Four Common Organizational Structures
A law office is a place to go whenever you need guidance or representation for various types of legal matters ranging from child custody and juvenile defense to bankruptcy and oil/mineral rights. At its most basic level, a law office houses a lawyer, who provides services in his or her area of legal expertise—very straightforward, right? But what you may not realize is that not all law offices share the same structure in terms of business makeup. In this article, we discuss four of the most common organizational structures for law offices: sole proprietorships, professional corporations, general partnerships and limited liability partnerships.
A law office under the sole proprietorship structure is an unincorporated business entity whereby a single person owns and manages its everyday business dealings. Many lawyers who practice solo organize their firms as sole proprietorships. Under this type of structure, the lawyer running his or her law office has the freedom to set operating hours, determine which clients to take on and decide which type of practice the firm will be (e.g., family law, criminal law, civil law, etc.). Be that as it may, this type of structure can make it difficult for an individual to fund his or her firm, carry out the daily administrative needs, keep up with workload and establish/maintain a healthy clientele. Further, a firm established as a sole proprietorship isn’t protected by a corporate shield, meaning the owner assumes all the firm’s liabilities.
Generally speaking, a business that is established as a professional corporation is a corporate entity formed to carry out a specialized service that requires specific, professional licensure. Under this type of structure, a law office assumes its own legal identity separate from its owner(s) and/or shareholders and is therefore protected by a corporate shield. The protection of this corporate shield, however, calls for rigid adherence to certain protocols that might prove to be quite burdensome for smaller firms to meet. This type of structure can also offer the capital benefits of a partnership minus a handful of drawbacks in terms of management and liability—depending on the type of legal arrangement.
A general partnership is a business in which two or more people equally share its liabilities and profits. Therefore, structuring a law office as a general partnership is a viable option for a lawyer who wants to go into business with another lawyer. As a general rule of thumb, any partner in a general partnership can manage the business’s everyday dealings, but it would be to the partners’ benefit to delineate each member’s specific role in terms of managerial duties. Further, it’s important to know that any partner can make a legal obligation on the behalf of the whole business without the other partners’ express consent.
Limited Liability Partnership
Establishing a law office as a limited liability partnership is another viable option for a lawyer to pursue when considering going into business with multiple partners. What differentiates this partnership structure from a general partnership is the fact that liability and profits are not equally shared among the partners in a limited liability partnership. This type of structure is often viewed as the most practical option when forming a law office with other attorneys. However, dual taxation is a possibility with this type of business structure, so that is definitely something to consider.
These business structures represent only a handful of the options law offices have available to them when they are in the formation stage. Further, these structures also apply to businesses in areas other than law. If you are considering opening up your own business, contact the attorneys at Hayes, Berry, White & Vanzant by calling (940) 387-3518 or contacting us here! We are well versed in all facets of general corporate law and would be happy to provide legal guidance with establishing the legal entity that’s right for your business.