Starting your own law business can be incredibly exciting and offers more than just financial rewards. It provides an opportunity to build something for yourself that can provide for you and your family and serve the community.
When you first begin any business, there will be many things for you to consider. You may have staff to hire, premises to find, as well as equipment to source and advertising strategies to implement. You must also take some time to think about your business’s structure, and how your company will function when reporting income for taxes.
Different business structures offer different benefits, and the choice you make could be the difference between long-term success or failure. Here are a few of the questions you will need to ask yourself when you are deciding which type of company you want your law business to be.
Are You a Sole Proprietor or in a Partnership?
When you are choosing which business structure to operate, one of the biggest deciding factors will be whether you are a sole proprietor or whether you are in a business partnership with another party or investors.
Being the sole proprietor has its advantages, but you are wholly responsible for all your business’s tax obligations and legal liabilities. In a partnership with one or more people, these obligations and responsibilities can be spread across all the owners of the business. If you have partners or investors, they should be a part of the process to decide which business structure your company should use.
What Are Your Tax and Legal Liabilities?
Sometimes business entrepreneurs make the mistake of overlooking the tax and legal liabilities their business will have as they operate, and what impact the different business structures could have on those liabilities.
Limited Liability Companies are popular with many business owners. You can read lots about what an LLC is by researching on the web, but their main advantage is they protect business owners from financial and legal penalties by making the company itself a legal entity. This distances business owners from responsibility for debts incurred by the company, insulating their personal wealth from the business’s finances.
What Are Your Future Plans?
You may have grand plans for the growth of your law business, and these should be considered when choosing your business structure so your business has the room it needs to grow.
A structure known as an ‘S’ Corporation is well suited to law businesses as it limits the amount of self-employment tax that working partners must pay, and does not require multiple levels of stock or more than 100 shareholders in order to operate, allowing a law business to be easily divided among a few partners or owned solely by one person.
When operating any business, but perhaps especially a law business, it is important to make sure you are adequately protected from financial and legal liabilities.
Having the right business structure can also save you and your business a lot of money by reducing your company’s tax burden and preventing you from paying excessive taxes on your personal income.