The following is an excerpt from the MyCase eBook: Launching a Law Firm – The Necessities, by author Stacey E. Burke.
When forming a new law firm, the important question of incorporation will be one of the first to arise. You’ll be forming a new entity and will need to review your options and determine what type of business will best fit your needs. In general, the most important benefit to incorporation is the option to keep your personal assets and business property separate. Additionally, if you’re entering into forming a business with one or more partners, certain arrangements can protect you from responsibility for the debts and liabilities incurred by other attorneys at your firm.
Deciding which type of entity suits your needs will also affect how you handle your business taxes, determine the management structure, and dictate which documents you will need to form, maintain, and potentially terminate the entity. The majority of law firms choose to function as professional corporations (PC), professional limited liability companies (PLLC), or limited liability partnerships (LLP); and, in many states these are the only available options. Each of these three options provides its own benefits and disadvantages, making it crucial to fully understand each option before selecting the entity that will be best for your law firm.
It is also important to understand the specific prerequisites for the formation of each entity in your state of practice. Researching your state’s guidelines on entity formation will give you a more specific idea of any nuances that may be different in your area. The state in which you practice can also greatly affect the entity options available to you. For instance, PLLC’s are not possible in California, while LLP’s enjoy extra protections in Tennessee. Before you settle on which type of entity is right for your firm, be sure to research whether there are any special guidelines pertaining to certain entities in your state. Whichever entity you decide to form, it is important to follow your state’s guidelines to ensure proper protection of your assets.
To learn about the different types of law firm incorporation, along with other shingle-hanging necessities, make sure you check out the full (and free) MyCase eBook, “Launching Your Law Firm: The Necessities,” here.