I'm doing (tons) of research into the best way to get myself officially set up to operate on my own. It's something I've been working toward for a long time, and I'm very luckily finally in a position of limited risk, so I have the perfect small window of time to see if it works. (And if it doesn't, I'll plunge myself back into firm employeeship.) I've been planning this for years, and have read all the (excellent!) threads this site has to offer - so I'm fairly well aware of the upsides and downsides of owning one's own business, and I feel like for me it will be a good fit - or at the very least, I won't regret trying it out.
In any case, I've been going back and forth over a stumper for the last few days, and before I commit any funds to a tax or legal professional to advise me, I thought I'd turn to the archinect community to flesh out my knowledge.
I'm trying to decide whether to operate as a sole-prop or as an LLC (single-owner).For tax purposes these are essentially identical set-ups. The LLC has more cost than the sole prop in terms of business registration fees. However, what I am most concerned about is protecting myself from liability.
Every firm I've worked for has been embroiled in at least one lawsuit during the time I've worked there, and only 1 time did it actually have to do with something the architect could conceivably have been at fault for. In my observation, architects tend to get sued fairly frequently, even when they're not remotely at fault. So I am terrified of this happening to me. I have no assets other than savings, but I can't afford to lose those.
I had been thinking I could incorporate as an LLC and thus protect myself from liability, but this thread, amongst others, suggests that is not the case.
Then I thought "well I'll just get insurance then" but I can't get any sense of how much this will remotely cost without talking to an agent - and anecdotally I keep finding places where people refer to how insanely expensive E&O insurance is.
So here are my questions:
1. Can anyone give me even a ballpark estimate of how much their E&O insurance costs, and for what coverage? I'd like to know whether this is even an option for me, financially.
2. Have any of you ever had experience with being sued? Did your insurance help you at all? Did they attempt to go after you personally? (I certainly hope not)
3. Do you operate as an LLC, or as a sole-prop? Why?
In New York City it makes very little sense to operate as an LLC as compared to an S-Corp. Especially because of the publication requirement.
The big thing about LLC (any any corporate structure for that matter) status is that if you ever do go bankrupt, your lenders have a harder time if they decide to go after your house or whatever property you own. That's pretty important in this economic climate.
I'm in Chicago. I couldn't really see any advantage to an S-Corp over LLC so crossed that one off my list to save research time.
Good to know - I'm not worried about going bankrupt at this point, as I won't be borrowing any money for at least the first year, if not longer. Also I own no property and won't for at least another 3 or 4 years. No car, no house, nothing but a laptop.
Also - forgot to add - I will be doing small-time residential renovations. Kitchens, bathrooms, bungalow attic build-outs. Maybe an addition if I'm lucky. Also have some possible pro bono leads, also for tiny projects. (ADA bathrooms, etc.)
Something else to think about- you can be liable long after a project is finished, so must have protection well into the future even if you go back to employeeship.
LLC or S-corp over sole proprietor (or partnership). As a SP, you are personally liable if, for instance, the company gets sued or goes bankrupt. Even years after you may have ceased business operations. Personally. You. Not the company. There's a reason why rich people don't form sole proprietorships anymore. Follow their example.
As for LLC vs. S-corp, that really depends on state law where you intend to practice. As an architect, it would technically be a PLLC or PS Inc., since it would be a professional service entity.
The insurance issue is highly dependent on what kind of work you intend to do. Public work (even small stuff) generally requires that you carried a $2 million+ liability policy. For the small residential remodels you're looking at, you could potentially go naked (uninsured) if you think the risk is low and/or you can get your clients to write an indemnification for the work as part of the contract. Years ago, when I had just started my own private practice, I did it that way and it worked fine.
Either way, talk to a lawyer. It will cost you maybe $500, but will be worth it.
As gwharton suggests, going naked is not unusual for practitioners doing small projects. However, this really only works if you don't have enough assets to make a lawsuit attractive - if you own a home or are an heiress some insurance will probably be advisable.
Manta:
I'm a great believer in the concept of "start as you mean to go forward."
Therefore, I recommend that you go with an LLC, for protection against "commercial" liability. However, keep this in mind - the corporate veil does not (as a matter of public policy) protect against "professional" liability. For that reason, you should purchase E&O insurance.
Ask around among your friends for the name of an independent insurance broker who handles all of the E&O carriers. Explore your options with him/her - it may not be as expensive as you fear. At a minimum, it will give you peace of mind - that will allow you to concentrate on serving your clients and being a good architect.
Good luck.
Those are some very good questions. I think you need to talk to a project insurance agent and get his recommendations. Now I know that it is my first post but I am not trying to spam, but try giving PDI a call, here is their website: http://www.pdiins.com/
Questions for Practitioners: Liability and Insurance vs. Firm Structure?
Hi all,
Question Background:
I'm doing (tons) of research into the best way to get myself officially set up to operate on my own. It's something I've been working toward for a long time, and I'm very luckily finally in a position of limited risk, so I have the perfect small window of time to see if it works. (And if it doesn't, I'll plunge myself back into firm employeeship.) I've been planning this for years, and have read all the (excellent!) threads this site has to offer - so I'm fairly well aware of the upsides and downsides of owning one's own business, and I feel like for me it will be a good fit - or at the very least, I won't regret trying it out.
In any case, I've been going back and forth over a stumper for the last few days, and before I commit any funds to a tax or legal professional to advise me, I thought I'd turn to the archinect community to flesh out my knowledge.
I'm trying to decide whether to operate as a sole-prop or as an LLC (single-owner). For tax purposes these are essentially identical set-ups. The LLC has more cost than the sole prop in terms of business registration fees. However, what I am most concerned about is protecting myself from liability.
Every firm I've worked for has been embroiled in at least one lawsuit during the time I've worked there, and only 1 time did it actually have to do with something the architect could conceivably have been at fault for. In my observation, architects tend to get sued fairly frequently, even when they're not remotely at fault. So I am terrified of this happening to me. I have no assets other than savings, but I can't afford to lose those.
I had been thinking I could incorporate as an LLC and thus protect myself from liability, but this thread, amongst others, suggests that is not the case.
Then I thought "well I'll just get insurance then" but I can't get any sense of how much this will remotely cost without talking to an agent - and anecdotally I keep finding places where people refer to how insanely expensive E&O insurance is.
So here are my questions:
1. Can anyone give me even a ballpark estimate of how much their E&O insurance costs, and for what coverage? I'd like to know whether this is even an option for me, financially.
2. Have any of you ever had experience with being sued? Did your insurance help you at all? Did they attempt to go after you personally? (I certainly hope not)
3. Do you operate as an LLC, or as a sole-prop? Why?
Where are you based?
In New York City it makes very little sense to operate as an LLC as compared to an S-Corp. Especially because of the publication requirement.
The big thing about LLC (any any corporate structure for that matter) status is that if you ever do go bankrupt, your lenders have a harder time if they decide to go after your house or whatever property you own. That's pretty important in this economic climate.
I'm in Chicago. I couldn't really see any advantage to an S-Corp over LLC so crossed that one off my list to save research time.
Good to know - I'm not worried about going bankrupt at this point, as I won't be borrowing any money for at least the first year, if not longer. Also I own no property and won't for at least another 3 or 4 years. No car, no house, nothing but a laptop.
Also - forgot to add - I will be doing small-time residential renovations. Kitchens, bathrooms, bungalow attic build-outs. Maybe an addition if I'm lucky. Also have some possible pro bono leads, also for tiny projects. (ADA bathrooms, etc.)
Something else to think about- you can be liable long after a project is finished, so must have protection well into the future even if you go back to employeeship.
LLC or S-corp over sole proprietor (or partnership). As a SP, you are personally liable if, for instance, the company gets sued or goes bankrupt. Even years after you may have ceased business operations. Personally. You. Not the company. There's a reason why rich people don't form sole proprietorships anymore. Follow their example.
As for LLC vs. S-corp, that really depends on state law where you intend to practice. As an architect, it would technically be a PLLC or PS Inc., since it would be a professional service entity.
The insurance issue is highly dependent on what kind of work you intend to do. Public work (even small stuff) generally requires that you carried a $2 million+ liability policy. For the small residential remodels you're looking at, you could potentially go naked (uninsured) if you think the risk is low and/or you can get your clients to write an indemnification for the work as part of the contract. Years ago, when I had just started my own private practice, I did it that way and it worked fine.
Either way, talk to a lawyer. It will cost you maybe $500, but will be worth it.
As gwharton suggests, going naked is not unusual for practitioners doing small projects. However, this really only works if you don't have enough assets to make a lawsuit attractive - if you own a home or are an heiress some insurance will probably be advisable.
Manta: I'm a great believer in the concept of "start as you mean to go forward." Therefore, I recommend that you go with an LLC, for protection against "commercial" liability. However, keep this in mind - the corporate veil does not (as a matter of public policy) protect against "professional" liability. For that reason, you should purchase E&O insurance. Ask around among your friends for the name of an independent insurance broker who handles all of the E&O carriers. Explore your options with him/her - it may not be as expensive as you fear. At a minimum, it will give you peace of mind - that will allow you to concentrate on serving your clients and being a good architect. Good luck.
Those are some very good questions. I think you need to talk to a project insurance agent and get his recommendations. Now I know that it is my first post but I am not trying to spam, but try giving PDI a call, here is their website: http://www.pdiins.com/
are you an architect? my understanding is that this also makes a difference as it they are held to a higher standard than the rest of us "designers"
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