LLC vs Inc vs nothing 2

[RJN10]

thread784-92621

Does anyone have experience establishing a mechanical design engineering consulting firm in Georgia? Specifically, LLC vs Inc vs nothing.

Thanks.

 

[MacGyverS2000]

A lawyer experienced in setting up engineering businesses should be your first stop. There are large differences (particularly in liability) between a corporation and an LLC (and I would not want to make it a sole proprietorship, as your "nothing" suggests).

Dan - Owner

http://www.Hi-TecDesigns.com

 

[glass99]

In NY State (and presumably all states) if you establish a corporation offering services as a licensed Professional Engineer, you have a limited number of incorporation options including Professional Corporation (PC) and PLLC and one or two others. You are not supposed to do LLC or Inc. It's pretty easy to call your state office of corporations do get this info.

You can just work as an individual using your personal bank account. The disadvantage of that is:
1. You would have missed out on the PPP stimulus
2. You miss out on an additional layer of financial protection from liabilities
3. Tracking all your expenses is cleaner with a corporation.
4. It's less professional for clients
5. You have to mess with 1099 forms for every client every year
6. It makes it complicated to hire someone, even a 1099. How do you obtain workers comp for them?
7. It makes it complicated to obtain all the weird/frustrating insurances you need for more paperwork oriented clients, like General Liability, umbrella, etc.

The advantage of being an individual is:
1. you don't need to do an extra tax return
2. you don't need to shuffle money from your personal to corporate accounts
3. sometimes there are extra corporate taxes
4. its less brain space thinking about the corporate stuff

I would only work as an individual if I was doing small things for clients who aren't very formal or litigious, and I never wanted to hire anyone.

 

[alchemon]

The lawyer idea is by far the correct way to go. I normally see LLC for new/smaller/independently owned engineering firms.

 

[IRstuff]

If you are a PE, you incur personal liability for practicing as an engineer, which a corporate structure does not protect you from.

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[phamENG]

While legal protection is important, include a CPA on your list of professionals with whom to consult. A single member LLC filing as an S corporation can give big tax benefits over sole proprietorships, but it comes with certain filing requirements and other limitations. You'll have to figure out your specific situation and find the best solution.

 

[glass99]

What specialization of lawyer would you consult about this? Is it a professional services attorney, like the kind you might deal with in a lawsuit or that would review your contracts? Or an incorporation attorney?

I think this is more of an accountant thing than a lawyer thing.

 

[alchemon]

It is both an accounting and legal thing. You need to get all of our master service agreements, project contracts/agreements, and insurance requirements squared away (attorney). You then need to make sure that you're "incorporated" within the state you are offering services (business license). Every state is different. The accountant will help you get the tax situation resolved. Find a local attorney who has experience setting up LLCs/or whatever you decide to pursue. EJCDC will have some resources on the agreements. You can have the attorney write them for you, or just approve/review the ones you want to use.

 

[glass99]

@alchemon: yes I suppose it would be nice to have all those professionals to help you, but you need a bit of scale to pay for all those expensive people. Getting a professional services attorney to review your standard terms and conditions is approx $5-10k. An incorporation attorney is approx $2k. An accountant might be cheaper at only $1k, or give you some free advice if they are doing your taxes anyway.

My bigger thing with this forum is that "go ask an attorney" is an unnecessarily cautious answer, and it leads to engineers not understanding legal things.

 

[IRstuff]

My bigger thing with this forum is that "go ask an attorney" is an unnecessarily cautious answer,

How so? When some random EE poses a structural problem, do you recommend that they should understand how to do the problem, or do you recommend they contact a competent SE? As a PE, you are obligated to practice within your area of competence and expertise, and you'd consult with an EE, or ME, as required.

TTFN (ta ta for now)
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[MTNClimber]

I agree with IR. Why wouldn’t you talk to a professional? Our lawyer has been great at guiding us through the legal BS that comes with owning your own business. That’s probably why so many people recommend doing it.

 

[phamENG]

I can see both sides. There are so many legal aspects of the engineering business world that anyone entering into it should have some idea of how the system works, how it effects you and your business, what the common jargon means, and be able to recognize when you might be in trouble. In that respect, I agree with glass99.

At the same time, however, every building owner should have a basic understanding of the structure of the building, how making changes might effect it, and how to recognize a problem. That doesn't mean the building owner should design said building, or determine the best repair method (though they should educate themselves to the point that they can understand on at least a basic level what is being done). And in this I agree with IR - professionals exist in our respective fields for a reason.

glass99- I wonder if your perception is skewed by your location? You're in NYC, correct? Maybe that drives those costs up disproportionately higher than other areas? A reasonable attorney around here can be had for about $200/hr for basic consultations. You're not getting a partner with 40 years experience in corporate law, but most of us don't need that. I'm going through the process now, so I'll try to come back and post some real numbers for my region when I have them.

 

[glass99]

@alchemon + @IRstuff: if you are a business owner or manager, you deal with contracts or legal issues on a daily or weekly basis. You really do need a basic understand of law and accounting to be a functioning manager. A lot of what gets asked on this forum is pretty basic legal stuff, and should be within the experience of at least some engtips members (like for example incorporating an engineering business). It might also make sense to talk to a lawyer, but hearing a practical answer from another engineer who understands your context is actually very useful. Attorneys can also make things very complicated and confrontational if you don't understand what they are telling you.

@phameng: yes you are right that lawyers are especially expensive in NYC. A professional services attorney that you would actually be able to help you is $400/hr.

 

[alchemon]

I am familiar with all of our company's master and task order agreements as well as our, and our subconsultant, insurance requirements. I did not write those. I just use them frequently. I am more of a novice on the accounting side.

I agree that the owner/manager needs to understate the agreements.

I would hesitate to say that they should write them themselves. If the OP is just trying to set-up one or two projects, then the agreements and contracts are less important. If you are writing a large/risky contract - then the front end investment is worth it. Certain engineering specialties are inherently higher risk (e.g. vertical design - structural/MEP - and geotechnical). If engaging in this, then you better damn well make sure that your contracts and insurance are solid. Something less risky like planning or off-team reviewing, these details are less important.

The path of least resistance for the OP may be to try to purchase and use the EJCDC documents. But, you need to know what you need and what you are getting your client to sign.

 

[glass99]

@alchemon: yes, that's kind of thing I meant - you can tweak a contract but not write it from scratch.

 

[MacGyverS2000]

You really do need a basic understand of law and accounting to be a functioning manager.

And the best way to get that experience is to ask a lawyer who is familiar with law in the location(s) you intend to practice in, not randomly-located engineers who may/may not have a good grasp of the legal system. I may recommend something, but in the end the onus is on the other person to do their homework... you think they can (successfully) blame me for my off-the-cuff advice? Might as well go to the proper source than always wonder if what you've been told is correct.

Dan - Owner

http://www.Hi-TecDesigns.com

 

[glass99]

@MacGyverS2000: of course it's best to ask a real lawyer rather than some rando from engtips: But here's a truth bomb for you: most engineers just assume the whole thing is above their pay grade and get their asses handed to them as a result.

 

[MacGyverS2000]

But here's a truth bomb for you: most engineers just assume the whole thing is above their pay grade and get their asses handed to them as a result.

Isn't that reason enough to suggest the OP talks to a lawyer rather than asking a rando?! I feel like that statement kind of makes my point...

Dan - Owner

http://www.Hi-TecDesigns.com

 

[IRstuff]

Beyond the understanding of the terminology, an experienced liability lawyer also knows some, if not all, of the relevant case law, specifically:

> what works and doesn't work
> in corollary, what is enforceable and what is not
> what is general accepted practice
> what is risky

TTFN (ta ta for now)
I can do absolutely anything. I'm an expert!

https://www.youtube.com/watch?v=BKorP55Aqvg

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[glass99]

Would it make sense for two non-engineer developers to talk to each other about whether to make a building out steel or concrete? Perhaps ask each other what had worked in the past? Obviously they need to get a real engineer at some point, but they talk to each other even though an engineer much more expertise, another developer has the advantage of similar perspective. Perhaps the engineers like concrete because it results in higher structural efficiency, but they don't care much that there is a long lead time for rebar in the current market.