ARE 5.0 PcM - Chapter 1

Chapter 1: Business Organization

What is the main liability risk of a sole proprietorship?

Unlimited personal liability—your personal assets are at risk.

Which firm type is the simplest and least expensive to form?

Sole Proprietorship

Which entity offers limited liability and pass-through taxation for single or multiple owners?

LLC (Limited Liability Company)

What is a key benefit of forming an LLC?

It protects owners’ personal assets from business debts while maintaining flexible tax and management structure.

What is the difference between an LLP and an LLC?

LLP is specifically a partnership with limited liability for each partner; LLC can be owned by individuals or other entities and may not require a partnership.

What is a major drawback of a C-Corp?

Double taxation—income is taxed at the corporate level and again as dividends.

Which firm type is best suited for a large firm that plans to raise capital?

Corporation

What type of firm structure may not be allowed for architects in all states?

LLP

What do Sole Proprietorship, LLC, and LLP have in common regarding taxation?

They typically use pass-through taxation—business income is reported on the owner's or partners’ personal tax returns.

What is the basic definition of "Standard of Care" in architecture?

The level of skill and diligence normally used by other architects in similar circumstances, location, and time.

True or False: The Standard of Care requires an architect to deliver a perfect, error-free set of drawings.

False — architects are not expected to be perfect, only to perform as a reasonably competent architect would.

Does the Standard of Care vary depending on the region and project type?

Yes — it considers geographic location, scope, complexity, and timing.

In a legal claim, what must be proven to show an architect breached the Standard of Care?

That the architect’s performance fell below what a typical, competent architect would have done in similar circumstances.

Can an architect contractually agree to a higher Standard of Care than normal?

Yes — but it's risky because it creates greater legal exposure beyond the typical expectations.

What document typically defines the Standard of Care in a project?

The AIA contract (especially AIA B101), plus common law principles.

Why is it dangerous to guarantee outcomes like "free from defects" or "perfect performance" in a contract?

Because it raises the Standard of Care beyond what is reasonable and insurable, increasing liability.

In a dispute, who typically determines if an architect met the Standard of Care?

Expert witnesses—other architects familiar with the type of work and circumstances.

Is an architect responsible for discovering unknown site conditions during design?

No — the Standard of Care does not require architects to find hidden or latent conditions that a reasonable architect would not detect.

What should an architect do if they suspect an unknown condition (e.g., poor soil, hidden utilities)?

Recommend further investigation by appropriate consultants (e.g., geotechnical engineer).

If unknown conditions are found during construction, is the architect automatically liable?

No — unless it can be proven that the architect failed to act according to the Standard of Care (such as ignoring obvious red flags).

Which contract article typically addresses differing site conditions during construction?

AIA A201 — General Conditions (specifically, Article 3.7 and Article 4.3).

How does Standard of Care protect an architect when unknown conditions cause project delays or cost overruns?

It acknowledges that not all risks are foreseeable, and architects are only responsible for acting reasonably based on the information available.