Advice on Incorporating or Sole Proprietorship

[iEngineer]

What is the name of your state (only U.S. law)? PA

I'm considering options on if its worth it to incorporate or just remain a sole proprietor and am seeking some opinions on this matter. I'm a civil engineer and work full time for a corporation. I also wish to perform work as an engineer on my own. I don't have any immediate plans for growing this business beyond just myself functioning as the owner and sole employee. My understanding is that the main benefits are limited liability but that applies when one has employees since they would be agents of the LLC and not of me personally. Since I would have no employees I would still be liable for my own actions and thus my personal assets could still be in jeopardy in the event of a legal suit even as an LLC. Is this correct?

I've heard of this before with clients suing the engineer of record and the corporation, which is what is causing me to pursue further research in this area before conducting business on my own. I do plan on acquiring liability insurance to provide a safety net just-in-case.

Given what I described about the prospective business, would there be any advantage to incorporating as an LLC?

Thanks in advance for any advice!

 

[quincy]

What is the name of your state (only U.S. law)? PA

I'm considering options on if its worth it to incorporate or just remain a sole proprietor and am seeking some opinions on this matter. I'm a civil engineer and work full time for a corporation. I also wish to perform work as an engineer on my own. I don't have any immediate plans for growing this business beyond just myself functioning as the owner and sole employee. My understanding is that the main benefits are limited liability but that applies when one has employees since they would be agents of the LLC and not of me personally. Since I would have no employees I would still be liable for my own actions and thus my personal assets could still be in jeopardy in the event of a legal suit even as an LLC. Is this correct?

I've heard of this before with clients suing the engineer of record and the corporation, which is what is causing me to pursue further research in this area before conducting business on my own. I do plan on acquiring liability insurance to provide a safety net just-in-case.

Given what I described about the prospective business, would there be any advantage to incorporating as an LLC?

Thanks in advance for any advice!

Yours is more of a business question than a legal question so you will want to personally discuss the pros and cons of each business structure with a tax and financial advisor in Pennsylvania prior to thoughts of launching your business. It will take a personal review of your plans and your finances to advise you properly.

If you are planning on starting an engineering business while continuing to work as a civil engineer for your current employer, you should also review carefully your current employment contract before proceeding to see what if any limitations are placed on you by your employer. You could find legal issues arising, for example, if your own business will be competing for clients or customers with your current employer.

Following are some links to information on the different business structures.

From the Pennsylvania Small Business Development Centers: http://www.pasbdc.org/resources/faqs/business-structure

From Pennsylvania Open for Business: http://www.paopen4businessbriefcase.state.pa.us/BStructure/Structure.asp

No business structure can prevent someone from filing a lawsuit against both you personally and your business, and no business structure will protect you from liability for your own personal acts and actions. The best you can do is operate your business and operate personally in ways that do not make you vulnerable to a suit - and then have liability insurance in the event that you are sued despite your best efforts to avoid a suit.

 

[LdiJ]

What is the name of your state (only U.S. law)? PA

I'm considering options on if its worth it to incorporate or just remain a sole proprietor and am seeking some opinions on this matter. I'm a civil engineer and work full time for a corporation. I also wish to perform work as an engineer on my own. I don't have any immediate plans for growing this business beyond just myself functioning as the owner and sole employee. My understanding is that the main benefits are limited liability but that applies when one has employees since they would be agents of the LLC and not of me personally. Since I would have no employees I would still be liable for my own actions and thus my personal assets could still be in jeopardy in the event of a legal suit even as an LLC. Is this correct?

I've heard of this before with clients suing the engineer of record and the corporation, which is what is causing me to pursue further research in this area before conducting business on my own. I do plan on acquiring liability insurance to provide a safety net just-in-case.

Given what I described about the prospective business, would there be any advantage to incorporating as an LLC?

Thanks in advance for any advice!

I will tell you what I tell everyone. A good business liability policy (or professional liability policy in your case) does far more to protect someone from liability than anything else.

 

[quincy]

I will tell you what I tell everyone. A good business liability policy (or professional liability policy in your case) does far more to protect someone from liability than anything else.

While I agree that liability insurance is vital, the BEST protection from liability is to conduct yourself and your business in such a manner that the liability insurance is never needed.

 

[LdiJ]

While I agree that liability insurance is vital, the BEST protection from liability is to conduct yourself and your business in such a manner that the liability insurance is never needed.

Even those who conduct themselves perfectly sometimes get sued, and the cost of defending themselves can be high even if they win. So yeah, that insurance is vital even with the best of conduct.

 

[quincy]

Even those who conduct themselves perfectly sometimes get sued, and the cost of defending themselves can be high even if they win. So yeah, that insurance is vital even with the best of conduct.

Yes. And that is why I mentioned liability insurance in my first post. It is necessary because you cannot control the acts and actions of others.

The most anyone can do is to control their own acts and actions. So the BEST protection from liability will always be to conduct yourself and your business in a way that does not make you and your business vulnerable to a lawsuit.

Insurance is just a safety net for those times when you cannot control what happens.

 

[adjusterjack]

Given what I described about the prospective business, would there be any advantage to incorporating as an LLC?

I never saw any advantage to it. I was a private investigator for several years as a sole proprietor. Had a million dollar professional liability insurance policy. Never lost a minute of sleep.

For an engineer, the limits should probably be a lot higher depending on what type of engineering you do.

 

[iEngineer]

I never saw any advantage to it. I was a private investigator for several years as a sole proprietor. Had a million dollar professional liability insurance policy. Never lost a minute of sleep.

For an engineer, the limits should probably be a lot higher depending on what type of engineering you do.

Thanks for all of the replies everyone! I definitely agree with the professional liability insurance policy. Even though I do plan on conducting myself honorably and to a high standard as LdiJ and quincy pointed out, you never know what could potentially happen!

Given the research I've already done and all of your input here I think I'm on the right mindset that it won't provide me any more legal protection to incorporate as an LLC.

...If you are planning on starting an engineering business while continuing to work as a civil engineer for your current employer, you should also review carefully your current employment contract before proceeding to see what if any limitations are placed on you by your employer. You could find legal issues arising, for example, if your own business will be competing for clients or customers with your current employer.

...

I have considered your point here and I don't plan on competing or even soliciting work. My current employer is actually what made me consider this in the first place. We had an individual who works for a company we are very good business partners with come to our firm a few months ago asking for some engineering services for his brother. The job was too small for our firm to be interested in, but they sent out an email to a few of us to see if any of us would be willing to help him out on our own. I ended up declining because it caught me off guard a little bit by not having any sound plan, or potential business structure setup. I figured I would look into this, in case the opportunity arises again. I also have been approached by some personal friends of mine who are looking at doing similar small projects around their home which will require permit drawings sealed by an engineer. I want to be in a position to help them with that service.

I know a landscape architect who does a similar service in his profession and what he does when he receives a new job or client request is first run it past his manager at work to see if his firm is interested. Sometimes they bite and take it, other times they pass and tell him to go for it. I plan to implement the similar system. As long as everyone is in the loop I trust that it will work out. Its when you decide to compete that you can run into many issues I imagine.

...Following are some links to information on the different business structures.

From the Pennsylvania Small Business Development Centers: Link Removed in order to post

From Pennsylvania Open for Business: Link Removed in order to post

...

The links you provided on Pennsylvania businesses. They seem to have a lot of information I'll sift through the information and re-evaluate any proposed strategies I come up with. Sounds like it will also be prudent to consult with a tax advisor to see if I'm overlooking any financial drawbacks on remaining a sole proprietorship.


I got a lot of solid advice here and was also able to verify that I'm still liable for anything with my name on it regardless of being incorporated or not. I definitely appreciate all of your advice and help!

 

[quincy]

Thanks for all of the replies everyone! I definitely agree with the professional liability insurance policy. Even though I do plan on conducting myself honorably and to a high standard as LdiJ and quincy pointed out, you never know what could potentially happen!

Given the research I've already done and all of your input here I think I'm on the right mindset that it won't provide me any more legal protection to incorporate as an LLC.

I have considered your point here and I don't plan on competing or even soliciting work. My current employer is actually what made me consider this in the first place. We had an individual who works for a company we are very good business partners with come to our firm a few months ago asking for some engineering services for his brother. The job was too small for our firm to be interested in, but they sent out an email to a few of us to see if any of us would be willing to help him out on our own. I ended up declining because it caught me off guard a little bit by not having any sound plan, or potential business structure setup. I figured I would look into this, in case the opportunity arises again. I also have been approached by some personal friends of mine who are looking at doing similar small projects around their home which will require permit drawings sealed by an engineer. I want to be in a position to help them with that service.

I know a landscape architect who does a similar service in his profession and what he does when he receives a new job or client request is first run it past his manager at work to see if his firm is interested. Sometimes they bite and take it, other times they pass and tell him to go for it. I plan to implement the similar system. As long as everyone is in the loop I trust that it will work out. Its when you decide to compete that you can run into many issues I imagine.

The links you provided on Pennsylvania businesses. They seem to have a lot of information I'll sift through the information and re-evaluate any proposed strategies I come up with. Sounds like it will also be prudent to consult with a tax advisor to see if I'm overlooking any financial drawbacks on remaining a sole proprietorship.

I got a lot of solid advice here and was also able to verify that I'm still liable for anything with my name on it regardless of being incorporated or not. I definitely appreciate all of your advice and help!

You appear to be doing everything right by researching carefully the legal, tax and financial implications when forming your own business. Because there is a lot to consider, I still think it would be prudent for you to consult with professionals in your area so I am glad you intend to do just that.

We all appreciate your appreciation, iEngineer, so thank you.

Good luck.