MWh_Pro
Member
- Location
- Lakewood, CO
Hello Everyone,
I hope to build a small engineering firm in the coming years, and I'm beginning my research on the available business structures for engineering consulting and design firms. I have been looking around all week and I have yet to find a suitable answer to what should be a simple question: what structures do most freelance/small-biz electrical PE's use to form their businesses in California?
You tend to get this response: an LLC is better, less paperwork, good protection, and lower costs to maintain when just starting out. I generally agree.
However, California does not allow "professional" LLCs (PLLC). For a business that will be conducting engineering design work, it appears to me that the "professional" element is important for the practice acts (civil, electrical, mechanical), but perhaps I am wrong. Is there any requirement for this? I.e. if I formed a corporation, would it necessarily be a professional corporation (PC)? The downside to a PC, is that besides owning a Dell (just kidding), is that in many cases the IRS will consider your corporation as a "personal services corp" and will then lay down a whopping 35% tax rate. No bueno.
The last option I was considering was the limited liability partnership (LLP), which offers good protection, pass-thru for revenue / taxation purposes (much simpler), but restricts non-professional (however, not unprofessional) managers, etc from becoming owners. This could potentially become an issue if we were planning to grow the business wanted to use private equity to do so.
In conclusion: help?
Thanks,
Dave
I hope to build a small engineering firm in the coming years, and I'm beginning my research on the available business structures for engineering consulting and design firms. I have been looking around all week and I have yet to find a suitable answer to what should be a simple question: what structures do most freelance/small-biz electrical PE's use to form their businesses in California?
You tend to get this response: an LLC is better, less paperwork, good protection, and lower costs to maintain when just starting out. I generally agree.
However, California does not allow "professional" LLCs (PLLC). For a business that will be conducting engineering design work, it appears to me that the "professional" element is important for the practice acts (civil, electrical, mechanical), but perhaps I am wrong. Is there any requirement for this? I.e. if I formed a corporation, would it necessarily be a professional corporation (PC)? The downside to a PC, is that besides owning a Dell (just kidding), is that in many cases the IRS will consider your corporation as a "personal services corp" and will then lay down a whopping 35% tax rate. No bueno.
The last option I was considering was the limited liability partnership (LLP), which offers good protection, pass-thru for revenue / taxation purposes (much simpler), but restricts non-professional (however, not unprofessional) managers, etc from becoming owners. This could potentially become an issue if we were planning to grow the business wanted to use private equity to do so.
In conclusion: help?
Thanks,
Dave
