we have an llc. it's just two of us.

Basically, you are deciding on your financial and legal liability.

sole proprietorship: they can take your house, wife, dog, whatever...

llc or llp: they can take whatever you share to run the business

Corp or inc: they can take whatever the business specifically owns.

contact your local jurisdiction for info on whether you need to register your business. Most states require it. Some cities require it as well.

Portland actually has a non-profit business advice group [the name escapes me right now]. retired businessfolk staff it and are available for helping with business plans, advice, etc. It was pretty helpful, really!

So check locally for the State's requirements and for any incentive or benefit programs

we tried not to pay a lawyer for business advice because the income ain't quite rolling in yet

but if you can afford it, it's a valuable resource and good business planning. [find one that does this specifically, not any old lawyer]

Thanks. I have contacted a lawyer, but after he told me of the $125 per hour 'friend' deal (he's a good friend of a good friend), I said no thanks.

My business is registered, but we are beginning to take on larger projects and want to be protected. LLC is what I've always thought to be the best choice, at least for the near future.

Another question is the nomenclature. May be trivial, but I would still like to know. Is it required to put LLC after your name? I've rarely seen an archticture firm have this, but they have to be protected somehow.

Trace - I think it partly depends on the state you are in, but in California you cannot have an LLC if you are a licensed professional, architect, contractor, lawyer, doctor etc. If you are not licensed than an LLC makes sense because the income/taxes flow through to individual owners and are shared by the partners, as in a partnership. From my understanding there is also less paperwork and cost involved than for a corporation, yet somehow you still maintain liability protection. I am not clear on the difference in liability protection for a corporation and LLC though.
Business structures are quite confusing and there are many... it helps to get a "how to run your own business" type of book for at least a basic understanding. I still don't fully understand though, even after talking to our accountant and a lawyer about it.
I would highly recommend paying a decent accountant, even if you don't go for the attorney yet. It has helped us tremendously, and there are so many different types of business deductions that it can be extremely complicated. We've only just started our company and our tax forms were something like 20 pages last year.
Anyways, we now have a general partnership and a recently formed S- corporation. The first is for the design company, the second for the constyruction company. We started with the general partnership because there are three of us but we wanted to keep it simple and not pay a lot to start the company. Unfortunately, we have run into trouble trying to get insurance, because we are licensed for both architecture and construction but own a company together we basically screwed ourselves. Even with splitting the companies, our general liability insurance for the construction side is going to be outrageous. But that's a special circumstance...
We decided to form the corporation because the construction side has so much liability, and as I said we can't form an LLC. I was planning to do it myself, but we ended up paying a lawyer recommended by our accountant. It was very quick, and they signed us up for a year end of Oct.31st, instead of December 31st, so we don't have to pay our corporate taxes etc. on that company until next year. As an example of why it makes sense to hire professionals, the books I had said that you can only do an S corporation election from January-March, but in fact you can do it any time and pick a different year end.
The design company for the moment will remain a general partnership, which means we are personally liable for debts etc., but we will be getting professional and general liability insurance soon so we should be covered enough. Anyways, since I am licensed I am still personally responsible for errors & omissions even if we turn the company intop a corporation, which we will probably do at some point in the future.
In terms of names, I believe legally you are supposed to put LLC, Inc. etc on all communications with the company name on them, but in practice if you put it on your contracts, checks etc. but not the business cards you are probably ok.
I would also recommend trying to get professional liability insurance, once you have formed your LLC or whatever company you decide on. It may be difficult to get if you aren't licensed, but I do have a friend here who is not and got a quote anyway so I guess it's possible. The insurance basically covers your legal expenses to defend you if you get sued, and/or settles depending on the situation. Even if you are legally protected by your business structure, it's good to have insurance so that they don't try and sue you personally anyway.
For the cost, it was $1500 to incorporate, and our accounting fees for the company last year were $800, but that will probably go up to $1200 or so this year...

I believe the main difference between a Corp and LLC is the way things are taxed. A Corp is taxed twice, once for the company, then once for the salaries. A LLC is not, it's only what you take home that is taxed.
We aren't licensed, so there would be nothing holding us back (not yet, at least).
I believe it's about $100 to get the LLC through. Just fill out some paper work and you are done, at least that's what the clerk told me. We'll see.

Insurance will have to come, depending on which projects we get. Right now, it's not a large concern.

An accountant will certainly be used. Too much at stake with those.

Thanks for the advice.

There is a benefit to the S-corp though, which is that you can pay yourself a "reasonable" salary, and then the rest as a bonus. You do not have to pay social security etc. taxes on the bonus(all or a portion, I'm not sure). This can add up to a significant savings. My understanding with partnerships & LLCs is that you have to pay the self-employment tax (meaning you pay all your social security, etc. taxes), and in the end if you are making enough money I think the tax situation is better with an S-corp. At least that is my conclusion after talking to my accountant. Yes, corporations are potentially taxed twice, but with an S-corp the money flows through in the same way that it does for partnerships & LLCs. So, I think all you are paying extra would be the minimum tax that a corporation has to pay per year ($800 or so), which is offset by the extra money you can save from that bonus thing I mentioned above, as well as extra deductions you can make as a corporation.
Anyways, it's all very confusing to me, but I don't think you really pay more taxes as a corporation in the end...
Also, the part about only what you take home being taxed with an LLC is not correct - all profits from partnerships, LLCs etc. are taxed, whether you leave the money in your company bank account or put it into your own. In fact, now that I think about it, that money which sits in the bank is taxed as though you used it personally, i.e. you pay the self-employment tax on it. But, if it's money sitting in a corporation tax account at the end of the year, only the corporate tax has to be paid on it, not the social security, etc. (though with an s-corp it does all flow through so same difference).
To make a long story short, I would talk to your accountant to see if there are tax benefits to incorporating vs. LLC. For liability, an attorney would be the one to ask, although most seem to not really know when it comes to design & construction, and someone who is specialized will cost you. The AIA has some decent info on these issues in their publications, but it is mostly geared to larger firms.
Good luck!

RAR - can architects only have sole proprietorships in CA?

I agree that professional advice is great whether from an accountant, tax preparer or lawyer (again who understand design & construction). Do whatever you can to get some. There are some jewels of financial advice out there if you ask the right person.

Trace - be careful which projects you take without insurance. maybe you can structure it into the jobs on a per job basis? E&O is pricey but so is losing your business or house, etc.

Architects can have everything excpet LLCs, I think. Sole proprietorship, partnership, S-corp, C-corp, professional corp, LLP, etc.

From Yahoo Finance today:

According to a February 2004 report issued by the General Accounting Office


an estimated 61% of U.S. corporations paid no federal taxes between 1996 and 2000. The same study also found that 71% of foreign controlled corporations with operations in the U.S. paid no federal taxes over the same period.

Some of the possible reasons for why U.S. corporations did not report any tax liability during the period include:

current year operating losses
loss carry-forwards from prior years
sufficient tax credits to offset tax liabilities
improper transfer pricing
According the GAO, improper transfer pricing occurs when, "income and expenses are improperly allocated among interrelated companies for the purpose of reducing taxable income in a high-tax jurisdiction."
Corporate taxes from both domestic and foreign controlled corporations are expected to account for approximately 9% or 169B USD of the 1.7T USD in revenue the government is anticipating to collect in 2004. In 2003 corporate tax receipts only accounted for 7% of total government receipts. The largest single component of government revenues in 2004 will be the individual U.S. citizen who will account for 43% of all receipts or 765B USD.

it's funny...
for us the only reason to do the llc over the llp was that we own the same stuff. so we can't really point fingers in the firm and have the other guy pay.

marriage + business sure is fun!

trace - all this is really going to be state specific. in georgia, we are registered as an llc, with registered architects at the helm (the restriction here is if you want to call your self a professional firm, then 2/3 or 3/4 of the ownership has to be licensed in that profession). we looked hard at an s-corp as well - much more sense economically than a c-corp - and decided that, for as small as we are, the llc made more sense (with an s-corp, you have to have a board of directors, which can be the ownership of the firm, and there is more regulatory paperwork. for us, it wasn't worth the hassle right now. if one day we get large enough -say 30-40 people - and the ownership transition becomes an issue, we may look into an s-corp.

in fact, just to offer a counterpoint to the above, most of the smaller architectural and engineering firms are llc's and not corporations. we don't have llp's though, so maybe that's the difference.

rar is correct about the tax implications, but, again since we are fairly small, we don't forsee having too much raw money sitting in the bank at year's end. so, if you will have lots of free cash flowing, i would seriously look into becoming an s-corp right off. one interesting thing, though, with the irs and llc's: apparently they do not recognize 'llc' as a formal category for tax purposes. we had to fill out a form choosing which other type of organization we would like to be taxed as - a partnership, which would have the personal pass through taxation or as a s-corp. we chose the s-corp taxation assignment. so, we may get the benefits of being an s-corp tax wise, but not legal and liability wise. which would be the best of both realms.

good luck.

To add, I thought the S-corp was going to be a big hassle in terms of paperwork, but in fact it seems pretty easy (so far anyway). We are only a 3 person firm, and actually the s-corp only has two shareholders and no employees, but it still made sense from a tax/liability point of view (mainly liability). I am somehow suspicious that LLCs have as much liability protection as corporations, just looking at how they are structured and what is required to form an LLC. The stuff I have read says that the laws for LLCs are much less refined and tested because it is a newer business entity. I'm not sure if it's good or bad but made me wary. But maybe that's just me being paranoid.

Thanks everyone, this has been great.

It does seem there are some issues surrounding LLCs that aren't solidified (like the self employment tax). I'll be doing a lot more homework on this. I naively thought we'd just get the LLC and be done with it, but nothing in business should be overlooked casually.

I'll let you all know which way we go.

what about PC? what does that mean?

Professional corporation, I would guess. I haven't quite figured out the benefit of it - may be that in some states you have to use that form if you want to incorporate as a licensed architect.

PC is a Professional Corporation (PC)
A form of corporation that can have only certain licensed professionals as shareholders, and which typically does not protect the professional shareholder from lawsuits brought alleging their professional negligence.