The Theory and Practice of Business Brokerage within the Context of Real Estate License Law & Rules

Kathryne Pusch

Kathryne Pusch

By Kathryne A. Pusch, President & Broker, ConsultKAP, Inc.

Potential clients and prospective business brokers often ask GABB “What are the legal licensing requirements of professionals assisting buyers and sellers of businesses in Georgia?”

As a longtime business broker, former Board Member and President of GABB, RE Instructor, and a member of the Georgia Real Estate Commission’s (GREC) Education Advisory Board, I’d like to answer this question.

Here’s what the law says:

GA Law 520-1-.12 Business Brokerage.

Unless otherwise excepted from licensure requirements by O.C.G.A. Section 43-40-29, a person who brokers the sale of a business must hold an appropriate license issued by the Commission if the sale of the business involves the transfer of any interest (including, but not limited to, leasehold or ownership interest) in real property. A business broker and any of the business broker’s associates who do not hold licenses issued by the Commission may not negotiate or attempt to negotiate or assist in procuring prospects for the sale of a business where:

(a) that sale involves the transfer of any interest in real property,or

(b) where the payment of all or part of a commission or fee to the business broker or any of the business broker’s associates in the sale of a business is contingent upon the transfer of an interest in real estate.

An unlicensed broker may not perform or attempt to perform the acts in the preceding sentence and then secure a person licensed by the Commission to approve that transaction.

Under Georgia law, anyone selling or buying, offering to buy or sell, acquiring prospects to buy or sell or negotiating for the buying or selling of real estate for compensation must be licensed by the GREC.  According to section 520.1-.19 of Georgia law, Business Brokers are covered by the same legal requirements as any Real Estate licensee if the sale includes the transfer of any interest in real estate.

While some interpret that to mean you don’t need a real estate license if you are selling a business and not any property (as in dirt or brick & mortar,) in fact, there are few instances in which this is the case.

Active businesses operate out of and occupy premises that are either owned or rented/leased, with the exception of a home-based business.  Any business Purchase & Sale contract will contain a contingency that the RE interest (freehold or leasehold) must transfer from the seller to the buyer. (If it does not, the business will not have premises in which to operate after the sale.)

Any third party lenders of the funds to complete the transaction will also require a lease or RE purchase agreement to approve the loan for the business acquisition, which will be a contingency of the sale.

 

Therefore, anyone who is advertising a non-home-based business for sale listing is offering for sale a business that includes either a leasehold or freehold interest in real estate, whether or not the listing summary/web site ad has a box checked for “Real Estate.” In fact, unlicensed people who sell businesses will NOT check “Real Estate,” despite the fact that there is a business facility owned or leased, because they are NOT LICENSED.

Anyone who is negotiating with sellers and buyers for the purchase and sale of a non- home-based business for sale is involved as a broker in a transaction that includes either a leasehold or freehold interest in real estate. Therefore, that person must have a current Georgia real estate license under Georgia law.

The terms of the real estate purchase or the rent or lease terms (occupancy costs) are always a key factor in business expenses and profits, and therefore a key factor in the investment decision, so it is not possible to negotiate for the purchase and sale of a business without including the real estate factors.

The occupancy of a going concern cannot be separated from the operation of the going concern or from the profits of the going concern on which value of that going concern are based.  Business brokers who are unlicensed are operating in violation of Georgia license law, regardless of how they “spin” their advertising.

Business brokers cannot assert that they are not violating license law by claiming that they have an attorney or a licensed broker to “handle” the real estate aspects of a “transaction” because of the above facts related to the inseparability of occupancy from the business going concern which is being offered for sale.  The exceptions would be home-based business; non-operating businesses: sale of assets or inventory only from a closed business; or new franchises – sales by a franchisor to a franchisee of a not yet operating unit.

The GABB encourages you to let us know if you come across individuals who are operating as business brokers without the proper licenses. Contact any individual member of the board, or email the entire board at board@gabb.org.

 

Questions? Contact Kathryne A Pusch, President & Broker

ConsultKAP, Inc.

770-918-9390

kap@consultkap.com

Member: GREC Education Advisory Board

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GA Law 520-1-.12 Business Brokerage.

see also O.C.G.A. §§43-40-1; 43-40-2; 43-40-29; and 43-40-30.

Authority O.C.G.A. Secs. 43-40-2, 43-40-14. History. Original Rule entitled “Examinations” adopted as ER. 520-1-0.1-.12. F. and eff. July 12, 1973, the date of adoption. Amended: Permanent Rule entitled “Licensee’s Duties Upon Surrender, Suspension, or Revocation of License” adopted. F. Dec. 7, 1973; eff. Dec. 27, 1973. Repealed: New Rule of same title adopted. F. June 4, 1980; eff.July 1, 1980, as specified by the Agency. Amended: Authority changed. F. Aug.5, 1982; eff. Nov. 1, 1982, as specified by the Agency. Amended: F. May 9, 1985; eff. July 1, 1985, as specified by the Agency. Repealed: New Rule entitled “Business Brokerage” adopted. F. Nov. 12, 2003; eff. Dec. 2, 2003.