You have a license to practice engineering or architecture and want to start your own business. You’re already licensed – the hard part is behind you, right? Not entirely. There are many options to choose from when creating your own company: a corporation (“Inc.”); a professional corporation (“PC”); a limited liability company (“LLC”); a professional limited liability company (“PLLC”); a limited liability partnership (“LLP”); a partnership; or a sole proprietorship. Forming a corporate entity has clear advantages for businesses — the primary of which, to limit liability — but the entity type that you choose has important implications for your A/E firm.
Almost every state has specific requirements for which entities may provide architecture and engineering services. For example, Virginia allows the practice of architecture or engineering by all of the above-referenced entity types if certificate of authorization requirements are satisfied; however, other states (New York, for example) generally restrict the practice of engineering to professional entities and LLPs. Professional entities typically have strict ownership and management requirements, some of which tend to be difficult for large A/E firms to satisfy. For example, a Virginia PC that wishes to provide A/E services may only be owned by licensed professionals, with the exception of eligible employee stock ownership plans. At least two-thirds of its board of directors must be licensed architects, engineers, land surveyors, landscape architects, or certified interior designers. Some states have even more stringent requirements, requiring allshareholders, directors, and officers to be licensed. This means that a firm that satisfies the requirements to call itself a PC or PLLC in one state may not be qualify for similar recognition (or licensure) in other states.
Choosing an entity type and management are not decisions to be taken lightly and are often guided by uncontrollable factors, such as the licensure of owners. An entity type that works for one business will not necessarily work for another. Particularly when professional services are involved, one size doesn’t fit all.