In the world of business formation, the term Architecture PLLC, or Architecture Professional Limited Liability Company, refers to a special legal business entity that is designed for licensed architects for rendering professional services. However, navigating the specifics of using a Architecture PLLC can be a challenge, particularly as business structure regulations vary from state to state. This article discusses the permissibility of utilizing Architecture PLLCs in California, and the alternatives for architecture practice owners.

Spoiler Alert: Architecture Cannot Be Practiced Using Any LLC in California

If you are already practicing architecture in California as a California LLC or an LLC or PLLC from a state other than California, you should also read this article which includes information about how to get into compliance with California law for your architectural practice.

The California Revised Uniform Limited Liability Company Act of the California Corporations Code Prohibits the Use of LLCs for the Provision of Professional Architectural Services by Licensed Architects in California

Use of a California LLC to Render Professional Architectural Services in California

Neither a foreign nor a California limited liability company (LLC) may be used to render professional architectural services in California. This comes as a surprise to many licensed architects, as Architecture Professional Limited Liability Companies are commonly used to render professional architectural services in other states. However, California Corporations Code Section 17701.04(e) answers the question clearly regarding the use of a foreign or California LLC as a business entity for licensed architects in California:

“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.”

Thus, licensed architects may not use or form limited liability companies for the provision of professional architectural services in California.

Use of a California PLLC to Render Professional Architectural Services in California

Based upon California Corporations Code Section 17701.04(e), which prohibits the use of a foreign or California LLC to render professional architectural services, because nothing in the California Corporations Code differentiates the idea of a California Architecture PLLC from the California LLC, there is nothing in California law regarding LLC formation for the provision of professional architectural services, and nothing establishes a California Architecture PLLC as a business entity that may be formed under California law.

In short, there is no California Architecture PLLC as the law currently stands at the time of this writing in 2024, and thus licensed architects are unable to form a California Architecture PLLC for their professional architectural services. This is a significant departure from the norm in many other states, where Architecture PLLCs are a commonly used business entities for licensed architects.

Use of a Foreign Architecture PLLC to Render Professional Architectural Services in California

Based upon California Corporations Code Section 17701.04(e), which prohibits the use of a foreign or California LLC by licensed architects to render professional architectural services, and because the California Corporations Code does not differentiate between a between a foreign LLC or foreign PLLC for purposes of California Corporations Code Section 17701.04(e), neither a foreign LLC nor a foreign PLLC may be used by licensed architects to render professional architectural services in California.

Professional practices that are structured as Architecture PLLCs in other states need to exercise extreme caution when offering professional architectural services in California. The prohibition set forth in California Corporations Code Section 17701.04(e) means that out-of-state architectural practices operating as Architecture PLLCs in their home state may encounter legal restrictions if they wish to offer their professional architectural services in California. Therefore, the licensed architects practicing under these Architecture PLLCs in their home states must not use their Architecture PLLCs when rendering professional architectural services in California and must do so either as a California Sole Proprietorship or California General Partnership by default, or by establishing a California Professional Architecture Corporation or a California LLP, as will be discussed below.

What Business Structure Options Do Architects Have in California?

As California does not allow the use of California LLCs, foreign LLCs, or foreign Architecture PLLCs (and there is no such thing as a California PLLC!) for the provision of professional architectural services in the State of California, California licensed architects seeking to practice architecture in California must explore choose one of the permissible business structures, as discussed below.

Selecting the best permissible business structure option will depend on the specific professional architectural services to be offered and the regulations governing those architectural services. In the following subsections, we will introduce the various business entities that are permitted to render professional architectural services in California, including Limited Liability Partnerships, Sole Proprietorships, General Partnerships, and Professional Architecture Corporations, each of which comes with its own set of advantages and limitations.

Two or More California Licensed Architects May Practice Architecture as a California LLP

For architects who are seeking to practice together in California, a California Registered Limited Liability Partnership (California LLP) can be an attractive business structure, at least for now.

The California LLP is scheduled to phase out for architects on January 1, 2026, pursuant to California Corporations Code Section 16101, which will leave California LLPs only available for accountants and attorneys in California.

A California LLP allows two or more licensed professionals to join together in a partnership while also providing each partner with liability protection, similar to that of a California Professional Architecture Corporation.

Liability Protection from a Limited Liability Partnership in California

In a California LLP for the practice of architecture, all architect partners enjoy a level of liability protection. This means that each architect partner is not personally responsible for the debts, obligations, or liabilities of the California LLP arising from errors, omissions, incompetence, or malfeasance committed by another architect partner or an employee not under their direct control. Thus, the personal assets of an architect partner, such as their home, personal savings, and vehicles, are safeguarded from the creditors of the California LLP. Unlike California General Partnerships, where each architect partner can be held liable for the actions of another architect partner, a California LLP prevents such vicarious liability like a California Professional Architecture Corporation.

However, and as with a California Professional Architecture Corporation, it should be noted that this protection does not absolve individual architect partners from the consequences of their own professional misconduct. Therefore, it is crucial for architect partners in a California LLP to have adequate malpractice insurance coverage.

Taxation of Limited Liability Partnerships in California

California LLPs for the practice of architecture are taxed under the pass-through taxation system. This means the California LLP itself does not pay income taxes. Instead, the share of the profits or losses of the California LLP allocated to each architect partner passes through to their personal income tax return. The individual architect partners are responsible for paying federal and state income taxes on their allocated share of the profits of the California LLP at their individual income tax rates.

Each architect partner is also required to pay self-employment taxes, which are Social Security and Medicare taxes for self-employed individuals. At the time of this writing in 2024, this is calculated on Schedule SE of the federal tax return at a rate of 15.3% on the first $168,600 of net income and 2.9% on all net profit in excess of the first $168,600.

California LLP earnings from the provision of architectural services are also subject to the California state income tax. The state has a progressive income tax system with rates ranging from 1% to 13.3%, depending on the income of the taxpayer. These rates apply to the allocated share of the California LLP income allocated to each architect partner and passed through to their personal tax returns.

A California LLP is also subject to an annual franchise tax of $800 payable to the California Franchise Tax Board.

When Should California Licensed Architects Practice Architecture Using a Limited Liability Partnership in California?

Based upon the sunsetting of California LLPs for architects on January 1, 2026, architects should probably not start a California LLP and be forced to restructure their practices (unless the California Corporations Code is amended prior to January 1, 2026 to prolong the use of California LLPs by architects).

A California Licensed Architect May Practice as a Sole Proprietorship in California

A Sole Proprietorship is a straightforward and uncomplicated business structure that may be utilized by licensed architects in California. In a Sole Proprietorship, the individual architect is the sole owner and operator of the architectural practice.

Liability Protection for Licensed Architect Sole Proprietors in California

Sole Proprietorships do not provide their owners with liability protection in California. In this type of business structure, the licensed architect is personally responsible for all business debts, liabilities, obligations, and all legal judgments against the architectural practice. This means that if the architectural practice incurs a debt or is sued, the personal assets of the licensed architect, such as their home, car, and personal bank accounts, can be used to settle these obligations.

The lack of liability protection is a significant disadvantage of operating an architectural practice as a Sole Proprietorship and is a critical factor that a licensed architect should consider when deciding on the most appropriate business structure for their architectural practice in California.

Taxation of Licensed Architect Sole Proprietors in California

In California, Architect Sole Proprietorships are subject to pass-through taxation, meaning the business itself is not separately taxed. Instead, the income or loss of the business is passed through to the licensed architect. The licensed architect reports business income and expenses on Schedule C of their personal federal income tax return (Form 1040). The net profit or loss is then reported on the personal tax return of the licensed architect and taxed at individual income tax rates.

In addition to income taxes, a licensed architect practicing as a Sole Proprietorship in California is also subject to self-employment taxes, which cover Social Security and Medicare taxes. At the time of this writing in 2024, this is calculated on Schedule SE of the federal tax return at a rate of 15.3% on the first $168,600 of net income and 2.9% on all net profit in excess of the first $168,600.

At the state level, California has one of the highest state income tax rates in the country, and these rates apply to business income that passes through to the personal tax returns of the licensed architect practicing as a Sole Proprietorship.

When Should a California Licensed Architect Practice as a Sole Proprietorship in California?

A California licensed architect should only consider practicing as a Sole Proprietorship in California when they are starting their architectural practice and have limited financial resources, will not have employees, do not expect to grow their practice beyond just a few clients, and have substantial insurance coverage for the liabilities and risks associated with their architectural practice.

However, as the architectural practice grows, the licensed architect should reconsider the use of a Sole Proprietorship for their architectural practice as revenue increases, before hiring employees, or as professional liabilities increase. Upon the first to occur of increasing revenue, hiring employees, or increases in professional liability, it will be advantageous for the licensed architect to explore other business structures that offer tax benefits and liability protection.

Two or More California Licensed Architects Professionals May Practice as a General Partnership in California

A California General Partnership used for an architectural practice is a business entity in which two or more licensed architects join together to provide professional architectural services in California. In such a setup, all architect partners share equal rights and responsibilities in managing the business of the architectural practice.

Liability Protection for Architect General Partners in a California General Partnership

General Partnerships in California do not provide architect partners with liability protection. This means each architect partner has joint and several personal liability for all business debts, liabilities, obligations, and all legal judgments against the architectural practice, including those incurred by other architect partners which includes acts of malpractice by the other architect partners. If the California General Partnership providing professional architectural services is sued or incurs debt, the personal assets of each architect partner, such as their home, vehicles, and personal savings, could be at risk, even if they are not found personally at fault for incurring the debt or committing the act of malpractice.

This lack of liability protection is a considerable drawback for California General Partnerships rendering professional architectural services and something California licensed architects should seriously factor into their decision when considering a California General Partnership for their architectural practice in California.

Taxation of General Partnership Architecture Practices in California

In California, architectural practices structured as General Partnerships are taxed under the pass-through taxation system. This means the California General Partnership itself does not pay income taxes. Instead, the share of the profits or losses of the California General Partnership allocated to each architect partner passes through to their personal income tax return. The individual architect partners are responsible for paying federal and state income taxes on their allocated share of the profits of the California General Partnership at their individual income tax rates.

Each architect partner is also required to pay self-employment taxes, which are Social Security and Medicare taxes for self-employed individuals. At the time of this writing in 2024, this is calculated on Schedule SE of the federal tax return at a rate of 15.3% on the first $168,600 of net income and 2.9% on all net profit in excess of the first $168,600.

California General Partnership earnings are also subject to the California state income tax. The state has a progressive income tax system with rates ranging from 1% to 13.3%, depending on the income of the taxpayer. These rates apply to the allocated share of the California General Partnership income allocated to each architect partner and passed through to their personal tax returns.

When Should California Licensed Architects Practice as a General Partnership in California?

Based upon the unlimited liability and tax structure of a California General Partnership, a California General Partnership should probably not be considered by licensed architects practicing architectural in California, as there are superior options for a professional practice in California that provide more personal liability protection than a California General Partnership for architectural practices.

One or More California Licensed Architects May Practice Architecture as a California Professional Architecture Corporation in California

California Professional Architecture Corporations are a specialized form of California Professional Corporation created by the California Corporations Code, California Business and Professions Code, and the California Architects Board for use by architects to provide professional services and who seek personal liability protection and tax benefits for their architectural practice. A California Professional Architecture Corporation is a separate legal entity distinct from its licensed architects owner(s), referred to collectively as licensed shareholders, which distinguishes it from a California Sole Proprietorship (which is an individual licensed architect personally practicing architecture) or a California General Partnership or California LLP (which is a group of licensed architects practicing architecture together).

Liability Protection from a Professional Architecture Corporation in California

In a California Professional Architecture Corporation, the personal assets of the licensed shareholders are generally protected from business debts, liabilities, obligations, and legal judgments against the California Professional Architecture Corporation. This means that in most instances, if the California Professional Architecture Corporation is sued or incurs debt, the personal assets of the licensed shareholders (such as their home, vehicles, and personal savings) are shielded from creditors.

It is essential to note that this liability protection does not extend to professional malpractice claims against a licensed architect. The personal asset protection applies only to debts and obligations incurred by the California Professional Architecture Corporation, not to the individual actions of a licensed architect. However, when two or more licensed architects are practicing architecture in a California Professional Architecture Corporation, a malpractice claim against one licensed architect is not a malpractice claim against all the other licensed shareholders, which is a significant increase in personal liability protection for professional malpractice compared to a California General Partnership.

While the use of a California Professional Architecture Corporation provides liability protection, it does not eliminate the requirement for individual professionals to maintain adequate malpractice insurance coverage or for the California Professional Architecture Corporation to otherwise secure liability insurance for indemnification of its liabilities.

Taxation of Professional Architecture Corporations in California

Professional Architecture Corporations in California can opt to be taxed as personal service corporations subject to double taxation or S Corporations, which alters the tax landscape for these entities. As the vast majority of California Professional Architecture Corporations elect S Corporation taxation, this article will focus on S Corporation taxation of California Professional Architecture Corporations.

With S Corporation status, the California Professional Architecture Corporation itself does not pay income tax. Instead, the income and losses of the California Professional Architecture Corporation pass through to the personal income tax returns of the licensed shareholders.

To qualify for S Corporation status, the California Professional Architecture Corporation must meet certain requirements including having no more than 100 shareholders, all of whom must be U.S. citizens or residents, and having only one class of stock.

One of the key advantages of S Corporation status for a California Professional Architecture Corporation lies in the area of self-employment taxes. Salaries and wages paid to licensed shareholder-employees are subject to payroll taxes (Social Security and Medicare). However, any additional profits distributed to licensed shareholders are not subject to either payroll taxes or self-employment taxes. This can result in significant tax savings.

In terms of state taxes, California taxes S Corporations at a rate of 1.5% of their net income, with a minimum tax of $800 paid annually to the California Franchise Tax Board. Licensed shareholders in a California Professional Architecture Corporation taxed as an S Corporation are also required to pay state income tax on their allocated share of the income of the California Professional Architecture Corporation.

When Should California Licensed Architects Practice Using a Professional Architecture Corporation in California?

A California licensed architect should consider practicing as a Professional Architecture Corporation in California when seeking personal liability protection and tax benefits for their architectural practice. This structure is particularly advantageous if the architect wishes to shield their personal assets from business debts, liabilities, and obligations while also shielding themselves from legal judgments against the California Professional Architecture Corporation, with the exception of individual professional malpractice claims against the licensed architect personally.

If the licensed architect can meet the requirements necessary to qualify for S Corporation status, they can enjoy significant tax advantages. This includes the potential for tax savings through the having no self-employment tax liability on profits distributed to licensed shareholders, and only payroll tax liabilities on a reasonable salary paid to them as an employee of the California Professional Architecture Corporation.

Based upon the availability of both limited liability and tax benefits for the licensed architect, the California Professional Architecture Corporation should be the go-to business entity for California licensed architects.

Secure Your Future with Legal Services from Experts in California Professional Business Structures: Let San Diego Corporate Law Guide Your Business Structure Selection

Choosing the right business structure for your architectural practice in California is a critical step for every California licensed architect. It can significantly influence your tax obligations, personal liability, and the overall success of your architectural practice. At San Diego Corporate Law, our experienced legal team is well-versed in California business laws and can help you navigate the complexities of Professional Corporations for providing professional services by architects. Whether you are considering a California Professional Architecture Corporation or other structure for your architectural practice, we can provide the guidance necessary to make an informed decision. Contact us today to schedule a consultation and ensure your architectural practice starts in California on solid legal footing.