Inc. Verses LLC or Nothing 5

[kvillebasser]

I was wondering if anyone had any thoughts on the following:

If a single engineer is opening a consulting business, with long term plans of having only himself and maybe a draftsman or two as employees, should the business be incorporated, be a limited liability company, or neither?

Any opinions?

 

[cah2oeng]

Thanks, Jeff. I may take you up on your offer. I don't actually live in CA right now, but we're moving to Santa Barbara here in a couple of months and I'll be starting a civil engineering firm specializing in environmental fluid mechanics and data collection.

I'd definitely be interested in hearing your take on this.

Chad

 

[mwest]

kvillebasser:

I started out as a one man firm asking the same question you are. I studied the hell out of california corporation and LLC law (as best I could) and what it came down to was the same question that any other businessman would ask himself - Is anything other than sole proprietorship better from a financial stanpoint, meaning at the heart of the question is financial and not necessarily liability. I say as this because in California incorporation does not guarantee protection - if someone (a judge, licensing board, whoever) determines that you screwed up, it comes back to your license and not your corporate structure. In other words "Inc." does not protect your home and personal assets in all cases. My conclusion was to incorporate for tax and other financial advantages and have lots of insurance for if and when someone files a claim against me.

Hope this helps.

Doug

 

[buzzp]

If you choose an LLC just be careful because each state treats LLCs differently. Some consider them a partnership, some dont even acknowledge LLCs.
We started an LLC in October because of the limited liability. We also carry a $1,000,000 errors and omissions insurance. This costs us $1500 US a year. We are a nationwide computer service company so your insurance for practicing engineering will be higher than $1500/year I am sure.

 

[dauber]

Has anyone any experience in setting up a small engineering consulting (general civil work) LLC in Pennsylvania?
Like all the other posts, I get conflicting information regarding the status of engineering as a PLLC or LLC. Does anyone have an answer or been thru the process before?

 

[QuadT]

There are issues that attach to your professional license. In New York State, engineers and other professionals are pretty limited in opening general business corporations, (INC's). They have to open a Professional Corporation or an LLC. In addition, you must be all professionals in the corporation.

 

[carlosgw]

I went through this when I was starting out.
My understanding is that as a professional a corp. would not protect me from liability.
On the other hand it would from finacial liability. Right now I am a single person firm with no payables (employees, subconsultants, product, etc) and operate as a DBA. If I started taking on employees I would probably incorporate.

 

[jdaw74]

I am in NY, and have been brainstorming about how to take the first step in establishing a small, one-person, side job engineering business. I feel like now is the time to start. My accountant stated that I should not bother getting E&O, PL, or incorporating until my side jobs become more frequent. He also stated that unless I place my stamp on a plan or document, it will not be in jeopardy in case of a lawsuit. My day job is dependent on me maintaining my license, so of course I do not want to jeopardize either, especially with twins on the way!
Any suggestions on what the accountant said? If there are NY engineers out there doing the same thing, any input on how you guys (and girls) started this would be greatly appreciated. I feel like I need to get an MBA before doing any engineering!
Thanks in advance.

 

[dig1]

jdaw74,

I would talk to a lawyer in addition to your accountant. I'm starting a PLLC (I'm the only member at the present time) in NY. It really wasn't that expensive. The Certificate of Authority, filing w/ Dept. of State, legal adds, and Certificate of Authorization are under $600. There are advantages and disadvantages for every business form.

I would definitely get some E&O coverage, stamp or no stamp. If you are representing yourself as an engineer you have liability unless you are subcontracting to the responsible party where they are placing their seal. Even then, most of your client's (engineers who are doing the stamping) insurance carriers will want you as a sub to have E&O. I know for ASME members, and I assume ASCE as well, "moonlighting" and small business E&O coverage can be purchased thru a carrier.

My opinion, and that is why you need a lawyer because it is only my opinion, is if you design something or write a report for someone you have ethically (and realistically legally) placed your seal as a PE on that document, whether you actually stamped it or not. It is an implied warranty. Is it reasonable that your client would hire you if you had a disclaimer that you take no liability in your work? Would you as a consumer pay for it? In 95% + of the cases I wouldn't (there are always exceptions so it can't be 100%). You need to review the Education law so you know exactly what your responsibilities and obligations are.

I know many employers either do not permit or strongly discourage moonlighting because what it can potentially do to their insurance. This is beyond competition concerns.

I disagree that you need an MBA to start a consulting engineering practice. Three main things will help the most: 1) contacts (know people who will give you work, not just talk about giving you work); 2) technical expertise (you have to be good at the area you are working in); & 3) your ethics (people need to know you will do what is right even if it isn't what they want to hear).

Take the time to research everything and do it right.

Good luck.

 

[jdaw74]

dig1,
Thanks for the great reply. I do understand about the implied stamp and have heard other people say to definitelly get E&O coverage no matter what. And you bring up good points about what I would expect of an engineer if I were to hire one. I guess it just seems a daunting endeavor right now, mostly because of my ignorance of the law. That can only be solved by learning it, but I became an engineer because I disliked law in college. How ironic that now I need to learn it anyway.

My employer is a local government, so I will be sure to ask about potential conflicts of interest and what their policy is. Another good point taken.

I am encouraged about your three points...I have them all and don't think many people can provide the service I am looking at. If you, or anyone else reading this, has a link you refer to often about things like incorporating, insurance requirements, general things to think about, a referral would be greatly appreciated. I have also been looking to join a professional society, and was wondering which one is more useful for prospective independent engineers. NSPE? ASCE?

Thank you again for your input. You clearly put thought into it and it is appreciated.

 

[Slugger926]

With your Civil and Environmental background, you may want to look at ASCE and

http://www.asae.org.

The two organizations cross paths in a lot of areas and stregthen each other.

I am looking to join ASCE myself. I am alrady a member of ASAE, and we are changing our name to include the Biosytems and Environmental influences of our field.

 

[dig1]

jdaw74,

Here are some links.

NYS Dept. of State:

http://www.dos.state.ny.us/corp/corp

http://www.html

http://www.gorr.state.ny.us/gorr/Startbus.html

http://www.dos.state.ny.us/corp/llccorp.html

NYS Department of Ed. Office of the Professions

http://www.op.nysed.gov/pefaq.htm

ASCE Insurance Benefits:

http://www.asce.org/membership/sponsored_benefits.cfm

For me, ASME has been a big help because most of my work is related to pressure vessels. However, I'll be joining ASCE & AISC mainly for discounts on publications.

 

[CivAlan]

I will be setting up shop in Central CA this summer, and my mother-in-law was kind enough to get me a few Nolo books on starting a business in California. My impression of the LLC rules is that because Engineers are licensed professional, we cannot form LLC's.

As a one man shop, I don't see a lot of advantages to forming an Inc. If I get sued, I will get named. My name is on the license. My current boss (who is pretty supportive of my plans) has told me no matter what form my business takes, I need to make sure to homestead my house. That way, it cannot be taken in a legal proceeding.

 

[jsiauw]

I'm in the middle to trying to start a consulting business here in CA also and just found out that as a licensed professional engineer, I'm not allowed to form an LLC. The Secretary of State's office also said I can't form an LLP either since I'm not a licensed Architect, Acct. or Law.

I guess one of the ways to go is to form a S-corp with lots of E&O insurance.

 

[RCEJD]

As so many reviewers have noted, the laws vary for each form you may take.

If you are a PE, and sign a set of plans or reports, you are individually liable, and no structure will protec you if you are named personally. Your lawyer should be able to advise you accordingly.

jsiauw is absolutely correct, in Ca, PE are not allowed to be LLC or LLP for the purposes of engineering.

S- and C- chapter structures are more or a tax benefot, and offer varying degree of proection depending on the cause of actions.

Having a fair amount of experience in this field, there is a lot of confusion (as illustrated here !) even among attorneys. It is important to find an experienced corporate or business attorney.

Some helpful info can be found on

http://www.findlaw.com

but despite some of the threads there is no substitute for GOOD legal advice.

The bottom line though is (unfortunately) is insurance (which makes you a bigger target) unless you are judgment proof.

Some day the engineering and construction field will get their act together like the lawyers and accountants have done and fix some of this nonsense. Good Luck !