A panel of young lawyers explored the basic law firm management, structure, disputes and succession planning issues that arise when starting a private practice.
Here are the top tips from the program:
Create an Operating Agreement
When launching a firm with more than one person, be sure to draft an operating agreement that delineates the roles and responsibilities of each manager, compensation distribution and buy/sell terms in advance. The operating agreement should designate the manager in charge of hiring, firing and leasing, how revenue and expenses will be allocated among partners, who decides what happens when the entity needs funding and what happens to equity distribution when a partner joins.
Know the Different Business Structures
There are several key differences between an LLC and S Corp. LLCs are companies of one or more people with flexible distributions, guaranteed payments treated as expenses and are taxed under a self-employment rate. On the other hand, S Corps must have no more than 100 shareholders and pro rata distributions. Under both structures, the owners bear no personal liability.
Be Mindful of Tax Considerations
Know the different tax implications for sole proprietorships and partnerships. Tax filings for sole proprietorships are relatively simple, with no sperate business tax income required, balance sheet disclosures or W-2 wages paid to the business owner. Partnerships must pay self-employment taxes and include a balance sheet for revenue over $250,000.
Have Your Affairs in Order
If you employ people, be responsible in your management of the business and expenses. Your employees rely on you for their livelihood. Don’t make business decisions that would jeopardize their jobs.
Learn to Market Yourself Ethically
Networking is an important part of building your firm. All businesses need revenue to thrive, especially in the early stages. Make connections with your colleagues to develop a client base and get referrals.