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The mission of the AIA Small Firm Exchange (SFx) is to advance the mutual interests of architects practicing in small firms. The objectives of the AIA SFx are three-fold:

1. Advocate for small firms within the AIA and in outside organizations and agencies.
2. Promote leadership in Small Firm professional development and practice; and
3. Facilitate and support the local component round tables and small firm networks.

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Small Firm Transition - HELP!

  • 1.  Small Firm Transition - HELP!

    Posted 04-16-2019 05:45 PM
    Edited by Colin Lamb 04-19-2019 03:10 PM
    So... after 17 years at my current firm, my boss has finally said that he's ready to retire and pass the company along to some of the current employees.  The longest tenured employee doesn't have a degree in architecture but was able to get his state license through a mentorship program.  That has led to a few other state licenses for him. Then there's me, I'm NCARB accredited and currently hold my state license, with the ability to add more through NCARB's reciprocity process.  The last is the office manager.  Prior to starting with us, he had no architecture background.  Our firm currently holds licenses in approximately 36 states.  I'll have to take up the slack once the boss retires and carry the majority of the licenses.

    Okay, now here's the deal- my boss has stated that he wants to pass the firm down to all (3) of us.  We would all be owners in some percentages.  I'm reluctant to take on the office manager, for a small firm (think 6-7 employees), as a partner.  He has stated that he wants to be the majority owner, but has since changed his request to be the middle partner between the longest tenured employee and me.  I would be the lowest percentage owner in this deal.  This sounds absolutely ludicrous to me.  As I stated before I'm reluctant to even have him as a partner, let alone a higher partner than me.  I've agreed with the other architect that we should be close to equal partners, with him having the slight edge due to seniority.  So, what are your thoughts?  Please help me as this is supposed to happen in the next several months.

    Thank you,

    Colin Lamb

  • 2.  RE: Small Firm Transition - HELP!

    Posted 04-17-2019 05:24 PM
    Check your state licensing requirements,many states require that a firm practicing architecture hold a design firm license of its own.  States with this requirement will require that the majority ownership of the firm be by licensed professional.  In Illinois, where I practice, 2/3 of of a firms ownership must be licensed architects.

    Scott Rappe AIA, LEED AP
    Kuklinski + Rappe Architects
    Chicago IL

  • 3.  RE: Small Firm Transition - HELP!

    Posted 04-17-2019 06:19 PM
    IMHO small firms with 3 partners don't last long term.  There is always a third person on the wrong side of the equation.  One partner will finally get so frustrated in the partnership experience and treatment from the other two partners, feel like they are butting their head against the wall in getting what they feel are necessary business decisions made or feel the other two are taking the business in a direction they don't agree with, that this partner finally leaves the threesome..  If this person is a licensed architect who leaves, they either go out on their own or do some other venture related to architecture.  I don't recall seeing a successful firm with a majority partner who was not an Licensed Architect.

    I would also be sure to really review the books and determine if the ROI is really the best use of the money required to put into this venture or worth the headaches.  Best of Luck negotiating what works for you long term.

    Elaine Bright, aia LEED AP
    Bright Ventures Architectural Consulting
    Nashville, TN

  • 4.  RE: Small Firm Transition - HELP!

    Posted 04-18-2019 08:42 AM
    You really need to hire an attorney to assist you. Do not rely on any advice you may get from this forum.

    That said – the following comment may not be construed as legal advice – only general information. However, from my knowledge of the Oklahoma licensing statute every firm requires a Certificate of Authority. That Certificate must list the individual or individuals who hold licenses and who will be the persons in Responsible Charge of any architectural work. However, the statute also suggests that every person who acts on behalf of a firm must be licensed. How an office manager who isn't licensed could ever "act on behalf of" the firm is not at all clear.

    While there appears to be no prohibition on owning the firm as a non-licensed person, it also appears your office manager could never participate in any firm management decisions in a manner consistent with the statute. That is for a good reason – the statute seeks to place the architectural decision making in the hands of those licensed to practice. Otherwise, the entire licensing scheme makes no logic or sense

    In sum, it isn't a simple question and your employer may not be free to simply do as they please.

    Get an attorney. They exist for a reason and this is one of those reasons

    Frederick Butters, FAIA, Esq.
    Attorney at Law
    Frederick F. Butters, PLLC
    Southfield Michigan

  • 5.  RE: Small Firm Transition - HELP!

    Posted 04-18-2019 04:14 PM
    1st, what's the benefit of inheriting your boss' firm name? I would think you'd want to make a name for yourself, so what you really want is the referral and credibility.

    So if you only want to use your boss' firm as a lead, then I would create a s-corp with your name. And you can take on new business for both your Boss' lead and yours. Then everyone is being 1099, from the business. This allows you to establish you're own name, google ads, and branding. 

    if you don't your partner, don't be in business with them. However, it wouldn't be hard to be a small percentage holder, and have them outsource their work to your firm. You get more of the money, without the tie-down. 

    2nd, for sentimental reason, you want to keep your boss' name. Then in that case, you could hire a business lawyer or accountant to act as arbitrator. Ask each partner to consider their sweat equity, as well as financial equity, to the table. Have the accountant figure out the distribution of shares of the company based upon equity that all 3 bring to the table. Obviously you're eluding to the license being VERY IMPORTANT, and so that would allow you to get more shares, without getting into a spitting contest on who should.

    Charles Ou-Yang
    Stephen L. Ball Architect, Inc.

  • 6.  RE: Small Firm Transition - HELP!

    Posted 04-18-2019 04:14 PM

    Ownership percentage should be based on your individual equity investment in the company. For instance, if your current boss wants to sell the company to the three of you for $100,000 (just using a nice round number), then the three of you would need to each put in capital to pay that fee. If you each pay $33,333 you would be equal partners. If one person pays $50,000 and the other two pay $25,000 then the person who put in $50k would own 50% of the company and the others would each own 25%, etc.

    That would be the easiest and most fair way to divvy up ownership. It isn't about seniority, but rather equity would be proportional to capital investment in the company.

    Another thing of note is that in most states 2/3 of the ownership - or 2/3 of the board of directors if it is set up as a corporation - must be licensed architects. At least that is the law here in Oregon. I'm not sure if your office manager is licensed but these laws may affect how you set up the business or how you divide ownership.

    All this being said, having business partners is like a marriage. If you already are having issues with each other, or don't want to work with one of the potential partners, or you are already arguing over ownership percentages, it is probably best that you don't become business partners. You may just want to move on to a different company or start your own firm. Or you just buy the whole company and keep the other people as employees.

    I hope this helps. 

    Lucas Gray Assoc. AIA
    Propel Studio Architecture
    Portland OR

  • 7.  RE: Small Firm Transition - HELP!

    Posted 04-19-2019 07:55 PM
    Make sure whatever ownership agreement is created covers adding additional members and members leaving - either at their choice or as decided by a majority of owners.
    Do regular (annual, at least) evaluations of the value of the firm. 
    And the agreement should be fair - consider what would happen if you were the one voted off of the island.

    best regards,
    Joel Niemi
    - Architect

  • 8.  RE: Small Firm Transition - HELP!

    Posted 04-23-2019 10:06 AM
    As someone already said, hiring a lawyer is a good idea. Another post talked about ownership being allotted by how much each partner invests in buying the firm. That makes some sense but what if the non-licensed employee is able to pay more? There's more to consider here.

    If you are going to hold the licenses required in every state outside your home state, you will be adding the most value to the new partnership. They couldn't work in those states without you (or by adding partners licensed in those states, or by partnering with a local firm in each state). You'll also be carrying the most professional risk. That's worth something.

    Longevity with the firm only matters if it means that over that time, an individual has developed the primary, loyal relationship with significant clients. Maybe one of you has. Maybe all three of you. If the current owner is the primary (only?) face of the firm, maintaining your current client list isn't a given. In that case, this kind of transition often leads to clients deciding to shop around. With the risk that clients may leave, what are you buying?

    Someone who could assess the value of the firm would be helpful. Steve Wintner, who wrote Financial Management for Design Professionals (great book), may be a good resource for that.

    Your boss hasn't helped any of you by waiting so long to start a transition process or by trying to control it. Still, this may be a very good opportunity for you. Let us know how it goes.

    Carol De Tine AIA
    Carriage House Studio architects LLC
    Portland ME

  • 9.  RE: Small Firm Transition - HELP!

    Posted 04-23-2019 12:05 PM
    Carol's post reminded me of seeing successful transitions where the retiring partner agrees to stay on for a certain amount of time to slowly move to part time and eventually then come as needed to be the face and make the transition of client maintenance to a new partner that the clients feel comfortable with.

    Elaine Bright, aia LEED AP
    Bright Ventures Architectural Consulting
    Nashville, TN