Fellow shingler Frank Yunes (www.yunes.org), a trusts and estates
attorney from Lexington, MA has an idea for a New Year’s Resolution [which I have not been timely in posting – CE]
Frank writes:
I just finished the process of forming a single-member LLC for my law firm.
I wonder how many of us out there are pure sole proprietors and might benefit
from a discussion of how to create a formal entity to shield our personal
assets from professional liability.
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Although we all have liability insurance, in some cases this protection\nis not quite enough. The creation of a legal entity is an additional layer of protection\nthat might be appropriate depending on your practice area.
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The single-member LLC seems to me a perfect fit for attorneys in solo\npractice. I believe all 50 states now have a single-member LLC statute (if\nmemory serves, MA became #50 in 2003). In addition to the obvious liability protection,\na single-member LLC is treated as a "disregarded entity" for personal\nincome tax purposes. This means formerly sole proprietors can continue to file\nSchedule C with their personal income tax return for as long as the entity is a\nlaw firm of one. The formation of a single-member LLC will not, therefore, necessitate\nfiling a corporate tax return like a C or S Corp.
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The process of forming an LLC is remarkably easy… In MA we can form\nan LLC online at the Secretary of State\’s website. We can obtain a tax ID\nnumber ("EIN") at the IRS website in a matter of minutes. A new bank account\nin the name of the LLC can also be established online. The hardest part is probably\ndeciding what to name the entity! I went back and forth on this (The Law Office\nof Frank B. Yunes, LLC just didn\’t sound right to me) and decided on Frank B.\nYunes, Attorney at Law, LLC.
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I chose to form the entity at the end of the year so I could make a\nsmooth calendar-year bookkeeping transition. Starting Jan 1st, all receivables\nand payables will be conducted through my LLC. This separation, of course, is\ncritical to any subsequent argument that my law firm is separate from my\npersonal assets!”,1]
// ]]>Although we all have liability insurance, in some cases this protection
is not quite enough. The creation of a legal entity is an additional layer of protection
that might be appropriate depending on your practice area.
The single-member LLC seems to me a perfect fit for attorneys in solo
practice. I believe all 50 states now have a single-member LLC statute (if
memory serves, MA became #50 in 2003). In addition to the obvious liability protection,
a single-member LLC is treated as a “disregarded entity” for personal
income tax purposes. This means formerly sole proprietors can continue to file
Schedule C with their personal income tax return for as long as the entity is a
law firm of one. The formation of a single-member LLC will not, therefore, necessitate
filing a corporate tax return like a C or S Corp.
The process of forming an LLC is remarkably easy… In MA we can form
an LLC online at the Secretary of State’s website. We can obtain a tax ID
number (“EIN”) at the IRS website in a matter of minutes. A new bank account
in the name of the LLC can also be established online. The hardest part is probably
deciding what to name the entity! I went back and forth on this (The Law Office
of Frank B. Yunes, LLC just didn’t sound right to me) and decided on Frank B.
Yunes, Attorney at Law, LLC.
I chose to form the entity at the end of the year so I could make a
smooth calendar-year bookkeeping transition. Starting Jan 1st, all receivables
and payables will be conducted through my LLC. This separation, of course, is
critical to any subsequent argument that my law firm is separate from my
personal assets!// <![CDATA[
D(["mb","
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I feel a sense of relief knowing that if I find myself on the wrong end\nof a lawsuit moving forward, my personal assets will be more protected than if\nI were merely a sole proprietor.
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Best wishes for the holidays,
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Frank
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Frank B. Yunes
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Attorney at Law, LLC
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35 Bedford Street,\n Suite 12
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Lexington,\n MA 02420
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Tel (781) 674-0234
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Fax (781) 674-0235
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“,1]
);
// ]]>
I feel a sense of relief knowing that if I find myself on the wrong end
of a lawsuit moving forward, my personal assets will be more protected than if
I were merely a sole proprietor.
Editor’s Follow Up – In response to the above article, several readers have asked whether an LLC can protect attorneys from their own professional malpractice. The answer is no. But, as this <A HREF = “
http://stockwellip.com/?p=42″>post</A> from Stockwell IP explains, the LLC can protect you from non-tort disputes (e.g., contract disputes) and malpractice by employees, associates or partners (though I imagine these protections are all state specific). And as the post continues, there are other reasons to set up an LLC as well. So as Frank writes, there are definitely reasons to consider forming an LLC provided that your state permits professionals to set one up.
My understanding is that any perceived liability protection from incorporating is illusory. Do you have some reason to believe otherwise?