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What Incorporation Structure Is Best for a Solo Practice?

By Deanne Katz, Esq. | Last updated on

Not all solo firms advise clients about how to incorporate, but all solo attorneys have to figure out what kind of business entity is best for them.

There's a good chance that as an attorney you aren't going to go ask others for advice on what kind of entity is best. But that could be a mistake, especially if something goes wrong down the line. You wouldn't advise your clients to just randomly pick one, would you?

As a lawyer, you probably know the legal differences between various incorporation strategies, or at least you can easily look up the law. But there may be some issues you haven't considered. As a reminder, here are just a few:

Protecting yourself.

Since the purpose of a business entity is to protect your personal assets in case of a lawsuit, that should be your main concern when choosing whether to incorporate.

In most states you're going to have to carry malpractice insurance as a licensed attorney. Even if you don't need it legally, it's still a good idea to have it.

That will cover a lot of your expenses in the event of a lawsuit, but it won't cover everything.

What kind of corporation?

If you have an office where you meet with clients, you still need your corporate entity to cover you in the case of a slip-and-fall or other injury on the premises. A Professional Limited Liability Corporation (PLLC) or a Professional Corporation (PC) are generally your best choices for that.

Keep in mind that some states, like California, prohibit lawyers and other licensed professionals from forming LLCs for malpractice reasons. But a PC is still a good option in that case.

Benefits and risks of a sole proprietorship.

But what if you don't have a physical building? Then you might be better off not worrying about incorporation and just functioning as a sole proprietorship.

The risk of a sole proprietorship is of course that your assets are liable in the case of a lawsuit. Without a real storefront though, your risk of liability is probably limited to malpractice which should be covered by your insurance.

For lawyers just starting out, a sole proprietorship may be best, especially for keeping costs down. If your business changes as it grows, your incorporation structure can change with it.

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