Before starting a real estate business
A lot of people have been asking me questions on how they can launch their real estate business from scratch. In asking, what they really want to know is which business structure is most suitable for one who is going into real estate business.
Although the answer to the question is quite lengthy, in this article I would try to break it down to as simple as possible a level for your understanding. I would also not dwell too much on the unnecessary but rather would focus on what is most important for real estate companies.
When referring to real estate companies, I am referring to estate agents, property managers and other players in the field.
When starting a real estate business, the first step is to get your business registered. This is very important. You may either register as a sole proprietor, partnership or a private company. Registration can now be done electronically through CAC’s website.
While you may want to register your business on your own, it is often advisable to consult a real estate lawyer. The reason for consulting a real estate lawyer is in order to have a firm grasp of the types of business structures that is most suitable for the kind of business you are planning to go into.
Also, a real estate lawyer can advise on the laws and regulations that affect the industry and also provide support services such as conveyances services, legal drafting, conflict resolution and consultancy services.
Sole Proprietorship and Partnership
A sole proprietorship is a type of business owned and managed by an individual owner. The owner is the alpha and omega of the business. Usually, this type of business is preferred by people who want to start small and would rather run their business alone.
A partnership, on the other hand, is a business with two or more owners running the business together. A partnership business must not have more than twenty partners.
Sole Proprietorship and Partnership are by far the best form of business structure for professionals in the real estate business. When I say professionals I mean people who offer personal services to their clients. Examples are Real Estate Lawyers, Quantity Surveyors, Estate Surveyors, Land Surveyors. Sole proprietorships and partnerships are registered entities called business names under the Companies and Allied Matters Act, the same law that guides the registration and post-registration transactions of corporate entities in Nigeria.
One thing you must know about operating a business name is that the liabilities of the proprietors is unlimited. Hence, if you decide to operate a business name then you and your partners are individually and jointly accountable for the business. You and your partners would also be equally liable for the debts of the firm and would all partake in sharing the profits made by the firm.
Private Limited Liability Company
A private limited liability company is a profit-sharing business entity owned by its shareholders and operated by the directors and secretary. A private limited company has many advantages over a business name and it is most suitable for businesses that want to grow and outlive its founders. Private Limited Liability Company is more appropriate for real estate investors, listing companies and all other real estate businesses that do not provide personal services.
Choosing a Name
Business registration starts with choosing a name, searching for the name and reserving it. It is often difficult sometimes to choose a name for your firm and most times, entrepreneurs face the problem of name denial due to an existing company bearing the same or similar name.
There are several reasons that a name can be denied. Such reasons include:
- If the name is capable of misleading as to the nature and extent of its activities
- The name is undesirable, offensive or contrary to public policy,
- Identical with or similar to the name of a registered company unless the registered company is in the course of dissolution and consents in writing,
- If the name contains the phrase “Chamber of Commerce” unless it is a company limited by guarantee,
- If the name would violate any existing trademark or business name unless with the consent of the trademark or business name owner,
- If the name would violate any incorporated trustee unless with the consent of the trustees.
For a business name…
If you are using your natural name, then you are not mandated to register the business, but at the same time, it is good to register. If however, you are using a name which is not your natural name, then you are mandated to register. For instance, if you intend to name your business Adekunle and Nwankwo both surnames of the partners, then you are not mandated to register. But if you are planning to use a name such as Classic Properties, then you are required to register.
For a company…
For private companies, bear in mind that the name you have chosen must end with either Limited or Ltd. As discussed earlier, real estate firms should generally be business names or private companies. A typical real estate company should go by names such as Vinx Properties Limited, or Skytrain Homes Limited. This is simple and dignifying.
Choosing a name can be difficult that’s why we sometimes help our clients by coining names that will suit their business. While naming a company, many factors are considered including the intended image the brand should represent, the intellectual property rights and the legal restrictions on choosing a name.
Starting A Professional Services Real Estate Business
As mentioned earlier, if you intend to provide professional services to your clients then registering a business name is the most appropriate option for you. A business name could either be a sole proprietorship or a partnership. While operating the business name, you have to take into consideration the partnership laws of the state where you operate, the companies and allied matters act, 2004 as well as the appropriate federal and tax laws.
As a real estate professional, you also have to be aware of the self-regulators of the industry where you belong such as the Nigerian Institution of Estate Surveyors & Valuers (NIESV) which regulates Estate Surveyors and Valuers. If you are a real estate lawyer, then you have to be a member of the Nigerian Bar Association. Whereas a Land Surveyor should be a member of the Nigerian Institution of Surveyors (NIS). A Quantity Surveyor should be a member of the Nigerian Institute of Quantity Surveyors (NIQS).
Starting A Property Listing Service
Property listing businesses are big right now as the growing demand for real estate for rent and purchase becomes seamless through the aid of technology. There are quite a handful of property listing websites ran by the technology companies.
A property listing company is best registered as a company either private or public, and either limited or unlimited. However, since the company will basically be a profit-making company, it should have shareholders and directors who would take charge of the business’s management.
Property listing companies need to be guided by the Company and Business laws of their geographical locations. They also need to be mindful of intellectual property rights most especially image rights, and trademark rights. These companies also have a great task of ensuring that fraudulent activities are not perpetuated through their platforms by ensuring that proper due diligence is conducted before admittance of agents on their platforms.
State and federal tax laws, labour and employment laws are also applicable to these companies and the management ought to ensure that these laws are complied with.
Estate Development Business
It is quite lucrative for investors to buy up a large expanse of land for the purpose of building and selling affordable homes. Quite a number of real estate companies have acquired bare lands in undeveloped areas and built estates on them.
As mentioned earlier, the work of managing, operating and valuing estates traditionally belong to the estate surveyors, however, this type of business is capital intensive and often require the funds of a willing investor. Hence a company without necessarily been an estate surveyor may undertake and engage in this business.
There are lots of factors that must be considered before setting up an estate development business. First is that the proper procedure must be followed in the process of acquiring the land. The company must also comply with the building and construction laws of the land and must obtain all necessary approvals and permits from the specific government agencies before commencing its operations.
A foreign company which intends to undertake such capital intense project must first register in Nigeria and comply with the National Investment Promotion Commission Act and obtain all necessary permits before commencing its operations.
Real Estate Lawyer
The role of the lawyer in real estate transactions is quite clear and can be summarised as helping the client to investigate title, advising the client on real estate law, preparing contracts and title documents and perfecting the title.
In order to be a real estate lawyer and start a business in that field, you must first attend the Nigerian law school and be called to the bar to practice as a Barrister and Solicitor of the Supreme Court of Nigeria. This means that a non-Nigerian lawyer cannot start a real estate law practice in Nigeria. He or she has to be called to the Nigerian bar before he or she would be allowed to practice.
Setting up a Real Estate Law business can be done by an individual lawyer or in partnership with others. Also, note that there is no limit as to the numbers of partners when it comes to the law business hence a law firm could have as much as one hundred partners if it so wishes.
A real estate law firm has to be mindful of the laws guiding the legal profession such as the Rules of Professional Conduct for Lawyers, 2007 and the Legal Practitioners Act. He also needs to be mindful of the tax laws, the business laws and the laws relating to real estate including the tenancy laws.
The role of a lawyer is to advise clients and take legal actions where necessary. As mentioned earlier also, a real estate lawyer is also consulted to draft all legal documents relating to real estate transactions.
Facilities Management Company
The scope of facilities management is quite wide. However, just as many other services in the real estate industry, the traditional estate surveyors and valuers are originally empowered to take care of this sector of the industry. However, the business of facilities management is much more work-intensive that it can mostly only be carried out by companies. Hence most facility management businesses are registered as companies.
When You Finally Start Your Business
Whatever the business structure you choose and whatever business sector you decide to go into, you would want to always ensure that the laws regulating the business are kept. The Nigerian business economy is to a large extent a deregulated capitalism which makes it a highly profitable one.
Also, the scanty regulations are not stringent especially in the areas of taxation. This then makes it easier to comply with the provisions of the law from the very beginning. It is therefore important to always work with professionals who would aid the smooth running of the business.