![]() ![]() States that allow law practices to operate as LLPs may also require that they be registered with the state bar. In an LLP, the partners are not responsible for the debts of other partners. Most of the biggest firms are LLPs, as are countless small firms. LLPs are a very common way for partnerships of all sizes to operate in a more protected manner than a general partnership. Generally speaking, law firms are permitted to operate in the following forms: Limited Liability Partnership For specifics on your state, check with your state bar and statutes governing business forms. Options for Business FormationĮach state regulates for itself the form in which law firms may operate. You may be required to register the entity with the state bar or ethics board, for instance, in order for the protections to be triggered. This is a tremendous benefit and a vast improvement from old-school general partnerships where each partner was liable for the acts of others. To take advantage of this benefit, you must strictly comply with your state’s rules for lawyers operating as entities. However, a business entity can help shield you from vicarious liability for malpractice committed by others in your entity. No business entity can protect you from personal liability on your own malpractice claim, because the tort of malpractice is recoverable against the individual who committed it. For this reason, no business entity takes the place of malpractice insurance. What you should be concerned about, though, is malpractice claims. So if your law firm is an LLC and the LLC owes a document reproduction company, the company can only recover from the LLC. For this reason, any analysis for a business begins with the question of liability insulation.įor lawyers, we are of course concerned about debts a firm may incur, and typical entity liability rules will apply to regular bills such as those owed to vendors. What specific entities are permitted for law firms in your state?įor any business, one of the primary benefits of using an entity is to limit your potential liability for debts of the business.To what extent can you insulate yourself from liability?.Here are two critical questions that need answers: Leaving the general considerations applicable to all businesses aside for the moment, there are some issues particular to lawyers that you need to consider when choosing an entity. ![]() An LLC carries a hefty annual cost in some states but only a minimal fee in others. Non-tax costs. Some non-tax costs are directly related to the type of entity you create. ![]() Taxes. One of the biggest concerns for every business entity is how it will be taxed.A general partnership with two or three equal decision makers may make sense for some solos may not need to have a lot of structure in management. Management. The person making the decisions on how the firm is run can impact your choice of business entity.If the entity will have more hands on deck, you can afford to have more requirements. If you are going to be a true solo operation, you probably don’t want more reporting requirements than necessary. Ongoing recordkeeping and reporting requirements. Some entities have more reporting obligations than others.Financing. Will you be seeking business loans for the firm? If so, you may want to insulate yourself from personal liability on those loans if the lender will lend to you as an entity.Number of lawyers and their roles. Is this a solo practice? A partnership? A single principal with associates?.Type of business. What type of law firm do you plan on operating? A non-profit may have different needs than a for-profit firm.Your choice of business entity has many ramifications, many of which have nothing to do with ethics rules or considerations specific to lawyers. Here is what you need to begin considering when making a decision: ![]() Strike out in any entrepreneurial venture, however, and this becomes a key threshold question as you set about your work. If you work in a large firm, one question you never have to ask yourself is what business entity makes the most sense for your law practice. ![]()
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