Starting a business

How to Start a Law Firm

Starting a law firm can be a rewarding next step in your legal career. For any new firm, you will want to familiarize yourself with information like how much does it cost to start a law firm, as well as learning to think like a business owner in addition to practicing law.

Even if you aren’t sure when you’ll be leaving your current job, there are several steps you can take to prepare for your exit. Starting your own law practice, as with any momentous undertaking, can feel daunting when you look at every single task that needs accomplishing all at once. That’s why it’s important to break down the tasks of starting a law practice into phases or segments, starting with the necessary basics.

What is a Law Firm?

A law firm is a business that engages in the practice of law. It is made up of lawyer(s) who are employed to represent clients and help them with their legal matters. To legally practice law, lawyers must have gone to law school and pass the bar exam.

There are a variety of specialized legal services offered by law firms for individuals, associations or companies. The primary role legal services play is being an advisory to the clients about their legal rights and liabilities, and representing them in matters related to civil, criminal, business transactions, intellectual properties, real estate, taxation and all others in which their assistance is sought.

As mentioned above, there are different types of law practices, including:

  • Sole Proprietorship: This law firm consists of only one lawyer who is responsible for all profits, loss, and liabilities.
  • General Partnership: In this type of law firm, all the lawyers who are members in the firm jointly share the profits, losses, and liabilities accrued.
  • Professional Association: This type of law firm works similarly to a business corporation and issues stocks to the lawyers.
  • Limited Liability Company: Here the advocate-owners are regarded as members but are not directly liable to third party creditors of the law firm.
  • Limited Liability Partnership: In this form of law firm there exists a partnership among the advocate-owners with each other. However, there is neither any liability of a lawyer member towards the creditor of the law firm nor any responsibility for any negligence caused on part of another member. The LLP is taxed as a partnership firm while being a beneficiary of the liability protection of a corporation.

In House vs. Law Firms

Some companies have their own in-house legal departments. They work under the direction of a general counsel with areas of practice including general corporate law, corporate compliance, intellectual law, mergers and acquisitions, real estate, and general litigation. Essentially, an in-house legal team is like any other cost for a company, for example, an IT department or marketing team.

Private law firms typically require the lawyers to work longer hours, as well as demand a more diverse skill set with knowledge in a lot of different areas. Therefore private firms need to have a high level of resources.

If you think conceptually and have a deep interest in a law (and are less interested in a business-focused environment), then a private law firm is the better decision for you. On the other hand, if you think more practically, are interested in business issues, are commercially minded, and enjoy collaborating with a team of both lawyer and non-lawyer colleagues – then you will be better suited for in-house.

Starting a Law Firm in 8 Steps

1. Create a law firm business plan

When you travel somewhere new, do you just wing it, or do you usually use a map to get there? Having a well thought out law firm business plan is like having the perfect Google map for going from point a to point b, without getting lost, stuck in traffic and avoiding collisions.

A law firm business plan will make the startup process much less overwhelming. A well thought out plan will also give your small firm a leg up over other businesses, providing you with competitive advantages. The difference between a good lawyer and their practice versus a great lawyer and their practice could be the business plan.

Laying out a strategy before you take action will allow you to catch any potential problems, before they occur. Your law firm business plan is critical for ensuring you prioritize your tasks efficiently and stay on track. Consider your mission statement, goals and objectives, and the actions you need to take to get there. Download free business plan templates here .

2. Become an expert in one area of law

Those looking to start their own firm should base their practice on a niche area of expertise, in an area where they have a certain amount of experience and a respected reputation. In addition, they should have well-developed relationships with other firms and lawyers in the area of practice.

Some examples of the various legal work and areas of law are as follows:

  • Intellectual property
  • Health care
  • Real estate
  • Bankruptcy
  • Criminal defence
  • Personal injury
  • Corporate
  • Family and divorce
  • Civil rights
  • Immigration
  • Transactional

3. Structure your own law firm

Under the Law Society Act and its by-laws, you are able to set up your practice as a sole proprietorship, general partnership, limited liability partnership or a professional corporation.

A sole proprietor or sole practitioner owns and runs their business alone. This is the simplest structure for a law practice and may be the least costly as there aren’t many formal business registrations required.

A general partnership is made of two or more persons. Limited liability partnerships (LLP) are a specific type of partnership that protects the personal assets of the individual partners for purposes of professional liability. Your pick of partnership structure will determine the business registration and regulatory requirements that you must meet. A partnership, either general or LLP, may be appropriate for you if you wish to practise law with another lawyer or lawyers and are not in an employee-employer relationship.

Professional corporations are a type of corporation whose business is limited to providing professional services. When a legal practice is incorporated, the resulting corporation is a separate legal entity. The shareholder(s) of this entity must also be its director(s), and must be licensed by the Law Society of Ontario.

Practising law through a professional corporation does not limit your professional liability but this business structure may offer tax deferral benefits. Such corporations are typically best suited to smaller firms since the tax savings must be shared among all shareholders in the corporation. Having several owners in a PC, or several PCs in a firm, severely diminishes potential tax savings.

Business registration checklist

  • Federal – Business Number: If you do not have any employees or do not have taxable services (i.e. professional fees) of more than the amount set out by the Canada Revenue Agency (CRA), then you will not require a BN. A BN is required to open a payroll account, and to collect and remit the Harmonized Sales Tax (HST) to the CRA.
  • Federal – Income Tax Number: Sole proprietors and both general and limited liability partnerships do not require an income tax number. A professional corporation, as a separate taxpayer, must obtain an income tax number.
  • Provincial – Business Name: Business name searches, registrations and renewals are administered by Service Ontario. For more information about these, see the ONe-Source for Business section of the Service Ontario website.
  • Provincial – Professional Corporation: Determine whether you would like to practise law through a professional corporation. If you incorporate, you must comply with the Business Corporations Act (Ontario) , and the  Law Society Act
  • Municipal – Licensing: Confirm whether the municipality in which you will practise requires you to obtain a licence to carry on business.

Business insurance

Selecting the appropriate additional insurance to protect you and your law practice is essential.

Different types of insurance that can help protect your firm, include:

  • Business or commercial insurance , such as professional liability insurance, to protect you from losses that will affect the financial health of your business.
  • Malpractice insurance that will protect you should issues arise from your work history.
  • ​Life insurance, to provide funds in the event of your death.
  • Health or disability insurance, to provide funds in the case of loss of income due to disability or serious illness.
  • ​Extended health care insurance, to pay hospital, medical or dental expenses.

Learn more about providing benefits for your employees here.

4. Secure an office and fill it with furniture

Consider where you want your office to be located and what type of office space you want to be in. For example you could work out of a home office, you could rent or lease a space, use a shared office space, or you could buy the office space. Choosing any of these options should be determined by the specific requirements of your legal firm and the kind of business you want to attract, along with personal convenience.

You will also need to pick the furniture and supplies that will fit the requirements of your law firm. Think about the physical space you will be in and how you need to fill it. Will you have private offices, staff work stations, filing and storage rooms, reception area, conference room(s), etc?

As for the specific equipment here are a few examples:

  • Facsimile machine
  • Photocopier
  • Scanner
  • Shredder
  • Dictation system
  • Telephone system
  • Debit/credit imprint or point-of-sale machine

When choosing your telephone system, think of the following:

  • Number of lines required
  • Dedicated lines for facsimile machine and/or internet connection
  • Answering machines or voicemail abilities
  • Conference calling and call forwarding abilities
  • Intercom and paging abilities
  • Automated system routing, attendant and holding options

5. Start building a referral network early on

Before opening a law practice, you will need to gain experience as a young lawyer first. During this time it is crucial that you maintain a thriving network of people in your industry. Down the road it will lead to an increase in business for your law practice and have additional benefits.

Such benefits include mentors to guide you through your practice, knowing professionals to offer their services or referrals , potential employees, prospective employers or clients to engage your services, and a broad community to build friendships and support.

Make sure to network with everyone you can. Don’t skip out on the people who offer goods and services, (who may not necessarily be in the law industry but are adjacent to it) – you could potentially need their help later on as well. Having a large network allows you to zero in on your chosen target client market using the connections you previously made.

6. Add your law practice to legal directories

A lawyer directory or legal directory is a website that lists law firms and attorneys. It’s objective is to make it easy for potential clients to search and find a lawyer. Some legal directories are specialized, for example some are only for family law attorneys or personal injury law. However, most of them are all-encompassing.

Adding your business to a reputable lawyer association improves the chances of securing clients. Additionally, these sites offer the unique opportunity for lawyers from both big and small firms to increase their online presence. They can also help with backlink SEOlocal SEO , online reputation, lead generation and more.

7. Create an online presence

Joining a legal directory is only part of the process. Creating a well developed online presence requires a strong marketing plan with market research. The information gleaned from this research will be your guide for what your website should look like, what kind of information needs to be on this website, what kind of social media platforms you should be using, and what kind of content you publish to your site and social pages.

A best practice in starting a law firm is to always define a specific goal with what you want your marketing strategy to achieve. Think about how you want your website and social media pages to make your potential clients feel, is it safe, sophisticated, excited? What do you want them to understand about your legal firm within the first 3 seconds of looking at your content? A little forethought and a lot of entrepreneurial spirit will get you far.

8. Budget your finances

Law schools don’t normally teach you how to run a company, however, knowing how to manage a business is crucial when you start your own law business. One of the most important aspects in operating a thriving practice is making sure you have legal accounting software. To be successful, create a documented financial strategy and profitability model that aligns with your budgets and reports, as well as with your long-term goals.

Key details to remember include:

  • You have access to sufficient capital and cash-flows to fund your firm for the foreseeable future.
  • You follow written budgets and regularly monitor consistent financial reports and financial key performance indicators.
  • Your invoicing, payments, and collections systems are focused on your clients’ payment preferences so they will pay their bills on time.
  • You pay yourself a consistent market-rate salary, separate from bonuses or distributions, and you are investing an appropriate amount towards savings and retirement.

As a legal professional, you want the best for your new legal practice so you can provide the best service to your clients. To open and operate a law firm successfully, you need the right tools at your disposal. Using QuickBooks Online will guarantee your professionalism and help you achieve all your financial goals listed above. Try it for free today.

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