In California, establishing a California Professional Architecture Corporation is the only limited liability option that separates professional liability from personal assets for licensed architects providing architectural services in California.

In a separate article titled “What Tax Benefits Does a California Professional Architecture Corporation Provide?” the tax benefits of a California Professional Architecture Corporation will be discussed, but this article will focus solely on liability protection and asset protection for California licensed architects rendering architectural services in California.

The goal of this article is to equip licensed architects with the information needed to make informed decisions. It is crucial to ensure that the chosen business entity aligns with the business goals of the licensed architect while adhering to California law, including the California Corporations Code, the Moscone-Knox Professional Corporations Act, the California Business and Professions Code, and other relevant regulations, as well as the rules of government agencies overseeing the practice of architecture, such as the California Architects Board.

Executive Summary: Putting the Conclusion First for Busy Architects

A licensed architect should form a California Professional Architecture Corporation if they are concerned about liability protection or the separation of personal and corporate assets.

Licensed architects should establish California Professional Architecture Corporations for liability protection and to separate their personal assets from the debts, liabilities, obligations, and legal judgments against their professional practice even if only liability protection and separation of assets is sought by the licensed architect, regardless of potential tax benefits or increased operation costs.

For most licensed architects in most architectural practices, the experienced corporate attorneys at San Diego Corporate Law recommend the use of a California Professional Corporation for the limited liability protections and tax benefits a California Professional Architecture Corporation provides.

It is worth noting that LLCs and PLLCs are not permitted for use with architectural practices in California.

Choosing the right business structure for your architectural practice can be a complex task. For tailored advice that considers your specific circumstances, schedule a consultation with the experienced attorneys at San Diego Corporate Law. Our team is committed to assisting licensed architects in determining whether a California Professional Architecture Corporation or another business structure best suits their needs, maximizing tax benefits while minimizing liability risks. Schedule a consultation today to ensure your architectural practice is structured for success.

Liability Protection Overview for Licensed Architects

Licensed architects often choose to practice architecture in a California Professional Architecture Corporation to limit personal liability and separate their personal assets from the debts, liabilities, obligations, and legal judgments which arise from their architectural practice.

Liability Protection for Architects Generally

Unlike sole proprietorships or partnerships, California Professional Architecture Corporations offer a liability protection and personal asset protection by separating the personal assets of the licensed architect shareholder from the business debts, liabilities, obligations, and legal judgments against the California Professional Architecture Corporation.

Liability Protection for Architect Employers

Limited liability protection is vital for licensed architects who employ other licensed individuals as employees or independent contractors to render professional services, especially when there is a significant risk of malpractice claims. By forming a California Professional Architecture Corporation, architects can safeguard their personal assets and future earnings while adhering to state regulatory requirements and complying with agencies which govern rendering professional services in California, such as the California Architects Board.

When Does the Liability Protection Provided by a California Professional Architecture Corporation Makes Sense for a Licensed Architect?

Most licensed architects would benefit from practicing with a California Professional Architecture Corporation in California, with the exceptions being very low revenue architectural practices without employees and with no plans for future growth of the architectural practice.

Liability Protection Details for Licensed Architects

Licensed architects often opt to practice architecture as a California Professional Architecture Corporation to shield themselves from personal liability and to keep their personal assets separate and protected from business debts, liabilities, obligations, and legal judgments related to their architectural practice. It is essential for licensed architects to understand the liability protection differences between sole proprietorships and general partnerships compared to those offered by a California Professional Architecture Corporation when deciding on the ideal business structure for their architectural practice.

General Liability

Licensed architects selecting a business structure for their architectural practice should understand the distinctions in general liability protection between sole proprietorships and general partnerships compared to California Professional Architecture Corporations.

In this section, “general liability” refers to liabilities arising from contracts with vendors, claims of bodily injury, property damage, and other liabilities not related to employment relationships, malpractice, or professional errors and omissions.

For instance, consider scenarios such as a long-term lease of office space or specialized equipment, a bodily injury resulting from a visitor slipping and falling in the office of a licensed architect, property damage to leased premises or neighboring properties due to the architectural practice, or claims of libel, slander, and other reputational harm stemming from professional advertising.

General Liability for Sole Proprietors and General Partnerships

Sole proprietors and general partners practicing architecture encounter substantial liability risks due to the absence of a distinction between personal and business assets. In a sole proprietorship, the architect owner is personally liable for all business debts, liabilities, obligations, and legal judgments related to general liability claims against the architectural practice.

Similarly, in general partnerships, all general partners share joint and several liability. Each individual general partner is personally responsible for all business debts, liabilities, obligations, and legal judgments arising from general liability against the partnership. This means that each licensed architect acting as a general partner for a California architectural practice operating as a general partnership is personally liable for all liabilities of the architectural practice.

If a visitor is injured on the premises or if the architectural practice causes damage to property of a third-party, the personal assets of a California architect sole proprietor or each architect general partner in a general partnership bear unlimited liability for these claims. This unlimited personal liability imposes a significant burden on a California architect sole proprietor or individual architect general partners of a general partnership, especially if the architectural practice lacks sufficient insurance or fails to effectively manage risks. It is essential for architect sole proprietors and architect general partners to be aware of these risks and consider protective measures, such as comprehensive insurance policies or restructuring the architectural practice to limit personal liability exposure.

General Liability for California Professional Architecture Corporations

A California Professional Architecture Corporation offers significant protection against personal liability for licensed architects. Unlike architect sole proprietors and architect general partners of a general partnership, who face unlimited personal liability for business debts, liabilities, obligations, and legal judgments, licensed architect shareholders of a California Professional Architecture Corporation generally enjoy protection from such business liabilities. This protection means the personal assets of licensed architect shareholders, such as homes and personal bank accounts, are typically shielded from claims related to the debts, liabilities, obligations, and legal judgments of the California Professional Architecture Corporation. As a distinct legal entity, the California Professional Architecture Corporation is accountable for its own debts, liabilities, obligations, and legal judgments, thereby insulating the personal financial exposure of its licensed architect shareholders.

It is important to recognize that the liability protection offered by a California Professional Architecture Corporation has its limitations. Licensed architect shareholders may still be personally liable for their own negligent or wrongful actions. Additionally, this protection does not cover liabilities backed by the personal guarantee of the licensed architect shareholder. To ensure limited liability protection for its licensed architect shareholders, the California Professional Architecture Corporation must be operated diligently and in compliance with California laws and regulations.

Despite the limitations mentioned above, the general liability protections afforded to licensed architect shareholders of California Professional Architecture Corporations are significant. These protections enable licensed architects to manage their architectural practices confidently with the maximum liability protection available under applicable law.

General Liability Conclusion

Some general liabilities for a California architectural practice, whether it is structured as a sole proprietorship, general partnership, or California Professional Architecture Corporation, are insurable risks. However, if an incident occurs that is not covered by insurance, if the insurer denies coverage, or if the liability exceeds the insurance limits, the limited liability features of a California Professional Architecture Corporation may protect a licensed architect shareholder whereas a California architect sole proprietor or architect general partner of a general partnership would be personally liable for the same claim. The limited liability of a California Professional Architecture Corporation offers protection compared to the unlimited personal liability faced by a California architect sole proprietor or architect general partner.

Employment Liability

Licensed professionals choosing a business structure for their practice should understand the differences in employment liability protection among sole proprietorships, general partnerships, and California Professional Architecture Corporations.

In this section, the term “employment liability” refers to both the responsibility owed to employees and independent contractors and the vicarious liability to third parties arising from the actions or inactions of employees and independent contractors.

Employment liability to employees encompasses issues such as wage and hour law, sexual harassment, hostile work environment claims, privacy and information privacy claims, discrimination, wrongful termination, and a host of other potential liabilities. In contrast, vicarious liability to third parties might involve a business being held accountable for an injury to a third party arising from an auto accident caused by an employee during company time or some similar claim.

Employment Liability for Sole Proprietors and General Partnerships

Much like general liability issues, architect sole proprietors and architect general partners of general partnerships are significantly exposed to liability due to the absence of a clear divide between personal and business assets. In a California architectural sole proprietorship, the licensed architect owner bears full responsibility and unlimited liability for employment-related claims made by employees or independent contractors, as well as for third-party claims concerning employee or independent contractor actions or inactions for which the architect practice is vicariously liable.

In general partnerships, architect general partners share joint and several liability. Each architect general partner has unlimited personal liability for all employee-related claims against the architectural practice and for all third-party claims of vicarious liability resulting from employee or independent contractor actions or inactions.

If an employee or independent contractor files a claim for a meal break violation, wrongful termination, or other common workplace issues, the personal assets of a California architect sole proprietor or each architect general partner in a general partnership is subject to unlimited liability. Similarly, if an employee or independent contractor assaults or injures a third party, or damages third-party property, the architect sole proprietor or each architect general partner faces unlimited liability for these claims under the legal principle of vicarious liability.

Unlimited personal liability places a heavy burden on architect sole proprietors and individual architect general partners of general partnerships, particularly when the architectural practice is underinsured or poorly manages risks. It is crucial for architect sole proprietors and individual architect general partners to recognize these risks and explore protective measures. Options such as employment practices liability insurance can guard against employee claims, while comprehensive general liability insurance addresses vicarious liability from employee and independent contractor actions or inactions. Alternatively, restructuring the architectural practice can help mitigate personal liability exposure.

Employment Liability for California Professional Architecture Corporations

A California Professional Architecture Corporation provides significant protection against personal liability for licensed architect shareholders, shielding them from employee-related claims. Unlike architect sole proprietors and architect general partners of general partnerships, who face unlimited personal liability for employee and independent contractor claims and incidents caused by employees and independent contractors, licensed architect shareholders in a California Professional Architecture Corporation typically enjoy protection from both types of employment liability.

The liability protection provided by a California Professional Architecture Corporation ensures that the personal assets of licensed architect shareholders, such as their homes and bank accounts, are generally shielded from claims arising from employment liability related to the architectural practice. As a separate legal entity, the California Professional Architecture Corporation assumes responsibility for employee and independent contractor claims and third-party claims based on employee and independent contractor actions or inactions under the legal theory of vicarious liability, thereby significantly reducing the personal financial exposure of licensed architect shareholders of a California Professional Architecture Corporation.

It is important to recognize that a California Professional Architecture Corporation holds liability for employee and independent contractor claims as well as third-party claims due to vicarious liability for the actions or inactions of employees and independent contractors. Although this is preferable to unlimited personal liability for licensed architects, such liability can still significantly impact a California architectural practice, even as it protects the assets of the licensed architect shareholders.

Similar to general liability, a California Professional Architecture Corporation must operate diligently and comply with California laws and regulations to ensure its licensed architect shareholders receive limited liability protection. This protection extends to both employee claims and third-party vicarious liability claims.

Despite the previously mentioned limitations, licensed architect shareholders enjoy significant employment liability protections with California Professional Architecture Corporations, and the safeguards provided allow them to conduct their practices with confidence with the maximum liability protection available under applicable law.

Employment Liability Conclusion

Employment practices liability insurance can cover many, but not all, liabilities related to employee and independent contractor liabilities. Similarly, many general liabilities are insurable risks for a California practice whose employees may expose it to third-party claims under vicarious liability. Whether operating as a sole proprietorship, general partnership, or California Professional Architecture Corporation, having comprehensive insurance is crucial. However, if an incident is not covered by insurance, if a claim is denied by an insurer, or if liability exceeds the limits of insurance coverage, the limited liability status of a California Professional Architecture Corporation can protect a licensed architect shareholder from personal liability. This stands in contrast to a California architect sole proprietor or architect general partner of a general partnership who would face unlimited personal liability for the same claim.

Malpractice Liability

Licensed architects selecting a business structure for their architectural practice should understand the differences in malpractice and errors and omissions liability protection offered by sole proprietorships, general partnerships, and California Professional Architecture Corporations.

In this section, “malpractice” is defined as the professional errors and omissions that occur when an individual architect fails to meet the accepted standards of architectural practice, resulting in harm or damage. Malpractice liability pertains to the legal accountability architects may incur for not adhering to these standards, which can lead to claims and lawsuits.

For architects selecting a business entity in which to practice architecture in California, understanding the assignment of malpractice liability is vital. In a California architectural practice, the consequences of malpractice can be significant. This section explores the intricacies of malpractice liability, focusing on the risks associated with professional errors and omissions, and examines the liability of architectural practice owners in sole proprietorships, general partnerships, and California Professional Architecture Corporations.

Malpractice Liability for Sole Proprietors and General Partnerships

California architect sole proprietors and architect general partners of general partnerships bear unlimited liability for their own malpractice, errors, and omissions. Consequently, these architects are personally liable for any malpractice claims filed against them by their clients.

In a general partnership, each of the architect general partners not only bear unlimited liability for the malpractice and errors and omissions claims against them personally, but they also have unlimited liability for the malpractice and errors and omissions of all other architect general partners in the general partnership, giving each architect general partner unlimited personal liability for the malpractice and errors and omissions of each other architect general partner.

Furthermore, as previously mentioned regarding vicarious liability for employees and independent contractors, architect sole proprietors and architect general partners of general partnerships bear unlimited liability for malpractice claims of the professional employees and professional independent contractors who practice for the sole proprietorship or general partnership. This liability stems from the alleged malpractice or errors and omissions of their professional employees under the legal theory of vicarious liability.

The unlimited personal liability associated with malpractice claims for all other professional general partners, employees, and independent contractors makes sole proprietorships and general partnerships less appealing for architectural practices because these business entities expose the personal assets of architect owners to unlimited liability for the alleged malpractice of other professionals.

Malpractice Liability for California Professional Architecture Corporations

Similar to architect sole proprietors and architect general partners in a general partnership, licensed architect shareholders of a California Professional Architecture Corporation face unlimited liability for their own malpractice and professional errors and omissions. This means that licensed architect shareholders remain personally liable for their own acts of malpractice and errors and omissions due to their own negligence.

However, licensed architect shareholders of a California Professional Architecture Corporation do enjoy protection from liability related to malpractice and errors and omissions allegedly made by employees, independent contractors, and other professional shareholders. A California Professional Architecture Corporations function as a legal entity separate and apart from its shareholders, safeguarding individual shareholders and their personal assets from malpractice liability, except for their own acts of malpractice and their own errors and omissions. In essence, while licensed architect shareholders of a California Professional Corporation are accountable for their own professional negligence, they are not held personally liable for the malpractice or errors and omissions of employees, independent contractors, or fellow architect shareholders within the California Professional Architecture Corporation.

This protection exists because the California Professional Architecture Corporation, not the individual licensed architect shareholder, is considered the employer of any employee, independent contractor, or other professional shareholder accused of malpractice. As a result, vicarious liability for malpractice falls on the California Professional Architecture Corporation rather than the individual architect shareholder. Consequently, while the professional alleged to have committed malpractice or an error or omission and a California Professional Architecture Corporation may face lawsuits for malpractice claims due to the actions of employees, independent contractors, or other professional shareholders, the personal assets of licensed architect shareholders not alleged to have personally committed an act of malpractice or an error or omission are typically protected.

As with general liability and employment liability, the limited liability framework for malpractice and errors and omissions relies upon the diligent operation of the California Professional Architecture Corporation in compliance with California laws and regulations.

Malpractice Liability Conclusion

Licensed architects, regardless of their chosen business structure, are personally liable for their own acts of malpractice and their own errors and omissions. However, operating as a sole proprietorship or general partnership in California exposes licensed architects to unlimited liability for malpractice and errors and omissions committed by employees, independent contractors, and professional co-owners. In contrast, forming a California Professional Architecture Corporation provides protection from personal liability for professional negligence committed by employees, independent contractors, or fellow professional shareholders. While professional liability insurance coverage can cover errors and omissions, its limitations and the possibility of claim denial make malpractice liability a significant concern for licensed architects and California Professional Architecture Corporations provide the maximum legal protection available under applicable law.

Conclusions About Liability Protections

Choosing the right business entity for a California architectural practice requires careful consideration and consultation with legal experts, such as the experienced corporate attorneys at San Diego Corporate Law. It is crucial to have adequate insurance coverage, including general liability insurance, employment practices liability insurance, and malpractice liability insurance, to protect against claims regardless of the chosen professional business entity. However, insurance is limited in coverage and coverage amounts, and insurers deny claims when possible, so understanding professional liability and selecting an appropriate business structure, such as a California Professional Architecture Corporation, can offer further peace of mind for architects and safeguard both their personal and professional assets in ways even the best insurance policies cannot.

Establishing a Business Structure for Future Liabilities

Establishing a business structure conducive to anticipated growth involves selecting a formation that not only accommodates current operations but also facilitates future expansion.

For licensed architects foreseeing growth of their professional practice, choosing to start as a California Professional Architecture Corporation is advantageous because it allows these architects to establish their practice once, avoiding the establishment of a practice as a sole proprietorship or general partnership for a year or two before facing the need to establish the architectural practice a second time when liability protection and separating personal assets from professional debts, liabilities, obligations, and legal judgments related to the professional practice become a concern.

If within the means of such a licensed architect, the recommendation is to start with a California Professional Architecture Corporation formed as a part of starting the architectural practice.

A Quick Note on LLCs and PLLCs

A licensed architect may not use a foreign or California limited liability company (LLC), nor may a foreign professional limited liability company (PLLC) be used to practice architecture in California. Pursuant to California Corporations Code Section 17701.04(e):

“Nothing in this title shall be construed to permit a domestic or foreign limited liability company to render professional services, as defined in subdivision (a) of Section 13401 and in Section 13401.3, in this state.”

This comes as a surprise to many licensed architects, as professional limited liability companies (PLLCs) are commonly used to render professional services in other states.