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Small Engineering Firm Rules & Structure?

Small Engineering Firm Rules & Structure?

Small Engineering Firm Rules & Structure?

I and my wife are licensed PEs working in land development, but she has been a stay-at-home mom with our two kids for some time (license still active). She is considering taking on part-time engineering work (think 10 hours a week) on her own as a way to keep herself sharp and busy while otherwise occupied with our kids. Her intended projects will be very small, mostly targeted to contractors who need engineered traffic control plans, minor site plans, etc. which are all required in our area, but larger firms are costly and slow to do them.

In the mid- to long-term, she will need an LLC to provide some liability protection. We will be getting her E&O insurance from day one. However, we're debating whether it's absolutely necessary to start an LLC for her day one. Her revenues will likely be very small, as will her risk. There is a serious chance she will find that there is not as much work as she hoped, and she will decide not to pursue it further; in that case, it will be nice to just shut down her little operation without any drama or paperwork. If she gets 1-2 months of consistent work and some profits, then she can quickly get an LLC established.

In the meantime, we are considering getting her a DBA so that she doesn't have to operate under her own name as a sole proprietor, but still not be a registered 'entity' with the state. She would start an LLC with the same name once she knows the work is there. Two questions: 1) is anyone aware of any requirement for engineers (specifically) to operate under their own name (i.e. no DBA allowed) unless part of a registered firm; and 2) has anyone done this when starting their own small shop, and have any lessons learned to share?

RE: Small Engineering Firm Rules & Structure?

I did that (DBA) in Texas, but a long time ago. I was able to get insurance privately at the time. It was easy and worked all too well just designing pipe supports and other structural work, site plans, permits and things for small gas treating plants and well sites. I also started subcontracting out other engineers by the hour through my company and took a percentage of that too. Wasn't bad at all. Basically just billing and managing their payrolls. That was a pretty good gig. Where I went wrong was I did not quit designing pipe supports and compressor foundations myself. I should have gone to just managing the client list and lining up future work assignments for the other engineers that I was subcontracting out. If I still lived in the states, I'd try that again. It's got to be even better now.

--Einstein gave the same test to students every year. When asked why he would do something like that, "Because the answers had changed."

RE: Small Engineering Firm Rules & Structure?

It's state by state. I see you're in Tennessee. I'm licensed there, but take advantage of the loophole that says if you're not physically located in the state, you don't have to register your firm there. As a resident, I believe she will need to register as a firm regardless of corporate structure. Setting up as an LLC (or PLLC if your state has it) is the better bet. It's easy to do - you can pay a couple hundred bucks and have an online service do it, or you can do it yourself if you want to (some states make that easier than others). It's just a matter of filling out the right forms and sending them to the right places. As long as it's maintained as a single-member pass through entity, the IRS will treat it the same as a DBA.

I started doing it as a DBA - it was a side job that I wasn't going to do anything with but wanted to be above board. I did too well, and had to quit my day job and then transition to a PLLC. I had several projects under contract but not finished that I had to go back and convince them all to sign amendments to assign the contracts to my "new" firm rather than directly to me. It was a pain and a waste of time.

RE: Small Engineering Firm Rules & Structure?

You should seriously consider forming an LLC or PLLC right up front. My wife did this as well. In my state, it was recommended by our attorney. If I recall, it had something to do with only being able to go after the LLC/PLLC in the event of litigation and protected your personal assets. Forming an LLC/PLLC is cheap in my state so it was a no-brainer. Good Luck!

RE: Small Engineering Firm Rules & Structure?

Unless you are working with other licensed professionals that are working under your company name a business entity provides zero protection since you are personally responsible for your work. The only time a business provides protection is if another licensed professional in your group is responsible then you would be protected. As engineers anything we stamp at least in the USA we are personally liable for. At least in states that only allow for PLLC or P.C. businesses.

RE: Small Engineering Firm Rules & Structure?

I have an LLC on a business that didn't work out. But for $50 (in my state) its not a huge loss, since I can use it for other purposes in the future, such as investing.

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