I keep on getting the following question wrong on the practice exam:
*You’ve finally decided to leave your 40 hour a week salaried position as a PM and open up your own practice. Before performing any work you decide to create a legal entity for your new practice. *
What are the considerations for choosing a legal entity?
Could someone explain why what type of architecture you plan to practice does not matter, and how certain legal entities can help you pool resources with others?
Thank you.
Hey @annika.schneider18, could you post a screenshot of the question and answers? I want to make sure I go down the correct rabbit hole before diving in to your question.
Thanks for posting the full question and answers.
I’ll start with the type of architecture you plan to practice. When choosing your business structure it’s unlikely that you’ll need to consider whether you’re building homes or high-rises; your insurance needs may differ, but the overarching firm type you select will likely not be impacted by what you’re drawing. A sole proprietor could work on office buildings or townhomes, same with an LLC or C-Corp. The only time the ‘type’ of architecture you practice might affect the legal entity you choose would be if you aren’t well versed in the type of architecture you want to practice. The AIA code of ethics calls for Architects to either practice what they know or enlist the help of other experienced parties to complement their knowledge. If that was the case, we’d be cognizant of our entity type, likely choosing a joint venture, partnership, or other entity that allows more than one principal. It looks like the answer choices include an option for this (organize with other partners), so that would be the ‘better’ answer than ‘type of architecture you plan to practice’ in this situation.
For pooling resources, I’d recommend you take a look at these videos by Intuit. I used them when I was studying and found them helpful. I’ve also included a chart below that I made for comparing different entity structures.
Sole Proprietor
Partnership
Limited Liability Company
C-Corporation
S-Corporation
Let me know if I’ve answered your question and/or if you have follow up questions. The entities can be tricky! This section makes up about 20% of the PCM exam, so definitely ask away until you feel like you have a solid understanding.
Thank you! This has been very helpful!
