forms of practice

8/20/2019 Forms of Practice

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Lecture 02

Forms/Styles of Architectural Practices

Name: Lawrence Ogunsanya

Email : [email protected]

A R C H 8 1

0 H 2

PROFESSIONAL PRACTICE


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Forms/Styles of Practice in

Architecture

• INTRODUCTION

• Choosing a suitable company structure involves the

following:

• Liability exposure

• Legal and tax protections for your operations.

• Cost of formation, Start-up and future capital

requirement.

• Level of Control and Managerial ability• Business goals

• Management succession plans

• Positive and negative attributes of each company style


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Forms/Styles of Practice in

Architecture

• a private (Sole proprietary)company

• a partnership

• an incorporated company

• a close corporation

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A PRIVATE (SOLE PROPRIETARY)

COMPANY

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• A sole proprietorship is the simplest and mostcommon structure available for a business.

• It is an unincorporated business owned and

operated by one individual with no distinctionbetween the business and you, the owner.

• You are entitled to all profits and are responsible

for all your business’s debts, losses, and

liabilities.


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COMPANY

• Advantages

• Simple to create

• Least costly form of practice

• Profit incentive

• Total decision-making

• No special legal restrictions

• Easy to discontinue


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COMPANY

• Disadvantages

• Unlimited personal liability

• Limited skills and abilities• Limited access to capital

• Lack of continuity of business: The death of

owner dissolves the business unless

there is a will to the contrary.


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PARTNERSHIP

• A partnership is a single business where two or more

people share ownership.• Each partner contributes to all aspects of the business,

including money, property, labour, or skill. In return, each

partner shares in the profits and losses of the business.

• Partnership agreement include:• Determining the ownership split, e.g., 60/40, 70/30, etc.

Every business needs a leader or point person for

accountability, thus avoiding the 50/50 split.

• Including exit strategy terms allowing owners to walkaway or be bought out.

• Agreeing to decisions regarding money, e.g., profit and

loss sharing and compensation.


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PARTNERSHIP

• There are three general types of partnership

arrangements:• General Partnerships assume that profits, liability, and

management duties are divided equally among partners.

Limited Partnerships are more complex than general

partnerships. Limited partnerships allow partners tohave limited liability as well as limited input with

management decisions. These limits depend on the

extent of each partner’s investment percentage. Limited

partnerships are attractive to investors of short-term

projects.

• Joint Ventures act as general partnership, but for

only a limited period of time or for a single project.


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PARTNERSHIP

• Advantages

• Easy and Inexpensive. Partnerships are generally aninexpensive and easily formed business structure.

• Shared Financial Commitment. Each partner is

equally invested in the success of the business.

Partnerships have the advantage of pooling resourcesto obtain capital.

• Complementary Skills. A good partnership should reap

the benefits of being able to utilize the strengths,

resources, and expertise of each partner.• Partnership Incentives. Partnerships offer employees

the opportunity to become a partner. Partnership

incentives often attract highly-motivated and qualified

employees.


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PARTNERSHIP

• Disadvantages

• Joint and Individual Liability. Partnerships retain full,shared liability among the owners. Partners are not only

liable for their own actions, but also for the business

debts and decisions made by other partners.

Disagreements Among Partners. When multiplepeople are involved, you will have multiple opinions that

could lead to disagreements.

• Shared Profits. Because partnerships are jointly

owned, each partner must share the successes andprofits of their business with the other partners. An

unequal contribution of time, effort, or resources can

cause discord among partners.


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AN INCORPORATED COMPANY

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• The incorporated company is intended for professions (i.e.: architects, quantity surveyors, engineers etc.)

• A incorporation is a separate legal entity from the person orpeople forming it. Directors and officers purchase shares in

the business and have responsibility for its operation.• An incorporated company appears to be a suitable form of

business association where partnership is not desired,where directors are all fully involved in the work of thecompany and where there are more than ten principals.


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• Advantages

• Protects the owner's assets against the company'sliabilities and additional tax deductions.

• Unlike proprietorships and partnerships, the life of the

corporation is not dependent on the life of a particularindividual or individuals. It can continue indefinitely until itaccomplishes its objective, merges with another business.

• Can raise capital through the sale of stock


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• Disadvantages• They are more expensive to set up and operate than

partnerships and sole proprietorships.

• Require a lot of paperwork, periodic filings with the stateand annual fees.

• Require annual meetings and require owners and directorsto observe certain formalities.

• It needs a separate credit and bank accounts whichmeans, you can't mix business and personal funds under

the law once you have incorporated.


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CLOSED CORPORATION COMPANY

• A close corporation is generally a smaller corporation

that elects close corporation status and is thereforeentitled to operate without the strict formalities normally

required in the operation of standard corporations.

• This type of company was legislated specifically to cater

for small company structured enterprises. It is suitablefor one or two person or family-run businesses.

• The number of members in a Close Corporation may

not exceed 10. The minimum is l. The members must be

natural - not judicial - persons; i.e. a company may notbe a CC member.

• Statutory regulations governing Close Corporations are

simpler and less onerous than for other corporations.


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• Advantages

• Registration of a close corporation is relatively simpleand inexpensive when compared to a company.

• They require fewer formalities than standard

corporations.

• Is a separate legal entity and is therefore not affected bythe death of a member.

• Members are not individually liable for the debts of the

CC.

• Members will not pay tax on all the profits of the closecorporation as is the case with a partnership. The close

corporation will pay tax at a flat rate.


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• Disadvantages

• Close corporations are governed by both bylaws and ashareholders' agreement, which are a more complicated

and restrictive set of governance rules.

• More legal requirements than a sole proprietorship or

partnership.• All the members have to give their consent for the

disposal of a member’s interest and they have to be

given preference to third parties to acquire the interest.

• Constant rate of tax, regardless of the income level ofthe company.

• Shareholders have increased responsibility and

participation.


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SO WHICH PRACTICE STYLE/FORM

IS SUITABLE FOR YOU?


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• Licensing and Regulations

• Securing any necessary permits or licenses to practice.

• Insurance

• Cover not only errors and omissions but liability and your

health.• Brand

• what does your business stand for? This part comes even

before you name your firm. What would be the tagline of your

website or book? What’s the story you’re trying to tell?

OTHER FACTORS TO CONSIDER


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Questions

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