Legal Structure

Question 1

Sole Proprietorship

Answer 1

• Owner: individual practitioner
• Management: individual practitioner
• no liability protection
• does not file federal taxes/pay taxes
• income/losses passed through to individual owner
• no state registration

Question 2

General Partnership

Answer 2

• Owner: Partners
• Management: Partners
• no liability protection
• does not pay federal taxes
• each partner’s share of income/loss is passed through and reported in individual taxes
• many states require COA
• varying requirements of licensing of partners

Question 3

Limited Liability Partnership (LLP)

Answer 3

• Ownership: Partners
• Management: Partners
• Partners are protected against claims, but are liable for own professional negligence
• don’t pay federal taxes
• each partners share of income/loss is passed through and reported on individual taxes
• Secretary of State filing: LLP certificate for formation state and foreign states

Question 4

Subchapter C (publicly traded)

Answer 4

• Owner: outside Stockholders who are not actively involved in management of the firm
• Management: Directors, Officers
• protected against claims
• liable for own professional negligence
• pays federal taxes - corporate taxes on their income
• their after tax profits will be passed through to stockholders and then filed on their individual taxes return
• double taxation

Question 5

Subchapter S (closely held)

Answer 5

• Owner: Stockholders (not more than 100)
• Management: Directors, Officers
• protected against claims
• liable for their own professional negligence
• ownership closely held - no outsiders
• don’t pay federal taxes
• income/losses passed through and reported on individual stockholders taxes

Question 6

Limited Liability Corporation (LLC)

Answer 6

• Owners: Members
• Management: Managers (elected by members)
• protected from claims
• liable for their own professional negligence
• closely held
• if only one member it is treated as sole proprietorship for taxes
• if partnership or corporation don’t pay federal taxes
• member’s share of income/loss passed through and reported on individual taxes

Question 7

Joint Venture

Answer 7

• is a temporary association of two or more people to achieve a project
• used by multiple architects for larger projects
• set up through a formal agreement process
• treated like a partnership but can not be sued
• can be taxes as a partnership or individually based