REPUBLIC OF THE PHILIPPINES

PALAWAN STATE UNIVERSITY

COLLEGE OF ENGINEERING, ARCHITECTURE, AND TECHNOLOGY

DEPARTMENT OF ARCHITECTURE

BM/AA-1
BUSINESS MANAGEMENT & APPLICATION FOR ARCHITECTURE

SUBMITTED BY:

ANNA MARIE P. SABUYA

BSAR 4A

SUBMITTED TO:

AR. CHRISTOPHER MAGRATA

COURSE INSTRUCTOR
 1. TYPES OF ARCHITECTURAL FIRM OR OFFICE

An organization that focuses on offering clients’ architectural services is known as an

architecture firm. These companies frequently employ architects and support employees to
assist them in their work, and they may be a part of a bigger organization that manages many
areas of design and construction, from contracting to interior design. Small businesses might
employ one or two architects who collaborate, whereas large businesses may employ hundreds
or thousands of workers who are occasionally dispersed across many offices.

SOLE PROPRIETOR

A very popular choice for new firms is the simplest structure; sole proprietor. This is an
unincorporated business with no legal distinction between the owner and the business entity.
You are entitled to all profits and are liable for all debt, losses and liabilities.

With a sole proprietorship, there is no formal structure to establish. If you are a sole owner
doing business, then you are automatically a sole proprietor. As with all businesses, there may
be licenses and permits required to do businesses, so check your local and state authorities. If
you choose to name your business something other than your own name, you may be required
to file that name with your local authority as a dba (“doing business as”) name.

Taxes are filed using your standard form 1040 and a schedule c, which identifies the earnings
from the business and transfers them to your personal income.

Although sole proprietorships are easy to form and relatively easy to understand, a major
disadvantage is that you are personally liable for all business debt, loss and liability. You have
no personal protection from actions against the business including any liabilities caused by an
employee.

PARTNERSHIP

A partnership is a single business owned by two or more people. Unless defined in a

partnership agreement, all aspects of the business are divided equally among each partner.
Partnerships are formed by registering the business as a partnership with your state.
Typically, the legal name of the business is required to be the names of the individual partners.
If an alternative name is preferred, some states permit the use of a dba name.

Taxes are filed by completing and submitting an “annual information return”, which identifies
the income, deductions, gains and losses of the business. Similar to the sole proprietor, all
earnings and loses “flow through” to the partners’ personal tax returns.

A disadvantage to a partnership is that all liabilities are shared by the partners. Each partner is
not only liable for his or her own actions, but the actions of all the employees and partners
within the business. Partners personal assets are also at risk and can be used to satisfy the
partnership’s debt, whether or not the individual partner was personally involved.

CORPORATION (C CORP.)

A corporation is an independent legal entity owned by shareholders. Shareholders are

protected from liabilities for all the actions and debts the business incurs. Corporations offer
the ability to sell ownership shares in the business through stock offerings.

Some states, including New York where my firm is based, allow professionals to form a
professional services corporation. A professional services corporation, or p.c., has the same
advantages and protections as a corporation, but is exclusive to professionals such as
architects, physicians and attorneys.

Corporations receive a tax id number and are required to pay taxes separate from it’s
shareholders. Unlike sole proprietors and partnerships, corporations pay income tax on its
profits. The complex legal and tax requirements of a corporation could make it more
appropriate for larger companies.

S-CORPORATION (S CORP.)

An s-corp, named for subchapter s, chapter 1 of the internal revenue code, is a special
corporation which allows shareholders to avoid the double taxation of a corporation. The
limited liability of a corporation remains but the profits and losses “pass through” the business
to the shareholder’s personal tax returns like a partnership.

In order to take advantage of these benefits, and I elected to incorporate our firm as an s-corp.
 S-corps require scheduled director and shareholder meetings, minutes from those meetings,
adoption and updates to by-laws, stock transfers and record maintenance.

LIMITED LIABILITY COMPANY (LLC)

A limited liability company combines the limited liability features of a corporation and
the tax efficiencies and operational flexibility of a partnership.

LLCs are not taxed as separate entities like corporations. Profits and losses are “passed
through” the business to each member of the LLC. Members are required to report profits and
losses on their personal tax returns, just like with a partnership.

One disadvantage of an LLC is that members are considered self-employed and are required to
pay the self-employment tax contributions toward Medicare and social security. The entire net
income of a LLC is subject to tax.

2.OFFICE ORGANIZATION OF ARCHITECTURE FIRM

From the AIA’S architect’s handbook of professional practice (15th edition), it has several
positions:

 Senior principal/partner: typically, an owner or majority shareholder of the firm; may be the

founder.  Titles include president, chief executive officer, or managing principal/partner.
 Mid-level principal/partner: titles include executive or senior vice president.
 Junior principal/partner: recently made a partner or principal of the firm.  Title may include
vice president.
 Department head/senior manager: senior management architect or non-registered graduate;
responsible for major department(s) or functions; reports to principal or partner.
 Project manager: licensed architect or non-registered graduate with more than 10 years of
experience; has overall project management responsibility for a variety of project management
responsibility for a variety of projects or project teams, including client contact, scheduling, and
budgeting. (also called project architect)

These more junior positions can also be referred to as job captain, architect intern, graduate
architect, design tech, architectural designer, project designer, bim manager, etc…
 Architect/designer iii: licensed architect or non-registered graduate with 8 to 10 years of
experience; responsible for significant aspects of projects; responsible for work on minor
projects.  Selects, evaluates, and implements procedures and techniques used on projects.
 Architect/designer ii: licensed architect or non-registered graduate with 6 to 8 years of
experience; responsible for daily design or technical development of a project.
 Architect/designer i: recently licensed architect or non-registered graduate with 3 to 5 years of
experience; responsible for particular parts of a project within parameters set by others.
 Intern: unlicensed architecture school graduate under supervision of an architect. (i proposed
this be changed to architect in training (AIT), if they have a professional degree)
 Entry-level intern: unlicensed architecture school graduate under supervision of an architect.
 Student: current architecture student working during summer or concurrently with school.

The size of a company is the most crucial factor to comprehend! As a result, you should
consider what studio size best suits your needs or your long-term objectives. Although there
are advantages and disadvantages to every business size, the size of projects that a firm can
accept is unrelated to this. Big companies can work on dozens of little projects, while small
companies can receive multi-million-dollar projects!

STUDIO/ ATELIER (1 - 10 PEOPLE)

Small businesses are perfect for people who prefer to wear many different hats!
Employees must be more independent while collaborating closely with their small team
because there are fewer people to rely on and fewer resources. Firms of this size pay close
attention to team balance and carefully build cohesive teams. A small team might be the right
fit for you if you're looking for a position that will let you handle a lot of responsibility and see
projects through to completion.
MID-SIZE (11 - 50 PEOPLE)

Small and large incentives are frequently combined by medium-sized businesses. The
entire company can be divided into smaller teams that concentrate on more focused work
areas (typically types of projects or phases of a project). Other teams in the office can provide
assistance to one group if it gets too busy. Please be aware that team members who are
dragged into projects outside of their team are still accountable for their tasks there; if one gets
too busy, it might be challenging to balance everything!
LARGE-SIZE (51+ PEOPLE)

Larger companies have more assets, a more varied project portfolio, and more
employees. Although larger organizations often divide themselves into smaller teams, they are
typically more detailed by assigning specific seniors, designers, and drafters to each group. In
huge firms, roles and responsibilities are more rigidly defined. A larger company with such a
structure might be right for you if you're looking to play a more specific job in a team, such a
project manager, draftsperson, arch visualizer, or conceptual designer!

ORGANIZATIONAL TYPE

Once you settle on a firms’ size, the second thing you’d want to understand is the
organization of the design practice. We often see two methods of organizational structure;
studio-based, department-based, or a hybrid of the two. Each firm will have its hierarchical and
design structure nuances, so it’s a critical and engaging question you should ask management
or yourself.

STUDIO-BASED

Firms that follow a studio-based organization most likely fall between small to mid-sized
and develop projects through teams or pods of people. These studios can take projects through
preliminary design to construction, in which case, its members, one point or another, will have
multiple roles in getting a project built.

Beyond
setting a standard
team, these
studios can be

differentiated by project types, i.e., retail, residential, institutional, and the list continues. The
benefit of having this type of organization is that each team is specialized and understands the
nuances of the typology. However, this doesn’t mean that a studio member can’t expand to
other studios, but management most likely would want the workforce and knowledge to stay
within the prospective market.

DEPARTMENT-BASED

Firms following this organization most likely emphasize efficiency and optimization of
projects, typically in large firms with hundreds of small projects that produce revenue for the
business. Unlike a studio-based organization, a project would go through departments or
phases from initial design to construction with a different team at each stage. Like an assembly
line, this workflow maximizes the production of drawings in a controlled manner to produce a
steady flow of revenue.

This could get repetitive over time, so if you like to razzle and dazzle with dynamic projects, you
might want to avoid a firm organized by departments. However, we’d like to note that bigger
firms can also break down by project types, studios, then departments where the production
and quality are high and fast.

BUSINESS OPERATIONS
 I’m assuming you continued reading, in which case, welcome to the last point! We want
to note that this point, in particular, may not influence you much when considering a firm, but
it provides some clarity in how one can set up an architecture practice. Let’s take a moment
and imagine that you decide to start your design firm but aren’t sure what business entity you’d
want to use. Here’s a breakdown of the different business entities that you can utilize when
starting your practice!

SOLE PROPRIETORSHIP

The simplest way to start your design firm’s business operation is a sole proprietorship!
This is quite common for small and possibly mid-size firms, but after a certain number of
employees, it will be more liable to your practice as it grows. However, if you consider opening
a small firm and working on smaller-scale projects, this business organization will work for you!

Pros
 Simple and low cost to create
 Easy to dissolve
 Single owner
 Business revenue is income for the owner
 Business is taxed once
Cons
 Limited capital to invest in the business since it’s tied to the owner’s assets
 Lots of liability – the owner is the only one at risk
 Certain items aren’t deductible from business expenditures (consult a tax
advisor)
 Business is only operable as long as the owners alive. No succession option in a
sole proprietorship.

PARTNERSHIP

The second simple way to start a firm is to find someone or multiple people to be your
partner(s), although i can’t imagine a firm with more than 3-4 partners just starting. This is
great if you love the design but dread the more practical side of architecture – ahem – like
learning about business entities. Partners bring different expertise and skills that one lacks, so
the overall skillset of the firm is well-balanced!

Pros
 Revenue is taxed once
  Easy to set up business as a partnership
 With more than one owner, the higher the potential of capital investments into
the business
 Each partner brings a unique skill, knowledge, or experience to the business.
Cons
 With more people making decisions, coming to a final decision will take longer.
 Lots of liability even with partners; it’s just spread evenly now.
 Certain items aren’t deductible from business expenditures
 The business entity would dissolve upon the death or withdrawal of a partner(s)

LIMITED LIABILITY PARTNER  (LLC)

Another partnership organization is the limited liability where it is similar to a

partnership but protects the partners’ assets. This dramatically reduces the partners’ liability
from creditors going after their assets if the business fails or another dramatic event.

Like the limited liability partnership, limited liability company (llc) is probably the most
ideal for small to mid-sized firms because it protects the owners’ assets. If anything, negative
happens, only the company would be held liable. The advantage of an llc is they are similar to a
general partnership and have the advantages of limited liability per individual. Profit or losses is
derived from the business and passed onto the members of the llc, and it’s proportional to the
capital each partner invested when starting the company. For example, partner a puts in 65% of
capital, partner b puts in 25%, and partner c puts in 10% when starting. From here, let’s say the
business makes a profit of $100,000, which is after overhead costs of the business, in other
words, leftover money after paying everything or everyone. In this situation, partner a makes
$65,000, b makes $25,000, and c makes $10,000.

Pros
 Simple and low cost to create
 Simple to dissolve or close
 Can add, change, or remove members of the business in the future
 Profits or losses passed onto the owners
 Revenue is taxed once
 Limited liability = personal assets of each owner are protected from creditors.
 Both individuals and business entities can be members of llc
 Can change into an s-corp or c-corp
Cons
  Taxes are on income earned, not the money passed onto the owners. If owners
decide to keep some profits in the business checking account, it’s still considered
income and taxed.
 Other tax advantages with s-corp or c-corp (consult with a tax advisor)
 Harder to attract outside equity capital (investors)
C-CORP

The business entity classified as c-corp is typical for big firms with an infinite number of
owners and ownership divided by shares. A board of directors manages corporations, and their
mission is to benefit the stakeholders.

Pros
 The company’s assets are at risk, not the shareholders’, and all owners’ assets
are still protected.
 Raise capital through investors to assist the company’s growth through the
selling of stock shares
 Utilize stocks to retain and incentivize talent
 Firm ownership and management can be changeable and allow continuity even if
the founders are no longer involved = unlimited life span.
 Benefits to employees are tax-deductible.
Cons
 The process to set up is complex and costly.
 Taxed twice; business profits are taxed at the corporate level, and distributions
(dividends) paid out to business owners will be taxed as capital gains.
 More oversight from federal, state, and local levels.

S-CORP

S-corp is a hybrid between partnerships and corporations! This is a closely held

corporation where all the owners are involved in the business, and often these partners are
chosen internally given private shares of the company. However, s-corps have limitations on
who can be a shareholder, how many shareholders, and so forth. If you are curious about what
stipulations a business will need to follow to classify as an s-corp, read additional information
from the irs.
Pros
 Revenue is passed through eh business and taxed once
 Limited liability
Cons
 Limitations on who can be the owner
  Regulations to meet to classify as an s-corp
 Complicated to set up like c-corps

REFERENCES

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& Ta, M. (2021, January 4). Which business structure is best for an architecture firm? -
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Entrepreneur Architects. Retrieved September 7, 2022, from
https://entrearchitect.com/2017/10/10/business-type-best-architecture-firm/

ADMINISTRATOR. (2017, June 26). Titles and Positions in an Architecture Firm. Arch Exam
Academy. https://archexamacademy.com/titles-and-positions-in-an-architecture-firm/

3 Things You Need To Know About Architecture Firms! – Archi Hacks. (n.d.). Retrieved
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