LLC For Legal Service Business
Good rapport and credibility are crucial to any legal firm. After all, you need to get clients to trust your and your services. And while your title and degree are usually enough to convince them, you can take the extra step by building a legal business for your consultancy services. For this, plenty of experts in the industry will recommend LLCs for the protection and benefits they can provide for small business owners.
Here is everything you need to know about LLCs, their advantages and disadvantages, as well as why a legal service business should form as one.
What Is An LLC?
An LLC, short for Limited Liability Company, is a type of business structure that offers its owners a variety of benefits, from asset protection to simplified taxes. For example, it offers the best of both worlds by combining the pass-through taxation benefits of partnerships with the limited liability protection of corporations. LLCs are formed by submitting Articles of Organization to the state where they plan to operate. They must adhere to the regulations and requirements set by their governing jurisdiction.
What Are The Advantages Of A Legal Services LLC?
LLCs provide several advantages for people who want to set up a legal service business. Below are a few:
Personal asset protection
One of the primary benefits of establishing an LLC is the protection it offers to your assets. Unlike most business structures, such as partnerships and sole proprietorships, an LLC safeguards the personal assets of its members from being used to settle business debts or legal obligations. In the event of a lawsuit, individuals pursuing a claim against the LLC also cannot access the private assets of its members that are unrelated to the business.
Easy to manage
LLCs offer a higher level of ease in maintenance compared to other business models, making them particularly suitable for individuals new to business. The process of setting up an LLC is relatively straightforward as long as you have a clear understanding of the formation procedure and follow each step diligently.
Numerous states in the US provide tax advantages and various incentives to legal services LLCs. Some even exempt them from annual filing fees and report costs.
What Are The Disadvantages Of A Legal Services LLC?
Establishing a legal services LLC does not have significant drawbacks, and the advantages generally outweigh any potential disadvantages. For example, one “disadvantage” might be the fact that LLCs are subject to more taxes than a sole proprietorship, but it has benefits the other business structure does not enjoy.
Depending on where you form your LLC, you might also have to submit additional documents and comply with more requirements. To this end, we recommend conducting comprehensive research, particularly on taxation, on the state you plan to form your LLC in.
How To Create A Legal Services LLC
The legal services LLC formation process is easy to follow and nearly the same in all states. Here are the important steps.
- Choose a state to open your LLC in
- Pick a name for your company
- Hire a Registered Agent
- File your Article(s) of Organization
- Draft an Operating Agreement
- Acquire other licenses and permits
Choose a state to open your LLC in
Before starting the legal procedure, decide which state you want to form the LLC in. This could be your home state or a different one that allows out-of-state operations.
Every state has a different set of taxes and requirements. Do your research to see which one(s) are the best ones to form a legal service business in. There might even be incentives they are offering for people in this particular line of work.
Pick a name for your company
Subsequently, select an appropriate name for your LLC—and verify that no other registered businesses in the state share the same name. You can start your search in your local Secretary of State’s online database.
You may also opt for a “doing-business-as” trade name or DBA, allowing you to carry out business operations under a different name than the legal one.
Hire a Registered Agent
The next step is to hire the services of a registered agent. This can be a business entity or an individual, depending on the specific regulations of the state where the LLC is registered. The registered agent receives and manages all official documents on behalf of the LLC, ensuring compliance. They are also tasked with facilitating effective communication with government agencies and third parties. If you are unfamiliar with the legalities of LLCs, hire someone who is.
File your Article(s) of Organization
The key step in the LLC formation process is the submission of your Articles of Organization. As you know, this is the document that will establish your legal service LLC as an entity in your state. It contains information about all important details about your company, including its name, address, member information, registered agent details, and more. It should also highlight the purpose of your LLC and verify its compliance with local business regulations.
Draft an Operating Agreement
The Operating Agreement establishes the structure and guidelines of your legal service business, allowing you to manage it more effectively. It outlines important aspects such as the management hierarchy, ownership distribution, and financial obligations (when multiple owners are involved).
Although not mandatory, having an Operating Agreement proves instrumental in resolving disputes. It can also facilitate a smooth transition of ownership in the future.
Acquire other licenses and permits
Once you’ve completed the previous steps, the final one is to obtain any essential business licenses or permits mandated by your state. For example, if you are looking to open a separate bank account for your company or hire employees, you need to obtain an Employee Identification Number (EIN) from the IRS. Some states might also require a general business permit before you can legally operate your LLC.
Moreover, if you intend to hire employees or participate in specific investments or securities trading activities, you might need to register with federal agencies like the Department of Labor.
How Are Legal Service LLCs Taxed?
Depending on where your legal service LLC is based, you must pay a different set of taxes. Below are the ones you might need to file:
Various types of taxes are applicable to businesses at the federal level, depending on their structure. It is crucial to have a comprehensive understanding of these taxes and associated expenses when operating an LLC to ensure full compliance.
- Employment/payroll taxes
- Estimated quarterly income tax payments
- Excise taxes (if applicable)
If you are taxing your LLC as a corporation, you will have to pay state taxes. These can include payroll tax, property tax, sales and use tax, franchise/excise/gross receipts tax, as well as additional miscellaneous taxes and fees. State programs, such as unemployment insurance or workers’ compensation, may also require registration, depending on your business location. LLC taxed as corporations enjoy some of the structure’s benefits, such as stock options.
What Are The Costs Of Starting A Legal Services LLC?
Forming a legal service LLC may seem cost-intensive, but in comparison to other corporate structures, the fees are very managable. For example, the initial filing fee is around $100, depending on the state where you form your LLC.
Below is a quick breakdown of potential costs you will have to consider:
State filing fee
Registered agent service
LLC formation service
Business license and permits
Employer Identification Number (EIN)
Initial legal and accounting fees
Equipment and supplies
Marketing and advertising
In addition to the aforementioned expenses, there are various other expenditures you should be expecting, such as professional fees for accounting services. Fortunately, these costs are more affordable compared to expenses associated with establishing a corporation.
Setting up an LLC is a smart choice for anyone looking to start a legal services business. But while forming an LLC is straightforward and beneficial, it is essential to conduct thorough research before finalizing your decision. Determine which business models are allowed for legal service firms in your state. Consider also the level of liability protection your company requires and the tax regulations associated with different LLC structures.
For a more detailed overview of forming LLCs in various states, check one of our guides below:
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