Choice of Entity for New Lawyers

coffee-cup-and-docs-bought-at-ssChoosing a legal structure and entity type for your law firm seems like an easy decision. But is it? Consider the following scenarios:

New lawyer establishes law practice with the goal of becoming an associate

If this is you, being a straight-up sole proprietor may be the best choice, assuming you have no employees.

A sole proprietorship is the simplest and most common structure chosen to start a business:

  • No formal action is required to start your business
  • It’s inexpensive
  • No papers to file
  • Nothing to dissolve
  • Simple tax preparation

When you’re ready to make the move from running your own practice to becoming an associate, the transition couldn’t be any easier.

On the downside, sole proprietorship means you have unlimited contractual liability and potentially higher taxes.

But how significant is the liability exposure?

Lenders, property managers, and others with whom you do business will typically require a personal guarantee for loans, leases, or other business transactions.  A personal guarantee means YOU are on the hook, even if you form a professional corporation or single-member limited liability company. As a result, contractual liability protection doesn’t count for much in evaluating whether to form an entity.

The real choice between sole proprietorship and forming a PC or single-member LLC comes down to taxes and the trade-off between potentially saving money (with entity formation) and simplicity (going with the sole proprietorship model).  Talk to a CPA so you can make an informed decision.

What if I’m planning to practice business law or intellectual property?

Why would your area of practice make a difference?  And didn’t we just say entity choice is driven by risk aversion – wreaking whatever benefit you can from contractual liability protection – and saving money – courtesy of a lower tax burden?  So what difference could practicing business and IP law possibly make?

If your goal is to help clients form entities and protect intellectual property, it could look a little odd that you haven’t followed the usual formalities in establishing your own business.

Fair or not, client perception counts.  So does marketing.  And part of marketing is how you brand your law firm.  Appending a PC or LLC designation to your business name may actually be an important part of how you choose to present yourself to potential clients.

If you plan to have employees …

This is an entirely different ballgame.  Without a doubt, form an entity. If you are a solo, choose a PC or single-member limited liability company (LLC).

Both entity types offer liability protection for non-professional torts committed by your employees.  The contractual liability protection discussed above will also kick in.  Talk to a CPA, but the likelihood is that forming an entity will also result in a noticeable tax savings.

If you plan to practice with others …

This is another occasion when forming an entity is a no brainer.  Do it for the avoidance of liability discussed in the preceding paragraph and for the limitation on vicarious liability.  The ideal structure may be to form a sole owner PC or single-member LLC that belongs to the firm’s entity. This may allow you, as the individual lawyer, to completely escape personal vicarious liability.

Multi-tier entities are complex, administratively messy, and no longer have the tax benefits they once enjoyed.  BUT avoiding vicarious liability is a big plus.  To learn more about this strategy, read Choice of Entity for a Legal Practice and Lawyers as PCs, LLCs, & LLPs in Oregon, referenced below.

Being fully informed in the premises

This post skates over some pretty significant content that deserves more in-depth thought.  Do your homework.  Recommended reading includes:

  • Sole Proprietorship as a business structure choice, courtesy of the Small Business Administration.  While you’re on the SBA site, poke around.  There is a ton of great content here.  And don’t forget about the help and resources available from the Small Business Development Center.
  • Law Firm Choice of Entity, from the ABA Young Lawyers Division.
  • Choice of Entity for a Legal Practice in Oregon, available on the PLF website. Select Practice Management > Forms > Entity Formation for Lawyers.
  • Lawyers as PCs, LLCs, & LLPs in Oregon, available on the PLF website.  Select Practice Management > Forms > Entity Formation for Lawyers.
  • Tax Considerations for Choice of Business Entity, Chapter 3 of the OSB CLE Seminar Handbook Broadbrush Taxation: Tax Law for the Nonspecialist (2015). Available in BarBooks behind the member login on the OSB website.

Most importantly

Talk with a CPA.  I can’t say this enough.  This is one of the best investments you can make in getting your practice up and running.  A CPA can help you determine whether forming an entity will result in tax savings.  He or she can also help you select an entity type – which is highly driven by tax considerations.

You’ll also learn about property tax, business income tax, business licensing, and other obligations you may not be familiar with – all of which are determined by where your business is located.

All Rights Reserved 2017 Beverly Michaelis

To Boldly Go Solo

How do you know if solo practice is right for you?  Do you have what it takes to organize, manage, and assume all the risks of running a law practice?

solo-with-laptop-cropped

As Bill Nye would say, please consider the following:

Independence

Solos get to call all the shots: client selection, case selection, setting fees, choosing a practice location – every decision that goes into running a practice.  The responsibility rests on your shoulders.  Do you find that appealing, daunting but doable, or overwhelming?  If you answer is appealing or daunting but doable, please proceed.

Are You a Decider?

Some people are decisive, others are not.  If you agonize over choices and normally poll multiple friends and family members before making a decision, solo practice will be difficult.

Solos need to make business and practice decisions every day.  Some of these decisions must be made under pressure with little time to reflect. The reward, of course, is that you get to decide.  You have the freedom and independence to use your creativity, knowledge, and skills to solve problems.

Are You a Self-Starter?

Solo practitioners must be self-regulating. Can you get the work out without someone supervising?  Give regular attention to administrative tasks like billing and bookkeeping? It will be up to you to meet deadlines, organize your time, and follow through on details. If you are a good planner and organizer, your solo practice will be successful.

Are You a Marketer?

All lawyers in private practice are expected to develop business, but in a solo practice the pressure is greater.  You’re it.  Can you create your own networking opportunities and business contacts?   Devote time to blogging or updating your website?  Post to social media?  Speak at CLEs?  Write articles for bar publications?  Build business referral relationships?

Financially Speaking

What resources are available to you?  What financial demands and commitments do you have?  Is it possible (or desirable) to apply for a micro loan, regular loan, or line of credit?  Are you up for crowdfunding?  Start by reviewing your expenses, then prepare a start-up and monthly budget.  Read about other business/financial essentials here.

Drive, Stamina, and Work-Life Balance

Can you practice law, run a business, and keep it all in balance with your personal life? Are you strongly motivated?  Healthy?  Is your family supportive of your efforts?  These are all good markers.  Nonetheless, make a plan to care for yourself and manage stress.  If you are looking for ideas or resources, contact the attorney counselors at the Oregon Attorney Assistance Program.  Services are confidential and free to Oregon attorneys.

Final Thoughts

Solo practice requires a lot of time and work, but it also has benefits: no one looking over your shoulder, no pressure to take a particular client, freedom to work in the areas of law that you prefer, and complete flexibility in deciding when, where, and how to work.  Is it a match for you?

All Rights Reserved Beverly Michaelis 2017

Cost per Case Analysis and Your Firm’s Marketing Decisions

The following is a guest post, courtesy of Deanna Powers, eGeneration Marketing.

There are more than 12,000 attorneys in the state of Oregon. Many firms, particularly small firms or solo practitioners, may not be able to hire someone to handle all marketing efforts. If you’re in charge of marketing for your law firm, it may be challenging to know which channels are most profitable. TV ads usually lead to a lot of claimants calling your office, but is this marketing option overall more profitable than simply spending more time optimizing your firm’s social media pages?  Fortunately, there is a way to accurately compare every marketing venture to one another. A cost per case metric will help your firm make better-informed spending decisions by examining the profitability of all current marketing efforts.

What Is Your Cost Per Case?

A cost per case (CPC) analysis examines the profitability of a particular marketing venture by taking the total dollars spent on that advertising effort divided by the new clients signed because of that effort.

Marketing Effort Budget ÷ New Clients Signed = Cost per Case

It’s unlikely that your marketing channels will all yield the same CPC. Some new clients will have a CPC of $0. This happens when past clients refer your firm’s services to their friends or family members.  This is perhaps the most beneficial marketing avenue for your firm, since it cost you nothing in terms of advertising dollars.

Unfortunately, no matter how strong your firm’s reputation, not all new clients can be signed from referrals. A CPC metric gives you the data you need for a thorough analysis of every paid marketing effort, which in turn puts stronger marketing budget decisions well within your reach. Some profitability can be calculated for you—Google AdWords gives your firm a wealth of data on how your campaigns are performing if you use PPC ads. Unfortunately, non-digital marketing efforts are a little more challenging to evaluate, but the CPC calculation still comes into play. We can use billboard pricing as an example as how you would calculate your firm’s CPC through a traditional marketing channel.

Billboard Ads: High Exposure Generates Greater Leads

When considering marketing avenues for law firms, high exposure is a key factor. Many firms choose to use billboard marketing because it gets you the most views for the lowest price. Outdoor ads have a crucial place in a well-devised marketing strategy according to the Arbitron Out-of-Home Advertising Report, a national survey that examines advertising and spending habits in relation to the increasingly mobile lifestyle of Americans. According to this report, eight of 10 Americans make buying decisions while out of the house and many of these decisions are made in the car. About 75% of travelers see billboards, and about 50% internalize the messages viewed, often later acting on them.

Lamar Advertising, one of the nation’s biggest billboard and other outdoor advertising firms, offers a range of marketing locations in Portland, Oregon and the surrounding communities. Prices vary, based on ad size, location, and whether messages are static or digital, but this means your firm has ample choices for remaining within an established marketing budget. For example, Lamar offers a billboard on Mt. Hood Highway, near Haley Road, which receives more than 92,000 views during an average week. This 14’ x 48’, permanent billboard rents for $7,500 per month.

It’s very hard to know how many clients you’ll sign from a billboard, as the overwhelming majority of commuters won’t need your legal services. Conversion rates for billboards can be as low as 0.002%, and this is simply the number of people who call your firm, not the number of cases you take! You may only think one of 10 claimants who reach out to you have a pursuable case. If you sign a respectable two new clients per week due, your CPC for this example will be $938.

Is This a “Good” Cost Per Case?

Some firms may be thrilled with a CPC of $938, while others will be horrified. It all depends on how much return you’re expecting from your claimant.

If your firm specializes in divorce and family law, for example, then you’re likely to see fees of $10,000 or more per complex case, which would make the spend of $938 for signing a new client profitable. On the other hand, if your firm specializes in Social Security disability law, then the $750 spend might be a bit steep. The average Social Security attorney only receives $3,000 per settlement, with a maximum of $6,000. The profit margins would be too slim for Social Security attorneys to pursue any marketing channel with a CPC that high.

Ultimately, if your firm realizes a CPC of about 15% of the fees earned per claimant, then the marketing effort is considered a profitable advertising venture.

Getting the Facts Needed for CPC Analysis

A CPC metric only works if you have the appropriate data to complete a reliable analysis. With many of your online advertising efforts, you can easily determine how and where clients learn of your firm. When a new client calls or walks through your doors though, you’ll only discover the data you need if you pose the appropriate questions, and the most important one is:

“Where did you hear about us?”

A new client’s answer lets you construct a reliable CPC. This in turn allows you to evaluate accurately your current marketing efforts. It additionally offers the data necessary for developing profitable marketing plans for the future. Regardless of whether you use TV ads, billboards, digital marketing, or are simply working to build a name in your community, calculating your CPC can all you to pinpoint your marketing inefficiencies and invest more into your most successful campaigns.

Deanna Power

eGenerationMarketing

Best of 60 Tips in 60 Minutes – 2017 ABA TECHSHOW

Yesterday I shared the Best in Mobile Apps for IOS and Android from the 2017 ABA TECHSHOW.  Today: the Best of 60 Tips in 60 Minutes with ideas on:

  • Blockchain Technology [A direct payment solution that bypasses banks]
  • Document and Workflow Automation
  • Document Indexing
  • Email
  • eSignatures
  • Facebook Advertising
  • Hardware Hacks
  • Lawyer Websites
  • Meeting Apps
  • Microsoft Office
  • Mirroring Content from Mobile Devices
  • Mobile Scanners
  • Note Taking
  • Online Collaboration
  • Online Intake
  • Organization
  • Outsourcing Tasks
  • Practice Management Software
  • Productivity
  • Proofreading
  • Saving Money
  • Scheduling Assistants
  • Security
  • Social Media Management
  • Slide Presentations
  • Spam
  • Timekeeping
  • Travel
  • Virtual Assistants
  • Web Conferencing

For a recap, click here or on the image below.

Naming Your Law Firm

There is plenty of advice out there on how to name your law practice.

LawLytics suggests your name should convey trustworthiness, prestige, and experience. This post from Above the Law pokes a bit of fun at the prototypical ampersand law firms: A, B, C, D & E LLP.  Lawyerist reminds us there are ethical and state regulatory considerations. Yes, indeed!  More on that below!  And I love the fact that WikiHow actually has an entry entitled “4 Ways to Choose a Law Firm Name.” (While the graphics are off-putting, it’s actually an okay read.)

Let me bottom-line it for you: there are times when lawyers can benefit by taking advice from the business world, and this is one of those times.

What’s in a name?

Moving on ……..

What are the dos and don’ts in selecting a name?

The best advice I found was on Findlaw.  A little ironic, since it was written by lawyers for potential business clients, but good is good.  Here is a summary:

  • Make your name descriptive.
  • Say it out loud: how does it sound?
  • What does it look like?  What kind of visual impact will it make on business cards and other materials?
  • Is it easy to understand?
  • Is it unique enough? (Also a legal requirement. Your choice must be “distinguishable upon the record.”)
  • Does it pass the abbreviation and acronym test?  (Make sure the shortened version of your name doesn’t spell out something embarrassing.)
  • Consider the meaning of your name in other languages if relevant to your practice.
  • Avoid names that are too long.
  • Avoid trendy names, since trends come and go.
  • Don’t imply by the name that your practice is somehow affiliated with or approved by a branch of the government. (Also an ethical requirement.)
  • Run your proposed name by family members and friends.

Read the complete post here.  For a chronological list of the steps involved in choosing a business name, see this resource sheet, also on Findlaw.

Assumed business name requirements in Oregon

If you’re an Oregon lawyer you should be proud of our Secretary of State (SOS) website. It really does a good job of educating businesses and providing information.  Assumed business names (ABNs) or what us old-school types call DBAs (doing business as) is no exception.  Here is exactly what you need to know about ABNs in Oregon.  Even better is this graphic, which comes from a PDF brochure on the SOS website:

abns

The ethics of naming your practice

Oregon RPC 7.5(c)(1) prohibits a lawyer from practicing under a name that is misleading as to the identity of the lawyers practicing under the name or that contains names other than those of lawyers in the firm. Oregon RPC 7.5(e) prohibits lawyers from holding themselves out as practicing in a law firm unless the lawyers are actually members of the firm.  This means:

  • Don’t append “and associates” to your firm name unless you actually have associates (staff don’t count).
  • Don’t use the firm name Smith, Jones, & Taylor if you are solo practitioners sharing office space and not practicing together as firm members.
  • Avoid adding “Law Group” to your name unless are two or more lawyers in the firm (staff don’t count).
  • Nonlawyer names are not permitted as part of the firm name.  You may list nonlawyers on letterhead if the nonlawyer’s status is clearly identified.  For example, if your legal assistant is Alyssa Jones, you may list her on your letterhead head as:

Alyssa Jones
Legal Assistant

Lawyers are also prohibited from using trade names that suggest a connection with government or with a public or charitable legal services organization.

Historical firm names and multi-jurisdictional practice

Using names of deceased or retired lawyers is permitted.  Multi-jurisdictional firms can use the same name in both jurisdictions, “so long as the letterhead listing of firm members indicates the jurisdictional limits of those not authorized in the jurisdiction where the office is located.”  See What’s In a Name: Things to consider before hanging that shingle.

Statutory requirements for PCs, LLCs, and LLPs

If you form a PC, LLC, or LLP, then the terms professional corporation, limited liability company, limited liability partnership or their respective abbreviations must appear as part of the firm’s name. ORS 67.625(1); ORS 58.115; ORS 63.094(1).

What about domain names?

Oregon does not have an ethics opinion specifically addressing the use of domain names.  Other jurisdictions do.  Arizona forbids domain names that imply a special competency or affiliation that is not factually true.  Ohio prohibits domain names that are misleading or claim a specialization.  New York and New Jersey are very particular in their rules.  California doesn’t have a straight-off statement on the subject, but has issued an opinion stating that the rules that apply to “communication” and “advertising” apply to websites.  Presumably this includes domain names.  Kentucky, North Carolina, South Carolina, Oklahoma Texas, and Virginia have also chimed in on this topic.

Oregon lawyers are advised “to be mindful of the overarching prohibition against misleading communications” when selecting a domain name.  That seems like pretty good advice to me.

All Rights Reserved Beverly Michaelis 2017