Business Entities for your Law Practice

At the request of a reader, I am going togo through some of the advantages, and disadvantages of different business entities. Of course, this is just general information and you need to check with your state rules, and preferably, an attorney who specializes in formation issues for your jurisdiction.

Sole practice has the benefit of you being your own boss. There is no one else to answer to. However, you could end up being double booked, not have coverage in the office or on the phone while you are out, and trials, for those of you in trial practice, are a nightmare.

A partnership gives you the advantages of camaraderie, shared experiences, someone to bounce ideas off of and a potential for enhanced client service. Partners may also make more many than solos. However, are you going to be able to work with your partner, do you agree on things, are you compatible and how you split the money are going to be some drawbacks.

A limited liability partnership may not have join and several liability for all partnership obligations such as under California Corporations Code 16306(c) which provides for protection from vicarious liability. The principal disadvantages are the fees associated with it and the time to dissolve it. (Go read your state statutes for specific information.)

A law corporation may allow you to put aside pre-tax dollars for employee retirements. However, there are fiscal considerations and other formalities that must be followed. Again, this depends on your state.

My advice to people is to start as a solo. If you have someone in mind for a partnership, great. If you do not, do not rush into it. Maybe bring them in as of counsel or in some othe arrangement. Especially if you are starting out young or right out of school, this could provide a cost effective way of getting the firm up and running. Once you have a partnership, it appears that most partnerships are then, at least in California, set up as LLPs, and not as many as corporations.

If you want to protect your assets, I am going to always recommend a good insurance policy. While their are ways to protect your assets, I do not know many plaintiff's attorneys who will want to take your assets if you are adequately insured. If you are not adequately insured, then they will come after your personal assets and may try to pierce the corporate veil. Thus, with whatever entity form you use, go with a good insurance company (see AMBest for ratings) and protect yourself.

------Jonathan