were payable by his PREC, not himself personally. The Court disagreed, finding Mr. Kaiser signed the contract in his personal name, with no reference to his PREC, noting:
[160] Section 27(1)(c) of the Business Corporations Act, S.B.C. 2002, c. 57… provides that a company must display its name on all its contracts. The purpose of that requirement is to alert those with whom it is doing business of its status and, in particular, its limited liability.
[164] There is no reference to Cal Kaiser Personal Real Estate Corporation at all. Nor is there any evidence that Mr. Kaiser advised Ms. Roome that he was contracting with her on behalf of his PREC, that Ms. Roome was aware that he purported to do so, or even that the parties discussed the PREC’s involvement at all.
[165] Based on the above, I am satisfied that Mr. Kaiser is the proper person to be named in the action. He is personally liable for the damages that the Registrar determines are owed to Ms. Roome.
Had Mr. Kaiser added “PREC” after his name in the contract and signature line, his PREC, not himself personally, would be liable. After this judgement, missing these 4 letters probably conjured up all sorts of other 4 letter words in his mind.
How to Avoid the Same Fate?
PRECs are especially tricky because the corporation’s name is your name with PREC on the end rather than a distinct business name like "Acme Real Estate Inc". Every corporation must be careful to comply with section 27 of the BC Business Corporations Act, which requires every company's name (INCLUDING THE INC/CORP/LTD/PREC AT THE END) to be displayed as follows:
in a conspicuous position at each place in British Columbia at which it carries on business;
in all its notices and other official publications used in British Columbia;
on all its contracts, business letters and orders for goods, and on all its invoices, statements of account, receipts and letters of credit used in British Columbia; and
on all bills of exchange, promissory notes, endorsements, cheques and orders for money used in British Columbia and signed by it or on its behalf.
When signing on behalf of a company, PREC or otherwise, the correct way to sign is:
Correct ✅ Larry Lister, Authorized Signatory for Acme Real Estate Inc. ✅ Larry Lister, Authorized Signatory for Larry Lister PREC. | Incorrect ❌ Larry Lister, Authorized Signatory for Acme Real Estate ❌ Larry Lister |
Want to start a PREC?
Keep in mind - operating a PREC involves maintaining two licences: one for yourself and one for the PREC, each year. You also need a corporation before applying for the PREC license.
At Arora Zbar LLP, we can set up your PREC for $1,750 flat, including tax and legal fees, not including the fees owing the BCFSA. Want to start a PREC? Simply reply to this email, we will get the process started.
Additional Resources
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Sincerely, Eli Zbar Lawyer |  |