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Managing Liability for Freelance Work

kaleksan

Hello all,

I'm interested in exploring some freelance work opportunities, likely in residential realm and I'm curious on what is the best way to manage liability.

During my college years I have just put together a contract, drafted up the plans and called it a day. These days I'm looking to see if creating a company is a better way to go and if so, which type would work better  - curious whether LLC has worked for those without a license or if corporation was a way to go... Looking for something on simpler/manageable side, since I'm assuming that whatever I'd be doing would be at a super low production rate.

Either way, would like to see what experiences folks had around here. I'm in California area but potentially interested in selling product across the state lines.

 
Jul 11, 20 2:25 pm
Wood Guy

At minimum you should have insurance (professional liability and general liability). To further protect yourself or specifically your assets, you can go from sole proprietor to LLC or corporation. LLC is generally the most flexible but you have to follow the rules or the LLC won't protect you.

There are two types of corporations, C-corp (which is sometimes just called a corporation) and S-corp, for small corporation. I have had S-corps for previous businesses but now have an LLC for my design business. If you're the only member of the business there's generally little difference between LLC and S-corp. C-corps are more complicated and not worth considering at your scale. You can always upgrade to a C-corp if you grow into a large business. 

Those are the corporate structures available in the US. When it comes to finances, LLCs can file taxes as either a sole proprietor or an S-corp. Again, at a small scale it doesn't make much difference until you start making enough money for taxes to add up. My LLC files taxes as an S-corp so I don't have to pay employment taxes on my full earnings. 

You should also have a good contract. Of course the AIA has many versions to choose from. I have one cobbled together from various previous employers and reviewed by a few attorneys (I'm fortunate to have several as friends, family and former clients) but as a rule it's safer to use an AIA document. 

California seems to have its own rules for everything so I don't know if all of this advice is applicable for your situation. I am an unlicensed designer and only take on work I am legally allowed to do.  

Jul 12, 20 10:42 am  · 
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bklyntotfc

If you're licensed, an LLC doesn't protect you from personal liability for your acts as an architect.  It does protect you personally if someone visits your office, slips on the coffee you spilled, and ends up in a wheelchair.

But you're not licensed.  So it seems likely that an LLC would much more effectively shield you from personal liability.

But you should look into insurance too.  And put a clause in your contractor that your clients agree not to sue you for more than your coverage (some may object, but many will probably not say a word).  If you're not doing too much work the premiums should be manageable.

Jul 12, 20 12:28 pm  · 
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kaleksan

Cool, thanks everyone

Jul 15, 20 2:26 am  · 
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proto

if i remember correctly, no LLC allowed in Cali for architects per state profession rules; i do not know if that applies to building designers; call CAB for further distinctions

look into the costs of E&O (liability) insur, if only on a project basis

but realize that your liability isn't that high for residential work. you can structure your contract to indicate financial liability limited to the cost of professional services [until you run into a lawyer for a client, LOL]

Jul 15, 20 1:22 pm  · 
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