I have not worked on a commercial project in which the developer did not have a LLC set up. I agree in your distaste.

Makes you wish you could set up a LLC for each one of your projects... XYZ Holdings - Glass 99 Structural LLC.

all corporations have a special purpose. I agree that developers can be gross and dishonest sometimes. but whats the big deal with forming a corporation to construct and operate a building?

The intent would be to isolate the liabilities of the parent corporation, so that the assets of the financial beneficiary are not exposed to project failure.

Cheers

Greg Locock


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@glass99....common practice and shady. Be sure if you work for one you get your money quickly, particularly when your services are done. The developer LLC will dissolve quickly when the project is done and they'll claim they have no means to pay you since they no longer exist!

Thanks all - I wonder how my developer would feel if I set up a special project corporation to do the design. I would explain that in the event that the building fell down and they wanted to sue me, I would simply disband my corporation.

It's so sketchy that I really wonder why its allowable.

Quote:

It's so sketchy that I really wonder why its allowable.

Not going fly, since your engineering liability is personal, not corporate. You cannot shield yourself, ala LLC, since the engineering design is stamped by you personally.

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Just to play devil's advocate, it's not all about shielding themselves in case it all goes wrong (though that's certainly part of it). They're also playing a complicated tax game. By carefully managing where and how the money flows, they can hold on to a larger amount of said money. (I don't claim to know how it works, just that it does. Not that this alleviates any of the "shady" labeling...)

There are other reasons besides liability for forming purpose-specific corporations; https://en.wikipedia.org/wiki/United_Launch_Allian... is one where liability isn't necessarily an issue, but there's a desire for joint cooperation with limited data rights and technology transfer.

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@IRStuff: yes technically you are right that my liability is "personal", but its normally the corporation they come after so shutting down my project specific corporation would add some more legal hoops for them to jump through. For example, the contract which defined all the liabilities and terms of engagement would be with an entity which did not exist. A court may find that an individual engineer be held to a different standard of care to that outlined in the contract.

Yes, a joint venture would be a legit reason to form a corporation.

Quote (phamENG)

They're also playing a complicated tax game

Do they actually do this? What's the rationale? I would have thought that any profit would simply be passed up to the main corporation.

Quote:

I would have thought that any profit would simply be passed up to the main corporation.

A corporation headquartered in, say Ireland, would have a different tax burden than the same company headquartered in New York; a way to avoid moving one's headquarters would be to create a separate corporation headquartered elsewhere to take advantage of the tax shelter.

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for insurance, tax, accounting and numerous other reasons, it is much simpler to run a separate corporation. its not unusual or shady and makes business sense. however, some developers are sleazy and you really do need to protect yourself if you work for one of them. Mechanics Lien is one way to do it.

Quote (cvg)

for insurance, tax, accounting and numerous other reasons, it is much simpler to run a separate corporation

Could you elaborate on what those reasons are?

Large companies have divisions with their own operational structures all the time - should Ford have one company to make F150's and another to make Econovans? There is nothing stopping Ford from tracking F150's sales figures separately to the Econovans, or even using different dealers (aka real estate brokers) for different models. These "different corporations" are usually run by the same people in the same headquarters office (as is the case for at least three of my developer clients).

What if Ford said "aha, our lawyers are so clever, I know the Pinto blew up but it was sold by Pinto LLC, not Ford, so it's not our problem!"

Many large corporations including Ford have fully owned subsidiaries to avoid entangling the management and legal/financial/other obligations of unrelated businesses. Usually when you look at a corporate website there will be a page showing their various brand logos, many of which openly say "a subsidiary of..." to keep the folks managing real estate investments from screwing up things for the folks manufacturing widgets.

Personally I dont see what the big deal is, everybody including engineers leverage corporate liability laws to shield themselves to one extent or another and there are various legal ways for potential victims to breach those shields and seek damages. Usually when you take the time to dig into the legaleze, the boogeymen disappear.

it just keeps the books simple and separates the risk from other corporate assets

https://www.entrepreneur.com/article/314005

This practice is very, very common in my location. Almost all building projects are set up as their own corporation, i have even seen it on developments of a single house!

Also common is the establishment of "trusts", often in the form of a "family trust" by almost every business owner, especially architects and engineers. The purpose of the trust is to take care of the family members, keep the family house for the family, etc. So people pile all their money into family trusts, then if they get sued, there is nothing to take. They simply shut down their company and become a trust fund baby.

@cvg: The first advantage of multiple corporations listed in that article is liability control.

@NorthCivil: Is it really common for engineering firm owners to transfer their assets to a trust? I have thought about doing that.

yes it is liability control. if the corporation gets sued, they cant take all the company assets, because the corporation only owns limited assets.

if you have ever been sued, than you will wish you had done something to limit your liability. you dont want to lose the farm just because you were too lazy to set up a LLC or trust

" Is it really common for engineering firm owners to transfer their assets to a trust? "
SOP in Oz for directors and so on.

Cheers

Greg Locock


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In Alberta where I used to work this was the case for the majority of projects. Even for an apartment building development with say, 8 20 unit buildings built in 4 stages, the development would be a 'numbered company', and then each apartment building would be a 'numbered company'. Have likewise seen this arrangement for infill developments consisting of a single duplex. All profits vacuumed out of the small numbered companies so that future lawsuits are all against an empty husk of a corporation + the engineers insurance policies.

Developers in NSW (Australia) took a bit too much of the piss over the years. Eventually, even the political party that's most friendly to them had to step in.

https://www.fairtrading.nsw.gov.au/housing-and-pro...

A lot of provisions around disputing the appointment of the building inspector. Pretty obvious that developers would try to appoint a less observant one.

@steveh49: That's a brilliant law and should definitely be replicated elsewhere. I'm Australian but live and work in NYC for ~20 years, and this kind of thing makes me homesick. In the early 2000's there was a law requiring general contractors to pay subs or document a reason for not paying within ~30 days. The dodger mentality of the developers and GC's needs to die.

glass99, that's the Security of Payment Act. It applies to just about any contract related to construction, eg architects and engineers are included. It also applies to the design phase, so an end client (including government) who engages architect/engineer is bound by it.

Originally, the payment claim had to state it was made under the SOPA act but clients/contractors put pressure for this not to be done (of course) which negated the legislation. So the legislation was revised that SOPA applies regardless and can't be excluded by contract provisions (any such contract provision is automatically void).

In summary, payment-dodging is only cured by big sticks in this industry.

glass99, why the heck would an ozzie want to live in NYC? The quality of life is so much better in OZ than america IMO.

Opportunities in facade consulting is just booming in OZ and especially in NZ

Quote (NorthCivil)

Opportunities in facade consulting is just booming in OZ and especially in NZ

Good question. I know Australia is doing well in general, but last I checked in with my Australian colleagues the facade world is dominated by cheap Chinese imports. We have done a couple of projects in Sydney in the last couple of years for iFly and Sydney University, so maybe there is something. Here in NYC my niche is aging billionaires who have a hankering to build something in unobtainium. You are right about the cafes and weather though.

yes, the facade world in oz has a lot of "direct procurement" which means the developer sources the curtainwall direct from chinese manufacturers. This though has created huge demand for technical review of these systems. by removal of the local skilled fabricators and local responsible parties, there has been created a huge demand for skilled review and design assist of the pre manufactured systems provided. which is why a lot of the big ozzie facade engineering firms will have offices in china as well, to keep an eye on the factories and fabricators.

its not glamour engineering by any means, more rolling up your sleaves and getting into the mess type engineering.

Quote (NorthCivil)

the developer sources the curtainwall direct from chinese manufacturers. This though has created huge demand for technical review of these systems.

Yes it's the same in the US on the whole. Big firms like Vidaris here in NYC are geared around reviewing imported curtain wall, including earning most of their fee in the construction phase. One of my clients is a Chinese glass fabricator and we calculate thermal stresses and other things for them for US projects.

But last I heard, a lot of Australian consultants were giving up this form of facade consulting, and instead focusing on forensics and expert witness work.

In design work, the developers grind you on your fee and pressure you to accept shoddy designs and construction, of which you carry the liability.

Forensic and witness work pays double or triple what design work pays, with none of the liability. The forensic work often leads you to a re-furb project where doing it right is a high priority!

To boot, there so many buildings that are complete disasters, that there is so much forensic and expert witness work out there!

Unfortunately this is the state of the industry, it will take some time to recover from.

No wonder your mates are trying to get out of new builds and into restorations!