Law Firm LLC Guide

Amanda Clark, LLC university contributor and writer

As you launch a new law firm, one of the most pressing decisions you’ll make is the type of business structure you’ll select. This choice can have a long-tail impact on how you report to the IRS, how you run your firm day-to-day, even the level of protection you have against potential lawsuits.

While there is no cookie-cutter or one-size-fits-all solution, a majority of small and mid-sized businesses benefit from the LLC, or Limited Liability Company format. Before choosing a structure, it is imperative to learn how LLCs work and what the process is like for registering one.

What Sets LLCs Apart?

To understand what makes the LLC uniquely advantageous, it is helpful to understand it in context.

Any time you start a new business, the default category is a Sole Proprietorship; bringing in business partners qualifies it as a legal Partnership.

In both cases, the business is not established as its own legal entity, but rather is indistinct from its founder or partners. In short, this means you cannot separate personal assets and liabilities from business ones. And, in the event of litigation, you cannot extricate your personal affairs from the affairs of the business.

At the other end of the spectrum is a Corporation. A Corporation is a unique legal entity, offering robust personal liability protections to its members. But while a Corporation might make sense for larger firms (or firms that intend to issue shares and bring in shareholders), the amount of regulatory overhead may be too much for attorneys who simply want to focus on serving clients and practicing law.

The LLC format represents a happy medium. On the one hand, it provides a way to establish your business (or law firm) as its own distinct legal entity, keeping personal and business affairs separate, providing rigorous personal liability protections for its members. At the same time, LLCs are relatively easy to administer and come with light regulatory burdens.

What is the Process for Creating an LLC?

When it comes to registering an LLC, there are a handful of steps for attorney-entrepreneurs to consider. The total timeline for registering an LLC may be a couple of weeks to one month, though it can vary depending on the state and the complexity of your firm’s business considerations.

Though the particulars may vary from state to state, the step-by-step process usually looks like this:

1) Choose the state in which you will register.

While it is legally allowable to register your LLC in any state, from a tax standpoint it makes the most sense to register in whichever state(s) you have a headquarters and practice law. Simply put, there is no reason for starting an LLC in Florida if your legal practice is centered in New Mexico or Rhode Island.

2) Select a name.

One of the legal requirements for an LLC is to have a unique name, which simply means not in use by another LLC in the same state. You can typically find a searchable, state-specific LLC directory to make certain that the name you desire for your law firm is still available.

3) Name a Registered Agent.

Each LLC is required by law to name a Registered Agent, which may be either an individual or an organization. The basic role of the Registered Agent is to receive legal and tax correspondence on the business’ behalf.

Some quick notes about choosing a Registered Agent:

• The Agent must have a physical mailing address (not a PO box) in your state of registry.
• In some states a member of the LLC is allowed to serve as the Agent, though this is not the case everywhere; always check local law.
• The typical approach is to hire a third-party Registered Agent service, which usually runs somewhere close to $100 annually.

4) File Articles of Organization.

The name of the document you’ll need to file with your Secretary of State, formally registering your LLC, is the Articles of Organization. 

While the specific provisions of this document may vary from one state to the next, you’ll typically be asked to provide information such as:

• The name of your firm.
• The scope and purpose of your firm.
• A list of any members, along with their contact information.
• The name and contact information of your Registered Agent.

In addition to filing this document, you’ll also need to pay your state’s filing fee. Depending on where you are, this may be anywhere from $15 to $300.

5) Create an Operating Agreement.

Another document to consider is an Operating Agreement. Although this document is not legally mandatory, it can help avoid disputes or legal friction down the road.

Think of the Operating Agreement as a charter for your law firm, outlining who the members of the LLC are, how you distribute duties and responsibilities between them, and how you intend to allocate profits.

6) Claim an Employer Identification Number.

Your firm will also need a unique EIN, which you can claim for free from the IRS. While this number is not necessary on day one, it is necessary before you can file taxes or process payroll.

7) Set Up Your Banking

Naturally, your firm will need to establish a bank account. To take advantage of the LLC’s personal liability protections, it’s paramount that your bank account be for business only, not in any way linked to personal checking or savings accounts.

Creating an LLC for Your Law Firm

Launching a new legal practice can be exciting, but it also comes with plenty of practical considerations. Foremost among them is the type of structure you employ for your business. And while there are multiple options to consider, a majority of smaller and medium-sized firms will benefit from registration as an LLC. Follow the outline here to get your LLC officially up and running.

Author Bio

Amanda E. Clark is a contributing writer to LLC University. She has appeared as a subject matter expert on panels about content and social media marketing on law marketing and other matters.