What is the most appropriate business structure for your law firm?

Selecting the most appropriate business structure for your law firm has long-term implications, which affect important aspects such as the amount of tax you will pay and how your firm operates in general.

It’s worth remembering that there is no ‘one-size-fits-all approach’ to how law firms are structured.

This means that you should consider what your particular circumstances are when choosing a structure.

Even though law firms have traditionally been structured as sole practitioners or partnerships, other options have grown in popularity in recent years.

Limited Liability Partnership (LLP) or Limited Company

For many firms, the choice falls between either an LLP or a limited company.

A limited liability partnership (LLP) offers some of the same benefits as a traditional partnership, but with a greater level of personal protection for the partners.

Your personal assets are at much greater risk if things go wrong without limited liability.

It is worth noting that even LLPs and companies are not bulletproof in this regard.

A director of a limited company could face claims of wrongful trading if their firm becomes insolvent.

Members of an insolvent LLP can also face a clawback of any payments received in the two years preceding them becoming insolvent.

Build in flexibility for the future

By building in as much flexibility as possible, you will ensure your firm’s ability to cope with future changes.

Looking ahead to changes in the firm’s principles, members, (in an LLP) or shareholders and directors (in a limited company) will stand you in good stead.

For example, when changing profit sharing, and with a suitable agreement in place, LLPs can be a very robust way of amending a shareholding.

However, there can be a greater level of challenge when changing profit shares in a limited company.

Changes to the firm’s ownership can also be more complex and might bring about a share evaluation.

Most emerging firms are opting for either an LLP or limited company business structure.

For advice on the most appropriate and tax-efficient structure for your firm, get in touch with us.