Susan Cartier Liebel tackles the question of what is best for a solo practitioner in the way of a company or corporate structure? My preference is none. None at all.
I have practiced law in a number of different environments over the years and under a number of different structures. For a solo attorney, I tend to think that fancy trade names and the establishment of different legal entities have to do more with ego than practicality.
It is true at one point in the 80s that a professional corporation or association was preferred for a number of different reasons, none of them really doing with liability protection. There were more favorable tax benefits for maintaining certain types of retirement accounts and insurance deductions. Today, a solo can deduct most of these same deductions without any business entity.
The truth of the matter is that most of these liability protection entities add a level of difficulty and do not offer any real protection to an attorney -- and especially a solo. An attorney is professionally liable on any file he touches and the corporate structure is not going to protect him or her. Loans to the corporation or other legal entity will most certainly be co-signed so there is no protection in this regard. The only real thing it can offer is protection for nonlegal matters, such as la judgment obtained against the solo for a car wreck not associated with the business. But, that is not really an issue because a non-lawyer cannot own stock in a law firm anywhere except Washington, D.C.
There is also a downside most people do not discuss on this subject. Many services and products are more expensive for a business than for an individual. Sometimes much more expensive. Bank accounts are a good example. I am Chuck Newton and my bank accounts are under Chuck Newton. Get on Bank of America's website and you will see what I mean. If I operated other than under a variation of my name or operate as a separate business entity I would have to open a "Business Advantage" account to get the same level of service. Since all Third Wavers are skinflints they are concerned about fees. With a Business Advantage account you have to maintain an average monthly balance of $15,000.00 in your primary account in order to avoid monthly and other fees. Alternatively, you have to have a combined average monthly balance of $35,000.00 in all accounts to avoid the fees. Otherwise, you will have a monthly service charge of $29.00 a month (or $348.00 a year). Further, in a Business Advantage account you will be charged a deposit fee of 20 cents on every $100.00 after the first $10,000.00 is deposited in any month. The very same "Personal Advantage" account requires only an average monthly balance of $5,000.00. It is not only more reachable, but the monthly fee is only $20.00 a month if you do not achieve this goal. Forget the deposit fee.
The same is true for other services as well, and it all adds up. The same telephone service is higher for businesses than for an individual. Cell phones (and especially multiple cell phones on one account) are cheaper for individuals than businesses. Cable access is cheaper for individuals than businesses. Car insurance is more expensive if you use your vehicle in working for a separate business entity. The list goes on and on.
Tax preparation is also slightly higher because you have forms and returns to file for these entities as well, no matter to whom the tax liability and benefits are assigned. If you are like me and work from home, your home office deduction is complicated by using a separate business entity.
In Texas there are other particular problems. Texas does not have an "income tax", but it has a similar "franchise tax" that has to be paid if a solo operates under one of these entities. Also, you are likely to get a business property tax bill from the county for your home office if you operate under one of these entities.
You can weigh the pros and cons for yourself, but if your name is Sally Smith, I would just tell you to forget the legal entities and just be plain 'o Sally Smith, lawyer, and operate cheaply. It might appear cool to look corporate or to have a bigger presence than what you do, but it will cost you time and money while not really saving you on liability.
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