Page 6 - San Antonio Vol 1 No 2

JAMES ROSENBLATT | Business Law
Running Your Law Firm as a Business
The inherent con ict faced by the leaders of many law rms is that for a law rm to suc- ceed, the practice must be managed as a business by a person that would rather spend more time practicing law. Most lawyers nd the adminis- trative and management tasks less ex- citing and mentally stimulating and, thus, fail to take the necessary steps to protect their rm. Ironically, lawyers o en spend a signi cant portion of their time explaining to their clients that making the right decisions on the front end allows for better results on the back end. Attorneys o en face the same challenges, but at times fail to heed their own advice.
Even a er obtaining an MBA and spending twenty- ve years setting up small and large businesses, I some- times nd I am the worst at focusing on making necessary changes to my rm. At least once a year, each of us should look at our practice and en- sure our most valuable resource, our law rm, is protected. Below are some of the most common mistakes that have come through our o ce and suggestions on how to start treating your law practice as a business.
THE TYPES OF ENTITIES
Most law practices should be oper- ated through some type of entity. If you have not formed a legal entity, do
so immediately. e di erent types of le- gal entities provide advantages and dis- advantages for attor- neys. e potential
entities include Professional Corpo- rations, Limited Liability Companies, Professional Limited Liability Com- pany, and Limited Liability Partner- ships. e main distinctions between the entities rest in liability protection, how taxes are treated, and the entity’s ease of operation.
Professional Corporations. Profes- sional corporations require adherence to guidelines, including necessitat- ing shareholders, a board of direc- tors, and a management team—all of which must work independently of each other. Creation of the proper paperwork and the bylaws to govern the operation of the corporation, not to mention shareholder meetings and maintaining the annual minutes and reports, requires time and expense. If the entity has a sole owner, the owner must act out each of these roles, but in separate distinct manners, while maintaining the necessary records and notes to prove conformity with the strict formalities. If there are multiple owners, there should be a shareholders’ agreement to handle management and selling of ownership interests.
A corporation provides for a law rm to easily add additional partners and the required autonomy between the owners and management pro- vides a layer of liability protection for the owners. A corporation can be taxed as either a C-Corporation or an S-Corporation. Although tax rates have dropped for C-Corporations, the overall tax rate usually justi es an S- Corporation election.
Limited Liability Companies.
Limited liability companies provide a lot of exibility with formation, management, and taxation. However, sometimes this exibility adds cost. Limited Liability Companies can be taxed as a Partnership or a Corpora- tion, but must pay franchise taxes.
Partnerships. e di erent types of partnerships provide di erent lev- els of liability protection—General Partnerships, Limited Liability Part- nerships, or Limited Partnerships. e written partnership agreement generally sets forth each of the part- ners’ responsibilities and obligations. A General Partnership is unincorpo- rated, does not protect its partners from personal liability, and requires very little or no formalities. A General Partnership does not pay franchise taxes. A Limited Liability Partnership (LLP) is similar to a General Partner- ship but provides some protection for the other partners for one partner’s negligence; and a Limited Partnership (LP) has one partner who is generally responsible for the debt of the rm and the remaining “limited” partners cannot be held personally liable for the debts of the partnership so long as they do not actively participate in management. e general partner is typically an entity which requires its own documentation and tax returns.
Partnerships are commonly inex- pensive to set up, and the pro ts ow directly to the partners. In many law rms, there are incentives for associ- ates to become partners and the du- ciary relationship between the part- ners is o en conducive to positive re-
James Rosenblatt has been President of Rosenblatt Law Firm and chair of the transactional section of the rm since its open in 2005. For the past fourteen years, he has been providing legal and business consulting in the areas of Asset Protection, Business, Construction, Contracts, Employment, Estate Planning, Mergers & Acquisitions, Oil & Gas, Real Estate, and Trademarks. For more information, visit rosenblattlaw rm.com or call Rosenblatt Law Firm at (210) 562-2900.
ATTORNEY AT LAW MAGAZINE · SAN ANTONIO · VOL. 1 NO. 2 6