Choosing the Right Business Structure
Starting your own architecture firm is an exciting venture, but one of your first decisions will be choosing the right business structure. This choice affects everything from your personal liability and taxes to your ability to bring in partners or raise capital down the road.
While it might be tempting to skip the fine print and just start designing, taking time to understand your options now can save you headaches (and money) later. Let's break down the most common business structures for architects and help you determine which one makes sense for your practice.
The Main Contenders
Sole Proprietorship: The Simplest Start
If you're flying solo and want to hit the ground running, a sole proprietorship might be your default. There's virtually no paperwork—you're automatically a sole proprietor the moment you start doing business under your own name.
Pros: it's simple, inexpensive, and gives you complete control. You report business income and expenses on your personal tax return using Schedule C, and you're done.
Cons: there's no legal separation between you and your business. That means your personal assets—your house, car, savings—are all on the line if something goes wrong. One lawsuit or unpaid debt could put everything you own at risk.
For architects just testing the waters with small residential projects, sole proprietorship can work temporarily. You will likely outgrow this structure as the practice—and exposure—increases.
General Partnership: Two Heads, Shared Risk
Planning to start a firm with a colleague? By default, you'll be in a general partnership.
Pros: it's straightforward in that you split profits according to your partnership agreement and each partner reports their share on personal tax returns.
Cons: You and your partner are jointly liable for the business's debts and obligations. Each partner can be held responsible for the other's actions. If your partner makes a costly mistake, your personal assets are exposed too.
If you go this route, invest in a solid partnership agreement that clearly defines ownership stakes, decision-making authority, profit distribution, and exit strategies. Being able to have these conversations with your potential partner is a positive sign of good communication.
Limited Liability Company (LLC): The Sweet Spot for Many
For many small architecture firms, an LLC hits the sweet spot between protection and simplicity. An LLC shields your personal assets from most business liabilities while offering tax flexibility and operational ease.
Here's what makes LLCs attractive:
Liability Protection: Your personal assets are generally protected if the business faces lawsuits or debts (though you're still personally liable for your own professional negligence—that's what professional liability insurance is for).
Tax Flexibility: By default, single-member LLCs are taxed like sole proprietorships, and multi-member LLCs like partnerships. But you can elect to be taxed as an S-Corp if it makes financial sense, without actually changing your legal structure.
Operational Simplicity: Unlike corporations, LLCs don't require formal board meetings, detailed minutes, or complex compliance procedures. You create an operating agreement, file articles of organization with your state, and you're essentially good to go.
Growth-Friendly: Adding new members or bringing on silent partners is relatively straightforward compared to other structures.
Keep in mind that state requirements vary. Some states don't allow single-member LLCs for licensed professionals, and fees can range from modest to significant depending on where you're located.
S Corporation: Tax Benefits with More Complexity
An S-Corp is essentially a corporation that's elected special tax treatment with the IRS. About 28% of architecture firms choose this structure, particularly small firms looking to optimize their tax situation.
Pros: Potential tax savings and can more easily grant equity to employees or investors.
With an S-Corp, you pay yourself a "reasonable salary" subject to payroll taxes, but additional profits can be distributed as dividends, which aren't subject to self-employment tax. For profitable firms, this can add up to substantial savings.
S-Corps can issue shares though there are restrictions: no more than 100 shareholders and they must be U.S. citizens or residents.
Cons: More paperwork and formality. You'll need to hold regular director and shareholder meetings, maintain corporate minutes, file separate tax returns, and potentially pay for more accounting help. Many architecture firms start as LLCs and convert to S-Corps once their revenue justifies the additional complexity.
Professional Corporation: State-Specific Requirements
In some states, licensed professionals like architects must practice through professional corporations (P.C.) or professional service corporations. These offer similar liability protection to regular corporations but are specifically designed for licensed professionals.
Requirements vary significantly by state. Some mandate that all owners and directors be licensed architects; others allow licensed professionals from related fields (engineers, landscape architects, etc.) to be members.
If your state requires a P.C., work with a local attorney familiar with your state's regulations—the rules can be nuanced and non-compliance can be costly.
Making Your Choice
So which structure is right for you? Here's a practical framework:
Choose sole proprietorship if: You're just starting out, testing the waters with small projects, and plan to upgrade your structure within a year. This is rarely a long-term solution.
Consider a partnership if: You're starting with one or more partners, but be sure to invest in a comprehensive partnership agreement and explore LLC or corporate structures for better protection.
Go with an LLC if: You want solid liability protection without excessive complexity, plan to keep the firm relatively small (under 10 people), and value operational flexibility. This is the most popular choice for small architecture firms.
Look into an S-Corp if: Your practice is profitable enough that tax savings outweigh the additional administrative burden (generally when you can pay yourself at least a reasonable salary plus $10,000+ in distributions annually), or if you plan to bring in investors.
Form a Professional Corporation if: Your state requires it for licensed professionals, or if you're building a larger firm with plans for multiple shareholders.
Don't Go It Alone
Business structure isn't something to decide based solely on a blog post (even this one). The right choice depends on your specific circumstances: your state's laws, your financial situation, your growth plans, and your risk tolerance.
Before making your decision:
Consult with a business attorney familiar with architecture firms in your state
Talk to your accountant about tax implications
Connect with other local architects who've recently started firms
Consider how your choice might affect future plans (hiring employees, adding partners, seeking financing)
The business structure you choose today isn't necessarily permanent. Many successful firms start as LLCs and later convert to S-Corps as they grow. The key is choosing a structure that protects you now while positioning you well for the future.
Your architecture firm deserves the same thoughtful consideration you give your designs. Take the time to get this foundational decision right, and you'll have a solid structure to build your practice upon.
References:
U.S. Small Business Administration, "Choose a business structure," https://www.sba.gov/business-guide/launch-your-business/choose-business-structure
EntreArchitect, "Entrepreneur Architect Academy 008: Choosing a Business Structure for Your Architecture Firm," March 2016, https://entrearchitect.com/2013/02/24/entrepreneur-architect-academy-008-choosing-a-business-structure-for-your-architecture-firm/
Monograph, "Guide to Starting Your Own Architecture Firm," August 2023, https://monograph.com/blog/guide-to-starting-your-own-architecture-firm
TRUiC, "Should I Start An LLC For My Architecture Firm?," February 2024, https://howtostartanllc.com/should-i-start-an-llc/architecture
AIA New York, "Designing the Right Entity," January 2014, https://www.aiany.org/news/designing-the-right-entity/
Architect Magazine, "Incorporating Your Practice," September 2014, https://www.architectmagazine.com/practice/incorporating-your-practice_o
