Brokerages are bought and sold to new owners frequently. Members are at liberty to sell their brokerage at any time and to anyone. This is a matter between the old owners and new owners.
It goes without saying, the brokerage, whomever it is owned by, must be fully compliant with the RIB Act, Regulations and By-Laws at all times.
There are two key regulatory provisions that arise when a brokerage changes ownership.
First, the brokerage must be trust positive at all times. The vendor of the brokerage cannot remove commissions from the trust account and take it into income if such removal is non-compliant or could result in a trust deficiency. The transition of commissions should be agreed upon as part of the purchase and sale agreement between the parties, however, the brokerage must be trust positive at all times which includes before and after the sale of the brokerage.
The second provision relates to the equity capitalization of the brokerage. Corporate brokerages must maintain, at all times, a minimum capitalization of $5,000.00 or the sum of the deductibles of the members E&O and bond insurance policies, whichever is greater. We often see brokerages who sold to new owners, and the new owners are in non-compliance with this regulation resulting from too much trust funds being removed by the vendor or new purchaser.
We recommend that members consult with qualified specialists (especially legal and accounting) regarding the sale or acquisition of a brokerage. We also strongly advise that you make these consultants fully aware of the minimum trust and equity requirements. It could reduce the risk of the member from going through the Complaints and Discipline process.