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OK, so I'm looking at taking the step to move from being a sole proprietor to some sort of business entity that has a bit more liability protection (yes, I know I can always be sued personally as a professional).
I practice (and am licensed) in several states. I also sometimes do residential projects in yet other states where I am not licensed.
Currently, this is easy. Only my home state requires I register my business entity as a sole proprietor. The other states just allow me to do business. I do not have a DBA as I practice under my own name.
Can any firm owner (who has gone through this) give me advice as to organizational structure?
1) I'd prefer lower taxes (S-Corp?)
2) I'd prefer simpler operating and record keeping organiaztion (LLC/PLLC?)
3) I'd prefer more liability protection (don't know which one is better)
4) Do I need to incorporate/LLC in each state I practice in?
5) I am the only owner. I plan on keeping only one owner. However, I would like the option of adding other owners in the future - either licensed or unlicensed. I don't know what types of entities would allow me to add unlicensed owners, if any or at what percentages.
I know I won't get everything off my wishlist, but any guidance is much appreciated.
My accountant in Indiana told me an S-corp was better for me - sole prop with no employees.
my experience is:
1 - s-corp is better than c-corp in terms of taxes. s-corp does require more paperwork as you actually own shares of the company. an llc technically has 'members', whose operating agreement splits the % of ownership. shares are, imho, much easier to transfer between partners/owners/employees/etc. so, if you're the sole owner for some time to come, this may not be an issue.
2 - not all states have an llc/llp offering. if they do, like mine, you can choose to be taxed as an s-corp or partnership for federal purposes. neither tax filing would affect your liability. but those are very different tax categories.
3 - at least as i've been advised, there's no real difference in liability protection between s-corp or llc. at least for my state. both protect personal assets way more than a partnership.
4 - it will depend. most states now require a separate incorporation in the state, with a "physical address" there as well. usually, that cannot be a PO Box.
5 - you'll have to look at the sec. of state's page for your state to see what % of ownership can be non-licensed (as a professional corporation). it could vary between types (s-corp or llc/llp).
Thanks Greg & Donna.
It looks like I might be able to file "foreign entity" docs w/each state I do business in (other than my home state). Sounds like a pain in the a$$. I will probably do this anyway because the pain is outweighed by the liability protection.
Anyone have any insight on being a Professional Corporation (PC) or Professional Limited Liability Corp (PLLC) vs straight corp or LLC?
I don't have helpful insight, but I do recall being told that because my state is a personal liability state, registered professionals operating within a corporation are *not* shielded from liability as individuals. However, property held in common with someone else - like a spouse - cannot be the target of a personal liability lawsuit. At least that's how I understand it.
Donna, I think that's typical (same way I've heard it). And the reason I'm working to do this ...
gruen - we don't have PC or PLLC as an option here. only LLC.
some states we do have to register as a foreign entity (or foreign corporation). but, honestly, that's been easier to do than having to file as a distinct LLC. waaaay more easy.
Thanks Greg. I think I'm getting a handle on it. My CPA is pushing a S-corp for tax reasons, but I wonder if it's way too complex for an office of one. LLC seems to make more sense to me (simpler to run?) but I have no idea about the tax implications.
When choosing a form of legal organization for small businesses, tax considerations are not really as important to that decision as we generally suppose. Liability protection should be your primary concern.
In day-to-day practice, a design firm operating as a C-corp typically does not pay any corporate income tax for the simple reason that, at year end, all otherwise "taxable profits" are distributed to employees and owners as "bonuses" in order to avoid that second level of taxation. Those bonuses are then taxed at personal income tax rates, more or less in the same manner that S-corp, LLP or partnership income is taxed.
I practiced in a C-corp for more than 30 years. In all of that time, we never, ever, paid any meaningful corporate income taxes and we always operated strictly according to IRS regulations.
I suggest that you don't let yourself get overly wrapped up in the tax implications associated with various forms of legal organization. Keep it simple -- the tax man will get to you no matter what you choose, and you will manage your finances (and those of the business) to keep the tax bite as small as possible.
I am not an architect but am I an owner in an S-Corp with 2 owners plus 2 employees. I can't comment on liability but we pay significantly less taxes as an s-Corp. The extra paperwork isn't bad, but we have an accountant.
We were a PC but reincorporated as a S-Corp... I think the PC had the protections of a S-Corp, but with the added benefit that you had to have the majority stockholders as licensed professionals. We had to change as it passed from my Dad to my sister and I. She isn't licensed and runs the business side, hence my lack of clear answers.
Considering my Dad's old partner was somewhat of a philanderer, I'm guessing the PC aspect is how the assets were protected from his numerous divorces to protect the firm from 'hostilities' and ending up with a board full of torqued ex-wives.
Not that this should be the reason you should register a company one way or another, but I know that in NY, not only do you have to conform to the NCARB rules for IDP, but NY has its own requirements under what entity the experience you submit will count toward the licensing process. For example, if you work at a PLLC, the experience will count, whereas if you work at an LLC it will will not. Depending on what state you are practicing in, and if you want to attract candidates who are seeking licensing in a state with similar requirements, this may become an issue. I knew someone who thought he was done with his entire IDP only to discover that none of it counted (or very little of it did) toward licensure because his company was registered as an LLC. Just a thought...
WHAT?!?! Bulgar, for real?! That's insane!
Bulgar speaks the truth.. According to NYS Office of the Professions:
"General Business Corporations, Limited Liability Companies, Professional Associations (PA), and Limited Companies (LTD) are not permitted to offer architectural services in New York."
A PLLC on the other hand is considered a "permissible form of business" in New York.
So if one of the states you practice in is NY, you may want to exclude LLC as an option
That's completely insane.
just seeing bulgar's post - why is that insane? they just have a more refined LLC option up there. from what joseph posted, it seems like the business itself should have known when they set up that architectural services were not allowed under a straight LLC. or they're willingly misleading the public. or something in-between.
i do feel for the person thinking they're getting IDP credit but did they not have a licensed architect signing off on their work? i would think they could appeal to NCARB is so. if they didn't... then i don't know what to tell them. that's a pretty basic requirement.
Wow, that is nuts. I do practice in NY. Also in my state I have to be a PC, there is no PLLC in my state. Problem "solved" :/