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Note: This is part of a series of articles that discuss legal strategies for design professionals.

Engineering professionals launching or reorganizing a New York practice must select a business structure that complies with New York Education Law and related professional entity statutes administered by the New York State Education Department (“NYSED”), through the Office of the Professions. Engineers and their firms can be organized into a number of different types of entities, which are discussed below.  Each of these types of entities has benefits and burdens that can affect liabilities, taxes, incentive compensation, and exit strategies. These issues will be addressed in subsequent articles.

Forms of Practice

Professional engineering services in New York may be offered in the following forms:

• Sole proprietorship;
• Professional partnerships;
• Professional service corporations (“PC”);
• Design professional service corporations (“DPC”);
• Professional service limited liability companies (“PLLC”);
• Registered limited liability partnerships (“LLP” or “RLLP”); and
• Grandfathered general business corporations.

Practices without a Formal Entity

Sole proprietorships and professional partnerships occur when a licensed and registered New York engineer offers and renders engineering services as an individual or group of individuals.  These entities are disfavored because they offer no barrier to liability for the engineer.

Professional Corporations

New York PCs are special corporations in which each of the shareholders, officers and directors must be licensed and registered in New York. Foreign PCs (PCs formed in another state) are required to have only the individual providing the professional service to be licensed and registered in New York although all of the officers, directors and shareholders must be licensed in the jurisdiction in which the PC was originally formed.

Design Professional Service Corporations

DPCs are corporations that can provide professional design services, including engineering, architecture, landscape architecture, land surveying, geology or any combination thereof.   Non-professionals may own shares in a DPC, but must hold less than 25 percent of the shares. Likewise, non-professionals may hold director and officer positions, provided that these positions are less than 25 percent of the directors and officers of the DPC.

Professional Service Limited Liability Companies 

Engineering services may be offered and provided by a PLLC, which may provide engineering services if and only if all members and/or managers are licensed and registered in New York. Each member and/or manager of a foreign professional service limited liability company must be licensed in the original jurisdiction of the PLLC’s formation in addition to being licensed and registered in New York. A limited liability company that is not a PLLC, whether foreign or domestic, may not render, or offer to render, engineering services in New York.

Registered Limited Liability Partnerships (LLP)

Professional engineering services may be offered and provided by an LLP. Whether domestic or foreign, all partners must be licensed and registered in New York.

“Grandfathered“ General Business Corporations

Although rare, a grandfathered corporation is a unique class of general business corporations. A grandfathered corporation may legally offer and provide engineering services in New York if such corporations were formed on or before April 15, 1935 and have continuously and lawfully engaged in professional engineering services in New York. Additionally, the chief executive officer must be, and must always have been, an engineer under the laws of the State of New York. These corporations must also remain in full compliance of Education Law Section 7209(6). This does not apply to any entity formed outside New York.

No other entity or individual may offer and provide professional engineering services in New York. A person who is licensed to practice in New York and is an officer or employee of a general business corporation operating in New York or in a state other than New York cannot provide engineering services in New York as an officer or employee of that firm. Additionally, an unlicensed entity, such as a general contractor, cannot subcontract with, or employ, an engineer in order to offer and provide professional engineering services to a third-party client. Engineers may not subcontract with an entity not authorized to provide professional engineering services.

Offering Multiple Design Services

Multiple professional design services may be practiced by these entities, limited to engineering, land surveying, geology, architecture, and landscape architecture.

If a sole proprietor is licensed in multiple disciplines, the sole proprietor may provide professional services only in the discipline(s) in which he or she is licensed and currently registered. A professional partnership may offer or provide multiple services in the design professions provided there is a partner licensed and registered to practice each of the professions being practiced.

A domestic PC may offer or provide multiple services in the design professions provided that there is a shareholder, director, or officer licensed and currently registered in New York to practice each of the professions. Similarly, a foreign professional service corporation that provides multiple services in the design professions must have a shareholder, director, or officer licensed and registered to practice each of the professions which the corporation is being organized to practice in New York and the other jurisdiction. A DPC may offer or provide multiple services in the design professions provided that there is a shareholder, director, or officer licensed and registered in New York to practice each of the professions which the corporation is being organized to practice.

A domestic PLLC may offer or provide multiple services in the design professions provided there is a member or manager licensed and registered in New York to practice every professional service offered by the PLLC. For foreign PLLCs offering services in multiple design professions, each manager or owner must be licensed and registered to practice that profession in New York and licensed in the original jurisdiction. Similar rules apply with respect to partners of LLPs.

Summary

Engineers have flexibility in choosing the type of entity in which to practice. This can include practicing with other design professionals within the same entity. Careful consideration should be made with respect to liabilities, taxes, incentive compensation, and exit strategies to determine the best form.

 Contact Whiteman Osterman & Hanna Today

Mr. Shimick is a Partner in the Business, Corporate, and Commercial Practice Group at Whiteman Osterman & Hanna, LLP, and the leader of the firm’s Federal and State Taxation Practice Group. If you have any questions regarding these developments, don’t hesitate to get in touch with Scott Shimick by e-mail (sshimick@woh.com) or phone (518.487.7678) to see how Whiteman Osterman & Hanna may be able to assist.