Business Registration/Form of Entity

Each state has a variety of “available” forms of business entities that a lawyer may choose in forming a new firm.  The following is a brief list of the business entities that may be available in your home state for a law firm: General Partnership, Professional Limited Liability Partnership (“LLP”), Limited Liability Company (“LLC”), Licensed Professional Association, Professional Association, Non-Profit Corporation, and Proprietorship.  The variables that drive the determination of the appropriate type of entity include: tax treatment, limitation of personal liability, perpetuity of existence, managerial responsibility, transferability of ownership, and capital contribution.

If you don’t have the knowledge or experience in these details or are uncomfortable working to assess the variable, turn to a seasoned business lawyer for advice on which type of entity to choose. An accountant may also be well-equipped to advise you on the different types of entities.  Many states do not allow a lawyer to practice in a corporate firm because it shields its owners and officers from liability. A General Partnership offers a “pass through” of tax attributes to the owners, but has unlimited personal liability. LLC’s and LLP’s offer some liability protection as a “pass through” of tax attributes.   

There are many articles available on the Internet and chapters of books that will explain all the choices to you.  Don’t hesitate to seek advice, as you do not want an unpleasant surprise resulting from the decision.

Choosing your form of entity has to be done before you choose a name, obtain a tax-id number, open your first bank account, buy a malpractice policy, or order a single business card.  This decision MUST be your first step.

Once you’ve chosen your entity form, and you’ve also picked a name, you must register your entity with both your state (usually through a secretary of state’s office, corporation commission or a business commission) and with the Federal government by obtaining a tax identification number from the IRS.  Both of these can be accomplished online.

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