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Sole Props/LLC/PC/DPC/S-CORP/C-CORP/ETC - Advice?

  • 1.  Sole Props/LLC/PC/DPC/S-CORP/C-CORP/ETC - Advice?

    Posted 04-30-2020 19:49
    Hello.

    I am looking to start my own firm by myself (for now) and already have a couple of clients, ready to go.  I have found plenty of resources on the discussion of LLC versus PC (or DPC, since I am in New York) and other business structures, but have yet been able to find anything specific to architecture.  If you've been through this before, would you mind sharing what decision you came to and the thought process behind it?

    Or if you know of any existing posts or publications I can reference, please share.

    I'm in New York.  My projects are in Massachusetts and New York.  Residential interior renovations for now, with hopes to grow.


    Thanks!

    ------------------------------
    ______
    Matthew Wang, AIA, LEEP AP BD+C
    New York, NY
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    Open: Call for applications deadline November 6. Learn more and apply to join the PMKC leadership!


  • 2.  RE: Sole Props/LLC/PC/DPC/S-CORP/C-CORP/ETC - Advice?

    Posted 05-01-2020 17:39

    I would say now is the time to gather your professionals around you.  You'll need a good attorney and accountant.  Pick them for their expertise in corporate law, negotiation, and contracts.  Get folks with knowledge of the construction industry, and hopefully contacts in the areas you want to practice.  Do your own research, but also rely on their advice.



    ------------------------------
    Regan Young AIA
    Firm Partner/Architect
    Regan, Young, England, Butera, P.C.
    Mount Holly NJ
    ------------------------------

    Open: Call for applications deadline November 6. Learn more and apply to join the PMKC leadership!


  • 3.  RE: Sole Props/LLC/PC/DPC/S-CORP/C-CORP/ETC - Advice?

    Posted 05-01-2020 18:07
    Handy manual "Architect's Essentials of Starting, Assessing and Transitioning a Design Firm" by Peter Piven, Bradford Perkins.
    Jump in with your eyes wide open.
    Study up so you know what to ask, but know enough your self so you can tell it their advice you can off target.
    If you get any large commercial accounts, make sure you have all i's dotted and t's crossed. Like insurance.

    ------------------------------
    Paul Richards
    Lynnwood WA
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    Open: Call for applications deadline November 6. Learn more and apply to join the PMKC leadership!


  • 4.  RE: Sole Props/LLC/PC/DPC/S-CORP/C-CORP/ETC - Advice?

    Posted 05-02-2020 08:19
    Edited by Thomas Bank 05-02-2020 08:25
    My business structure is a PC as an S-Corp. This was arrived at by going over the various structures with my attorney, accountant, and professional insurer and basically came down to the pros and cons involved in tax structure and liability.

    Also recognize that working across state lines will likely affect these issues as well and may provide different answers than if you were only working in one (home) state.

    ------------------------------
    Thomas Bank AIA
    Principal Architect
    Simply Stated Architecture, P.C.
    Lemoyne PA
    ------------------------------

    Open: Call for applications deadline November 6. Learn more and apply to join the PMKC leadership!


  • 5.  RE: Sole Props/LLC/PC/DPC/S-CORP/C-CORP/ETC - Advice?

    Posted 05-02-2020 13:11
    Congratulations! Sounds like you are off to a good start.

    We have been an LLC for 20 years, and it has allowed us to grow and expand ownership.

    Nevertheless, the firm organization is a legal and accounting issue, and you should discuss with your attorney and your accountant. Besides limiting liability, the varying forms have different  tax implications. You should also be aware of specific implications in NY .

    good luck

    ------------------------------
    Jerry Roller AIA
    JKRP Architects
    Philadelphia PA
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    Open: Call for applications deadline November 6. Learn more and apply to join the PMKC leadership!


  • 6.  RE: Sole Props/LLC/PC/DPC/S-CORP/C-CORP/ETC - Advice?

    Posted 05-04-2020 18:21
    I had my own business a while back (10 years ago) before a large firm called needing my expertise - with better pay.  My firm was a LLC as opposed to an S-Corp - firm was in Tennessee.

    I highly recommend you get the following "experts" under your belt first:
    1.  Accountant - to offer tax advice and make sure you get to take home all of the money you can.
    2.  Attorney - to write your legal documents to set you up for long term success.  You may be a sole practitioner today, but plan to one day add a partner or partners.  Think LONG TERM when you set up the entity.
    3. Professional Liability Insurance Agency:  Talk with them about the limits of professional liability you really need.  This is what sets a "fly-by-night" drafting firm from a licensed architecture firm.  Remind your clients of this if they question your fees.
    4.  Banker:  Someone who helps you keep your FAMILY money separate from your COMPANY money.  Never the two should mix - otherwise you will open up your FAMILY money to someone trying to take your COMPANY money.  ALWAYS keep them separate.  (See also - Accountant).
    5.  A Mentor:  Someone with gray hair (or no hair) who has been through the industry ups and downs and can provide you advice/recommendations - and allows you to make your own decisions thereafter.
    6.  A well-informed spouse:  THIS SHOULD PROBABLY BE NUMBER ONE ON YOUR LIST.  If you are married, make sure that your spouse understands all of the business decisions that you are making.  Do NOT keep any secrets from this person.  Because when times are tough - and face it, there are always going to be fluctuations in this industry - he/she will need to be understanding when you and your family are living on rice and beans or tuna fish.

    RECOMMENDATIONS:
    1.  When times are good.  Enjoy a steak/great meal every once in a while.  You will want to remember this meal later when you are eating the rice and beans or tuna fish.
    2.  Remember the story of the ant and the grasshopper.  Be an ant and not a grasshopper.


    Best wishes for a long and happy career...

    ------------------------------
    Ket West AIA
    Associate, Architect
    Hafer
    Owensboro, KY
    ------------------------------

    Open: Call for applications deadline November 6. Learn more and apply to join the PMKC leadership!


  • 7.  RE: Sole Props/LLC/PC/DPC/S-CORP/C-CORP/ETC - Advice?

    Posted 05-06-2020 07:43
    Similar to you - located in RI, do most of our work in MA & RI. I started out 7 years ago as a sole prop. Dumb idea, but it was easy. Converted to a PC organized as an S-corp for tax purposes. I'm a "foreign corp" in MA. Some advisors said this wasn't necessary, but it was clear to me that MA wants you to do this, so they can get their tax $. Since most of our work is in MA, it made sense to me. I'm also licensed in NY, and if I was doing NY projects (I'm not) I would also become a foreign corp in NY.

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    David Sisson AIA
    Architect
    David Sisson
    Providence RI
    ------------------------------

    Open: Call for applications deadline November 6. Learn more and apply to join the PMKC leadership!


  • 8.  RE: Sole Props/LLC/PC/DPC/S-CORP/C-CORP/ETC - Advice?

    Posted 05-06-2020 10:55
    To help with the question of firm organization: corporation; limited liability corporation (LLC); professional corporation (PC): these are all legal descriptions of a corporate entity as determined by your state statutes. Your professional liability insurance company's experienced risk manager may have some advise on this classification. So may your accountant.

    Subchapter S and Subchapter C corporations: This is not a type of corporate entity. This is an IRS election for how corporate income is taxed. Your accountant is the one to help with this decision.

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    Philip Kabza AIA
    Principal
    SpecGuy Specifications Consultants
    Mount Dora FL
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    Open: Call for applications deadline November 6. Learn more and apply to join the PMKC leadership!


  • 9.  RE: Sole Props/LLC/PC/DPC/S-CORP/C-CORP/ETC - Advice?

    Posted 05-07-2020 18:38

    Whether Subchapter S or LLC depends on your state taxes, how many partners you have and what is best for you.

    We were a Subchapter S for 30 years with two partners.

    As a subchapter S all income flows to you on a K-1 , but you file a corporate return with no taxes due.

    There are differences in your individual liability, so best to review carefully.

    If you are interested in shielding your savings from a lawsuit, I suggest you look into a charitable annuity with a group you favor; your school or a non-profit.

    You get a tax deduction in the year you  set it up plus the annuity return to you is generally shielded from any judgements and is somewhat tax deferred.

    Luckily I never had that issue, but am enjoying getting "mailbox money" , now that I am retired.

     

     

    Betty Trent, AIA  LEED AP

    Austin, Texas

     




    Open: Call for applications deadline November 6. Learn more and apply to join the PMKC leadership!


  • 10.  RE: Sole Props/LLC/PC/DPC/S-CORP/C-CORP/ETC - Advice?

    Posted 05-08-2020 17:52
    I'm probably not the only sole practitioner / sole proprietor in this group.  Having once been a director in a 40+ person firm, I'm not really interested in the care and feeding of personnel, benefit selections, etc.

    Others' comments on multi-state work and status as a "foreign" entity are relevant.  At one point I was registered in 14 states (for a particular client's work) and keeping track of the varied requirements, connecting with a national firm that could act as our agent for receipt of legal notices everywhere, which states would want a share of our earnings from their jurisdiction for the privilege of performing work there (whether or not we physically stepped foot there), etc. was a complication I hadn't thought about.

    When I found myself on my own, I took a look at the coverage offered by an LLC or other formal status, and decided that since I would be personally liable for anything that went wrong, anyway (the benefit of being the professional in charge of my own work), general liability insurance and professional liability insurance were a better way to limit exposure.  My billings and project types are low enough risk that frankly the insurance bill is not that bad.  In a few years there will be a "tail" to purchase when I get around to retiring, not looking forward to that.

    So, don't forget the general liability / business insurance side of things.  Several years ago I opened a file with the "locky" ransomware, and a whole lot of files were locked up.  The business coverage paid for a successful unlocking, less the cost of a small deductible.

    I would expect the insurers will have narrow limits on what they will cover for business interruption due to pandemics in the future, but think about what could be a problem and how you could react.

    --
    best regards,
    Joel Niemi
    - Architect
    425.422.4276
    jniemiarchitect@gmail.com
    http://www.linkedin.com/in/jniemiarchitect



    Open: Call for applications deadline November 6. Learn more and apply to join the PMKC leadership!


  • 11.  RE: Sole Props/LLC/PC/DPC/S-CORP/C-CORP/ETC - Advice?

    Posted 05-10-2020 11:05
    Had an S-Corp for years, then restructured to be an LLC. A good lawyer can break thru an S- Corp shield if you are not diligent and serious about all the paperwork and documentation. Architects are rarely that serious as businessmen. Highly recommend  an LLC as much simpler to operate and much less paperwork, which let's you be an architect. Don't even consider Sole Prop or sim. unless you are willing to lose everything you have your name on or next to.  In all case get appropriate insurance immediately.


    ---
    Sent from Workspace ONE Boxer



    Open: Call for applications deadline November 6. Learn more and apply to join the PMKC leadership!


  • 12.  RE: Sole Props/LLC/PC/DPC/S-CORP/C-CORP/ETC - Advice?

    Posted 05-09-2020 10:55
    Edited by Edward Shannon 05-09-2020 10:58
    Mathew, I run a face group for Sole Practitioner Architects (SPAs) We have about 1,000 members.  Recently I polled our membership about this.  It's about 47% sole proprietors, 43% LLC and 10% corp.  I have had three different CPAs advise me not to form an LLC until I have employees.  There are costs to establishing an LLC as well as maintaining one. Of course, the CPA's are seeing it only through the lenz of tax advantages.  Perhaps there are other reasons  for an SPA to incorporate or from an LLC?

    Please join us on Facebook at Sole Practitioner Architects

    https://www.facebook.com/groups/273982343211512/


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    Edward Shannon AIA
    Edward J. Shannon, Architect
    Des Moines IA
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    Open: Call for applications deadline November 6. Learn more and apply to join the PMKC leadership!


  • 13.  RE: Sole Props/LLC/PC/DPC/S-CORP/C-CORP/ETC - Advice?

    Posted 05-09-2020 11:31
    S-Corp is a pass through for tax purposes, very similar to a sole prop. However, it has significant tax advantage - you pay yourself as an employee (normal personal taxation), but you can also take profit at a much lower tax rate. Yes, there is a cost to maintaining the LLC or PC or whatever sort of organization you set up, but the S-Corp is worth it for taxes. There are liability advantages too. You don't need employees to take advantage of it.

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    David Sisson AIA
    Architect
    David Sisson
    Providence RI
    ------------------------------

    Open: Call for applications deadline November 6. Learn more and apply to join the PMKC leadership!