Lawyer: LLC or no for my solo practice?
December 13, 2010 1:02 PM
Lawyer people: I am a lawyer licensed in Illinois and have started to do some solo practice work. Do I need to form a LLC? Why?
I have started to do odds and ends with an eye toward running my own small practice, particularly as doing doc review projects is not what I go into this for and the job market is horrible.
I have a freshly pressed real estate broker license and plan to sell residential real estate and have a small real estate focused law practice out of my house so I can pay the mortgage and be available for my two young kids.
I digress.
So I was all hot to form an LLC and then it occurs to me, as a solo, with no staff, who (so far as I can tell) would be personally liable for any malpractice, there seemingly is not point. Why would I waste the filing fee if it offers no real protection or tax advantage?
I'll confess a lack of knowledge here and hope you all can help!
so my questions are:
1) Do I need to form a formal company? If so what form.
2) Is forming an LLC something that would protect me from anything? I don't have staff or investments.
3) Am I personally liable for malpractice? Seems like I am.
4) Is there a way to protect my limited assets?
Thanks in advance!
ps If you can suggest good resources for the atty just starting their own thing I'd be appreciative.
I have started to do odds and ends with an eye toward running my own small practice, particularly as doing doc review projects is not what I go into this for and the job market is horrible.
I have a freshly pressed real estate broker license and plan to sell residential real estate and have a small real estate focused law practice out of my house so I can pay the mortgage and be available for my two young kids.
I digress.
So I was all hot to form an LLC and then it occurs to me, as a solo, with no staff, who (so far as I can tell) would be personally liable for any malpractice, there seemingly is not point. Why would I waste the filing fee if it offers no real protection or tax advantage?
I'll confess a lack of knowledge here and hope you all can help!
so my questions are:
1) Do I need to form a formal company? If so what form.
2) Is forming an LLC something that would protect me from anything? I don't have staff or investments.
3) Am I personally liable for malpractice? Seems like I am.
4) Is there a way to protect my limited assets?
Thanks in advance!
ps If you can suggest good resources for the atty just starting their own thing I'd be appreciative.
Go join Solosez, the ABA's mailing list for solos and small practitioners. Read it. Ask questions like this there. Find local solos who are willing to mentor you.
As far as the LLC goes, you say you have limited assets but then you mention a mortgage. Also, do you plan to never have any more assets than you have now?
posted by katemonster at 1:12 PM on December 13, 2010
As far as the LLC goes, you say you have limited assets but then you mention a mortgage. Also, do you plan to never have any more assets than you have now?
posted by katemonster at 1:12 PM on December 13, 2010
Plus you might want to get this anonymized. If I found my attorney had a question like this on the web, many questions would go through my mind and almost none of them would reflect well on you.
posted by katemonster at 1:14 PM on December 13, 2010
posted by katemonster at 1:14 PM on December 13, 2010
I would talk with someone who sells legal malpractice insurance in your state (for example) and see what they suggest.
posted by exogenous at 1:16 PM on December 13, 2010
posted by exogenous at 1:16 PM on December 13, 2010
Are you married? Do you have assets like a home? If so, do a LLC. My DH has because hell if I'm going to get my house taken away from me because of his clients. It's not my business.
Also for taxes. He got the lovely IRS knocking on our door looking for him (stupid mixup of paperwork). Scared the crap out of me seeing them knocking on the door. But the LLC said that I am my own entity meaning if he's in jail--not my problem. Without an LLC, it could have been my problem too.
posted by stormpooper at 1:31 PM on December 13, 2010
Also for taxes. He got the lovely IRS knocking on our door looking for him (stupid mixup of paperwork). Scared the crap out of me seeing them knocking on the door. But the LLC said that I am my own entity meaning if he's in jail--not my problem. Without an LLC, it could have been my problem too.
posted by stormpooper at 1:31 PM on December 13, 2010
liability, counselor. Plus you wanna get "S" corp status.
That's why I do it.
posted by Ironmouth at 1:32 PM on December 13, 2010
That's why I do it.
posted by Ironmouth at 1:32 PM on December 13, 2010
Seriously? Do it for liability reasons at a minimum. And follow those pesky corporate formalities while you are at it.
posted by murrey at 2:22 PM on December 13, 2010
posted by murrey at 2:22 PM on December 13, 2010
IANAL, IANYL, TINLA, etc. But, beyond liability limitation reasons, such as they are for closely held businesses in modern America, organizing as an LLC, or an S corp, can make it a lot easier to value your business as it proceeds/add some kinds of partners or shareholders later (if/when you want to expand your business)/or plan for estate, succession or wind up.
posted by paulsc at 2:24 PM on December 13, 2010
posted by paulsc at 2:24 PM on December 13, 2010
You may be required to disclose to clients that you don't carry malpractice insurance if, in fact, you choose not to carry malpractice insurance.
posted by Eyebrows McGee at 2:35 PM on December 13, 2010
posted by Eyebrows McGee at 2:35 PM on December 13, 2010
OP, a search on the ARDC website for the name listed on your Metafilter profile shows, "In annual registration, attorney reported that he/she does not have malpractice coverage. (Some attorneys, such as judges, government lawyers, and in-house corporate lawyers, may not carry coverage due to the nature of their practice setting.)"
In one of the jurisdictions in which I am licensed, I would be required to provide a written disclosure to my clients if I did not carry malpractice insurance. Most of my (corporate) clients would probably regard this as a Bad Thing. FWIW, malpractice insurance was a LOT cheaper than I expected. There is no parallel provision in Rule 1.4 of the Illinois Rules of Professional Conduct.
posted by QuantumMeruit at 3:01 PM on December 13, 2010
In one of the jurisdictions in which I am licensed, I would be required to provide a written disclosure to my clients if I did not carry malpractice insurance. Most of my (corporate) clients would probably regard this as a Bad Thing. FWIW, malpractice insurance was a LOT cheaper than I expected. There is no parallel provision in Rule 1.4 of the Illinois Rules of Professional Conduct.
posted by QuantumMeruit at 3:01 PM on December 13, 2010
I have a freshly pressed real estate broker license and plan to sell residential real estate and have a small real estate focused law practice
CMA?
Why would I waste the filing fee if it offers no real protection or tax advantage?
CBA
If you can suggest good resources for the atty just starting their own thing I'd be appreciative.
CPA
Am I personally liable for malpractice? Seems like I am.
CYA
posted by foursentences at 3:55 PM on December 13, 2010
CMA?
Why would I waste the filing fee if it offers no real protection or tax advantage?
CBA
If you can suggest good resources for the atty just starting their own thing I'd be appreciative.
CPA
Am I personally liable for malpractice? Seems like I am.
CYA
posted by foursentences at 3:55 PM on December 13, 2010
I don't know if you want an LLC or some other kind of business association, but my understanding is that the whole point is that you don't want to be personally liable. It should be possible to set up some kind of closely held corporation in which you are the sole shareholder and are still not personally liable for the corporation's debts.
And yes, you need malpractice insurance, so Nthing that comment from other peeps.
posted by J. Wilson at 5:23 PM on December 13, 2010
And yes, you need malpractice insurance, so Nthing that comment from other peeps.
posted by J. Wilson at 5:23 PM on December 13, 2010
People who read the comments above and think that, simply by forming a one-member LLC, a person can do business under a liability shield of some sort need to stop for a minute and think, or google, or something. I think there is a general misperception among non-lawyers (and among many lawyers) of the extent of liability protection afforded by LLC membership. You cannot drive recklessly to an appointment as an "employee" of your single-member LLC and hope to pass off the resulting judgment on your minimally-capitalized LLC. Most LLC statutes that I'm familiar with say something to the effect of "a member of an LLC is not liable for torts, breaches, etc. of the LLC simply by reason of being a member." Membership in an LLC does not shield you from your own torts. Also, while a member might not be liable for the LLC's debts, it is unlikely that a bank will lend to a just-formed no-asset LLC without a personal guaranty.
This is not to say that LLC membership (even single-member LLCs) doesn't provide some liability protection, or that it's not worth looking into. Do so, but don't get the idea that you'll be invulnerable after that.
posted by lex mercatoria at 7:34 PM on December 13, 2010
This is not to say that LLC membership (even single-member LLCs) doesn't provide some liability protection, or that it's not worth looking into. Do so, but don't get the idea that you'll be invulnerable after that.
posted by lex mercatoria at 7:34 PM on December 13, 2010
It boggles my mind how many people think that forming an LLC or a corporation really protects them from liability. It does not, at least in the way that most people think of liability. This post explains why.
With regard to your actual questions, you are personally liable for your malpractice and insurance is the best way to protect your assets. I've got nothing re Illinois-specific entity considerations. Seconding and thirding suggestions to fine a mentor to help with these decisions.
posted by ajr at 7:49 PM on December 13, 2010
With regard to your actual questions, you are personally liable for your malpractice and insurance is the best way to protect your assets. I've got nothing re Illinois-specific entity considerations. Seconding and thirding suggestions to fine a mentor to help with these decisions.
posted by ajr at 7:49 PM on December 13, 2010
You cannot drive recklessly to an appointment as an "employee" of your single-member LLC and hope to pass off the resulting judgment on your minimally-capitalized LLC. Most LLC statutes that I'm familiar with say something to the effect of "a member of an LLC is not liable for torts, breaches, etc. of the LLC simply by reason of being a member." Membership in an LLC does not shield you from your own torts. Also, while a member might not be liable for the LLC's debts, it is unlikely that a bank will lend to a just-formed no-asset LLC without a personal guaranty.
and
It boggles my mind how many people think that forming an LLC or a corporation really protects them from liability. It does not, at least in the way that most people think of liability. This post explains why.
That is true, it is not a magic shield for personal responsibility. But if I am doing work as an LLC and I get sued for that work, the LLC is the target, not me. They would have to figure out a way that I personally acted or failed to act to damage them. Like, I was drunk or something. If there isn't an LLC, there's NOTHING to separate my professional fuck-ups from my personal assets. If there is, there is at least a chance.
There are tax advantages to other forms of corporations, too. LLC and S-Corps are mostly pass-through, where C-Corps get their own fresh set of brackets and deductions and so forth. Depending on the kind of money you are making, it can be a big difference.
And I would never work without some kind of malpractice insurance.
posted by gjc at 8:13 PM on December 13, 2010
and
It boggles my mind how many people think that forming an LLC or a corporation really protects them from liability. It does not, at least in the way that most people think of liability. This post explains why.
That is true, it is not a magic shield for personal responsibility. But if I am doing work as an LLC and I get sued for that work, the LLC is the target, not me. They would have to figure out a way that I personally acted or failed to act to damage them. Like, I was drunk or something. If there isn't an LLC, there's NOTHING to separate my professional fuck-ups from my personal assets. If there is, there is at least a chance.
There are tax advantages to other forms of corporations, too. LLC and S-Corps are mostly pass-through, where C-Corps get their own fresh set of brackets and deductions and so forth. Depending on the kind of money you are making, it can be a big difference.
And I would never work without some kind of malpractice insurance.
posted by gjc at 8:13 PM on December 13, 2010
This thread is closed to new comments.
Seriously, don't do this. Go to the ISBA website and find yourself a mentor.
posted by valkyryn at 1:07 PM on December 13, 2010