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Flashcards in Practice Management - Business Operations Deck (120)
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1

What are the 5 categories in 'Business Operations'?

1. Business Organization
2. Office Organization
3. Ethical Standards
4. Human Resources
5. Business Development

2

What are the 5 ways for a firm to be structured?

1. Sole Proprietorship
2. General or Limited Partnership
3. Corporation
4. Limited Liability Company (LLC) or Limited Liability Partnership (LLP)
5. Joint Venture

3

Sole Proprietorship

Firm structure in which:
- firm owned by individual
- simplest type of business
- personal assets at risk if sued
- pay self-employment tax to cover social security and Medicare taxes

4

General Partnership

Firm structure in which:
- firm owned by 2 or more people
- partners share management, profits, and risks of the business
- income shared among partners
- income reported on personal tax forms
- pay self-employment tax to cover social security and Medicare taxes
- each partner personally liable for business risks and liabilities
- easy to form
- partnership agreement is advisable
- each partner has different skills/strengths to contribute
- primary disadvantage = all partners are liable and responsible for actions of others

5

Limited Partnership

Firm structure in which:
- similar to general firm except that firm has at least 1 general partner and at least 1 limited partner

General partners:
- invest in business, manage it, and are financially responsible

Limited partners:
- are investors who receive a portion of the profit
- have no say in management
- are only liable to the extent of their investment

6

Corporations

Firm structure in which:
- financially and legally separate from shareholders
- retains profits
- profits taxed at lower rate than individuals
- taxed separately from shareholders = taxed twice
- business license must be registered with the state in which it practices
- high initial cost to start
- complicated to form: need a lawyer to draw up formal articles and file with state office

Shareholders:
- own corporation through shares
- earn dividends
- taxed on dividends separately from Corporation taxes
- only liable for money invested (personal assets not at risk if company is sued)
- elect directors

Directors:
- responsible for broad policy decision
- act in best interest of shareholders
- Elect officers

Officers:
- carry out day-to-day management

7

S Corporation

A firm structure in which:
- type of corporation
- does not retain profits and pay out dividends in usual manner
- allocates income and losses directly to shareholders in proportion to holders = avoids tax on corporate income
- advantageous when business loses money
- offers all advantages of a standard corporation
- limited to small, domestic business corporation with < 100 shareholders

Shareholders:
- report their shares of income and losses on personal federal tax returns
- taxed at individual rates
- advantageous when tax rates favor individual over corporation

8

Professional Corporation

A firm structure in which:
- type of corporation
- allowed by many states for professionals (architects, lawyers, doctors, etc)
- main difference = liability for malpractice limited to the person responsible for the act (aka licensed architect)

9

Limited Liability Companies (LLCs) & Limited Liability Partnerships (LLPs)

A firm structure in which:
- Combine advantages of a partnership/sole proprietorship + limited liability of a corporation
- not separate entity from members = business itself is not taxed (except by some states)
- LLC certificate or other business license may be required

Members:
- no personal liability
- reports profits and losses on personal federal tax returns
- considered self employed = pay tax for social security and Medicare

10

Joint Ventures

A firm structure in which:
- temporary association of 2 or more persons/firms
- treated like partnership = not legal entity separate from members
- cannot be sued
- taxed as partnership where members are taxed separately
- purpose = complete specific project or goal
- dissolved when project/goal is completed/reached
- Teaming Agreement (or Memorandum of Understanding) forms basis of Joint Venture

11

Teaming Agreement (or Memorandum of Understanding)

- Formal, written agreement that forms basis of a Joint Venture
- outlines duties/responsibilities, division of profits/losses, completion of work
- not a formal business organization
- Can be used to form a prime-consultant agreement

12

Standard of Care
* need more on this, check other NCARB resources

Legal concept, defined as the level of skill and diligence that a reasonably prudent architect would exercise in:
- same community (ex. hurricane detailing in Florida)
- same time frame (aka at time project was designed/built, not at time of dispute)
- given same or similar facts and circumstances (aka: information known at time of decision)

Requires architect to practice with reasonable care, not perfection

13

What is a result of raising the standard of care? What language should be avoided?

- raises architect's liability
- makes architects work uninsurable

- "with the highest standards"
- promising or guaranteeing results

14

AIA Document A201-2017

General Conditions of the Contract for Construction

- When to Use: Umbrella document for design-bid-build
- Various design-bid-build contracts refer to and incorporate by reference

In case of hazardous materials and substances:
- contract must stop work and notify O/A
- Owner must obtain services of a licensed lab to verify presence material
- Architect's responsibility = reply in writing if have reasonable objection to entity proposed by owner. If so, propose different entity.
- Once hazardous material has been rendered harmless, architect to issue change order for increased contract time and sum
- Architect's Standard of Care = to make reasonable effort to determine if testing and remediation entries proposed by the owner are adequate, and later determine if terms of change order are fair

15

C401-2017

Standard Form of Agreement Between Architect and Consultant

16

What are 3 important aspects to be considered in the organization of an architectural office?

1. Work organization (how a firm's staff is organized)
2. Support staff
3. Regulations governing architectural practice

17

What is 'work organization'? What are 3 types?

- how a firm's staff is organized

1. Departmental organization / horizontal organization / flat organization
2. Studio organization / vertical organization / tall organization
3. Outsourcing

18

Departmental Organization / Horizontal Organization / Flat Organization

- type of work organization aka staff organization
- staff organized into departments
- each department specialized in different function/phase

Pros:
- efficient
- allows for standardization

Cons:
- Inflexible and resistant to change
- Difficult for employees to gain breadth of experience
- Communication is difficult

19

Studio Organization / Vertical Organization / Tall Organization

- type of work organization aka staff organization
- groups of employees called studios
- each studio responsible for a completing an entire project from beginning to end
- can be created/dissolved as needs arise

Pros:
- close and immediate communication between members
- works well with project manager system

20

Outsourcing

- type of work organization aka staff organization
- contracting with another company to do work for a project
- ex. CD sets or renderings

Pros:
- good way to manage workload

Cons:
- requires careful management and coordination

21

Support Staff

- part of office organization
- includes employees other than professional staff or seniors
- ex. administrative, receptionists, marketing, model builders, etc

22

What are 3 regulations governing architectural practice?

1. Business Licenses
2. Taxes
3. Professional Licensing and Regulation

23

Business licenses

- allows business to practice
- serves as basis for taxation
- for corporations, it must be registered in state where a business practices

24

Certificate of Authorization (COA)

- required in some states by the state registration board in order to provide services to the public
- in addition to a business license

25

What form must a company provide to the IRS?
What tax forms must a company provide to and collect from employees?

Provide to IRS:
IRS Form SS-4, Application for Employer Identification Number (EIN)

Collect from employees:
Form W-4, Employee's Withholding Certificate
Form I-9, Employment Eligibility Verification

Provide to employees:
Form W-2, Wage and Tax Statement

26

Form W-2

Wage and Tax Statement:
- company supplies to each employee by Jan. 31 for personal taxes
- shows all wages paid to employee over calendar year
- shows all taxes withheld over calendar year

27

Form W-4

Employee's Withholding Certificate:
- company collects from employee
- documents employee deductions

28

IRS Form SS-4

Application for Employer Identification Number (EIN):
- company files with the IRS
- used in tax filings and other correspondence with IRS

29

Other than income tax, what are taxes that a company may need to pay?

- goods purchased from out of state (by the business or for resale)
- personal property tax on furniture and equipment used by business (by state)
- city taxes
- property taxes (if owning property)

30

After becoming licensed in one state, how can an architect apply for reciprocal licensure in other states?

- Providing documentation of education, experience, and exam status
- Meet state's continuing education requirements
- Meeting any additional state requirements