Organisational arrangements of law firms refer to the structures and setups through which law practices operate. These arrangements determine how the firm is owned, managed, and structured in terms of liability, decision-making, and overall governance.
Sole proprietorship: In a sole proprietorship, a single attorney operates as the law firm. The attorney is personally responsible for all profits, losses, and liabilities. This structure is relatively simple but lacks the benefits of shared resources and expertise.
General partnership: In a general partnership, multiple attorneys share ownership, profits, and liabilities. This structure allows for shared decision-making and resources, but partners are jointly and severally liable for the firm's debts and obligations.
Professional corporation: A professional corporation (PC) issues stock to attorneys, similar to a business corporation. This structure provides limited liability to shareholders and allows for more flexible ownership and management. PCs are subject to specific legal requirements and regulations.
Limited liability company (LLC): Some jurisdictions allow law firms to organise as limited liability companies. In this structure, attorney-owners are called members, and they enjoy limited liability protection similar to a corporation. This structure can offer tax flexibility and liability protection.
Professional association: Similar to a professional corporation or an LLC, a professional association (PA) allows attorneys to organise with shared ownership and liability protection. The specific regulations and requirements may vary depending on the jurisdiction.
Limited liability partnership (LLP): In an LLP, partners are protected from personal liability for the negligence or malpractice of other partners. This structure combines the liability protection of a corporation with the tax benefits and flexibility of a partnership.
The choice of structure may have implications for taxation, liability, governance, and succession planning. If you plan to open your own law firm, you are advised to carefully consider a myriad of factors, including jurisdictional regulations, firm size, practice focus, and long-term goals to determine the most suitable organisational arrangement for your specific circumstances.
