Which Corporate Form Is Best for Your Law Firm?

In the 1980s cartoon classic "Garfield's Halloween Adventure," Garfield sings a song about what he should be for Halloween. The same song could apply to new lawyers forming some kind of firm. There are just so many corporate forms to be!

Should you be a PC, LLC, LLP, or another type of entity? Thankfully, we're here to help you make some sense of this alphabet soup so you can decide what's best for you.

But first, here's Garfield:

Limited Liability Partnership (LLP)

The little black dress or leather jacket of law firm forms, the LLP never goes out of style. It's a specific type of partnership in which the partners aren't responsible for the torts of the other partners. LLPs are creatures of state statute, and generally only an enumerated list of professions can become LLPs. For example, in California, that's lawyers, architects, land surveyors, accountants, and engineers.

Limited Liability Limited Partnership (LLLP)

The LLLP will generally only win you trivia contests. It's a limited partnership in which the general partners are themselves a type of limited liability company. Unlike traditional limited partnerships, which expose the general partners to full liability, the LLLP insulates the general partners from full liability. Not every state allows LLLPs, though, and the form is fairly new, so the ins and outs are a little more up in the air than older forms.

Professional Corporation (PC)

A PC is more or less the corporation version of an LLP. Where an LLP behaves like a partnership, a PC behaves like a corporation. And, like an LLP, statutes limit which types of professionals can incorporate as PCs.

Limited Liability Company (LLC)

For years, the dilemma about incorporating was whether to be a partnership or a corporation. Partnerships have pass-through taxation, meaning earnings are taxed only once, but the partners have more liability than corporate directors, though corporations tax earnings twice. Enter the LLC, which, starting in the 1990s, provided the best of both worlds: corporate-style insulation with partnership-style pass-through taxation. Some states, however, don't let professionals form LLCs.

Professional Limited Liability Company (PLLC)

A PLLC, like a PC and an LLP, applies only to a certain list of licensed professionals: usually doctors, lawyers, engineers, and architects. (California, however, don't allow you to form a PLLC; the rules vary by state.) But note that PLLCs don't insulate a professional from his own malpractice, just the malpractice of others in the company.

Major Considerations

When choosing a corporate form, your two major considerations will be tax consequences and liability. The ideal corporate form has pass-through taxation and a nearly complete liability shield. That's why we like the PLLC -- though, sadly, we're not allowed to have it in California.

Related Resources:

• What Business Form to Use for Your Law Firm (The Student Appeal)
• Sizing Up Business Structures (Inc.)
• What Incorporation Structure Is Best for a Solo Practice? (FindLaw's Strategist)
• 52 Ways to Reduce Overhead in Your Law Office (FindLaw's Strategist)