To start a law firm, you form a professional entity that only licensed attorneys can own, register it with both your state’s business filing office and your state bar, and build the trust accounting, insurance, and conflict-checking systems that have to be running before you take your first client. The paperwork itself is cheap and fast. The obligations that attach the moment you open the door are what new firm owners underestimate.
Choose a Professional Entity
Law firms can’t organize as an ordinary LLC or corporation. Most states require legal practices to use a professional entity: a Professional Corporation (PC), a Professional Limited Liability Company (PLLC), or a Limited Liability Partnership (LLP). The options available depend on your jurisdiction, and some states only authorize one or two of these forms for lawyers.
All three share a restriction that general business entities don’t face. Every owner must be a licensed attorney. Under ABA Model Rule 5.4, a non-lawyer cannot own any interest in a law firm, serve as a corporate director or officer, or direct the professional judgment of a lawyer.1American Bar Association. Rule 5.4: Professional Independence of a Lawyer Fee-sharing with non-lawyers is prohibited, with narrow exceptions for retirement plans and buying a deceased lawyer’s practice. You cannot bring in a non-lawyer business partner or outside investor, even one who would never touch a client file.
The three structures differ in how they handle liability and taxes:
- A Professional Corporation shields shareholders from each other’s malpractice liability. It’s taxed as a C-corporation by default, with the option to elect S-corporation treatment.
- A Professional Limited Liability Company offers the same shield between members, with more flexibility in management and profit distribution. Default tax treatment is pass-through.
- A Limited Liability Partnership is common for multi-partner firms. Partners are generally not liable for another partner’s negligence or misconduct, and the firm is taxed as a partnership by default.
No entity structure protects you from your own malpractice. Each of these forms preserves personal liability for the attorney who committed the error. The shield only covers the other partners’ mistakes.
Decide How the Firm Will Be Taxed
Your entity type sets a default tax treatment, but you aren’t locked in. The election you make can save thousands of dollars a year or create unnecessary tax burden, so it deserves attention before you file anything.
A single-member PLLC is taxed like a sole proprietorship by default. Net income passes through to your personal return and gets hit with self-employment tax at 15.3% — 12.4% for Social Security on earnings up to $184,500 in 2026, plus 2.9% for Medicare on all earnings.2Social Security Administration. Contribution and Benefit Base A multi-member PLLC or LLP defaults to partnership taxation, with each partner’s share flowing through subject to the same self-employment tax.
Many law firm owners elect S-corporation status because it can reduce that 15.3% bite. With an S-corp election, you split income into two buckets: a reasonable salary subject to payroll taxes, and distributions of remaining profit not subject to self-employment tax. If your firm nets $200,000 and you pay yourself a reasonable salary of $120,000, you avoid the 15.3% tax on the $80,000 in distributions.3Internal Revenue Service. S Corporations
The IRS watches this closely. S-corp shareholders who perform services must receive reasonable compensation before taking distributions, and courts have consistently rejected attempts to minimize salary in favor of larger distributions.4Internal Revenue Service. S Corporation Employees, Shareholders and Corporate Officers Reasonable generally means what you would pay someone with your experience to do the same work. A solo practitioner billing $400 an hour who takes a $40,000 salary will attract scrutiny.
To elect S-corp status, file Form 2553 no later than two months and 15 days after the beginning of the tax year the election takes effect, or at any time during the preceding tax year.5Internal Revenue Service. Instructions for Form 2553 Miss that window and you wait until the following year. S-corporations file Form 1120-S annually, due March 15 for calendar-year filers.6Internal Revenue Service. Instructions for Form 1120-S
The S-corp election also triggers employer payroll obligations. You will need to withhold and remit Social Security, Medicare, and federal income tax on your salary and pay federal unemployment tax on the first $7,000 of each employee’s wages. Most employers qualify for a credit that drops the effective FUTA rate to 0.6%, roughly $42 per employee per year. If you’re solo with no staff, these obligations still apply to your own salary.
Get the Pre-Filing Pieces Together
Before you draft formation documents, you need four things in hand.
Registered Agent
Every business entity needs a registered agent, a person or service designated to receive lawsuits, tax notices, and official correspondence. The agent must maintain a physical street address (not a P.O. Box) in the state of formation and be available during normal business hours. You can serve as your own agent, but many attorneys use a professional service so legal papers don’t arrive at the front desk in front of clients. Third-party services typically cost between $35 and $350 per year.
Principal Office Address
Your formation documents require a physical address where the firm conducts business, and it goes into the public record. For firms operating virtually, most states still require a physical location, and a coworking suite, shared office space, or executive office lease will satisfy this. A residential address may work in some states, but check your jurisdiction’s rules for professional entities before using one.
Certificate of Good Standing
Most states require proof that the founding attorneys are actively licensed and in good standing before authorizing a professional entity. The certificate comes from the state bar or the court that oversees attorney admissions. The receiving office may require it to be dated within 30 to 60 days of your filing, so don’t get it too early. Without this document, the Secretary of State will reject your formation paperwork.
Employer Identification Number
Your firm needs a federal Employer Identification Number from the IRS. The nine-digit number is used for tax filings, opening business bank accounts, and hiring employees. The fastest route is the IRS online application, which is free and issues the number immediately.7Internal Revenue Service. Get an Employer Identification Number You’ll need the Social Security number or ITIN of the responsible party, typically the firm’s principal owner.8Internal Revenue Service. Instructions for Form SS-4 The application can’t be saved partway through and times out after 15 minutes of inactivity, so have your information ready before you start. If you can’t apply online, Form SS-4 is available for phone, fax, or mail submission.
Pick a Firm Name That Clears the Rules
Firm names are regulated more tightly than ordinary business names, but less restrictively than many lawyers assume. Under ABA Model Rule 7.5, a firm can use the names of current or former partners or a trade name, as long as the name isn’t misleading and doesn’t imply a connection with a government agency or legal aid organization.9American Bar Association. Rule 7.5: Firm Names and Letterheads “Westside Legal Group” would generally be fine. “City Public Defenders LLC” would not.
Individual states have their own versions of this rule, and some are stricter than the ABA model. A handful of jurisdictions still require at least one partner’s surname in the name or limit creative trade names. Check your state bar’s rules before settling, because discovering a conflict after you’ve printed letterhead and built a website is an expensive lesson.
Whatever words you choose, the name must include a designation identifying the entity type: “P.C.” for a professional corporation, “PLLC” for a professional limited liability company, “LLP” for a limited liability partnership. Dropping the designation or using the wrong one will get your filing rejected.
Before filing, confirm the name is available through your state’s business name database, usually searchable on the Secretary of State’s website. Verify it doesn’t conflict with any existing firm registered with your state bar.
Draft and File the Formation Documents
Articles of Incorporation or Organization
The core formation document is called Articles of Incorporation (for PCs) or Articles of Organization (for PLLCs). Most states provide templates through the Secretary of State’s website, but professional entities require customization. The key addition is a purpose clause restricting the firm’s activities to the practice of law. Professional entity statutes typically mandate that the entity provide only one type of professional service, so your purpose clause can’t leave the door open to unrelated activities.
The articles must list the names and addresses of all initial shareholders or members, the registered agent’s name and address, and the firm’s principal office. A mismatch between the registered agent name on your articles and the agent’s actual records is one of the most common reasons filings get bounced back.
Operating Agreement or Bylaws
If the articles are the firm’s birth certificate, the operating agreement (for a PLLC or LLP) or bylaws (for a PC) are its rulebook. These internal documents cover profit distribution, voting rights, decision-making authority, procedures for admitting new partners, and the process for a partner’s departure or the firm’s dissolution.
For any firm with more than one owner, include a deadlock resolution clause. When two equal partners can’t agree on a major decision, whether to take on a case, make a large expenditure, or hire laterally, the firm grinds to a halt without a predefined mechanism to break the tie. Common approaches include binding mediation, a buy-sell trigger (sometimes called a shotgun clause), or designating a trusted third party as a tiebreaker. Nobody negotiates a fair process in the middle of a fight.
Banks will ask to see the operating agreement or bylaws before opening a business account, and lenders will review them before extending credit. Even for solo practitioners, a basic agreement documenting how the firm operates is worth having.
Submitting to the State
Once documents are ready, submit them to your state’s Secretary of State or equivalent business filing office. Most states offer online portals that process applications within a few business days. Mailing paper copies is still an option but typically takes several weeks, longer if the office has a backlog.
Filing fees vary. Some states charge as little as $40 to $50 for basic formation; others charge several hundred. Expedited processing, where available, costs more. When the state approves your filing, you’ll receive a stamped or endorsed copy of your articles. Request a certified copy for a small additional charge — you’ll need it for bank account applications and bar registration.
Register the Firm With Your State Bar
State approval alone doesn’t authorize you to practice through your new entity. You must also register the firm with your state bar association, typically by submitting a law firm registration form, a copy of the certified articles, and proof of malpractice insurance (or a disclosure that you’ve opted out, where allowed). The bar reviews the entity to confirm it complies with professional conduct rules, including naming standards and ownership restrictions. Practicing through an unregistered entity can trigger disciplinary proceedings even though the entity is a perfectly valid business under state corporate law.
Open the Trust Account the Right Way
This is where more lawyers get into career-ending trouble than any other area of practice management. ABA Model Rule 1.15 requires that client funds be held in a separate account, completely apart from the firm’s operating money and your personal funds.10American Bar Association. Rule 1.15: Safekeeping Property Fees paid in advance must be deposited into this trust account and can only be moved to your operating account as they’re earned. The only firm money that may touch the trust account is a small deposit to cover bank service charges.
In practice, this means setting up an Interest on Lawyers’ Trust Account (IOLTA) at a bank that participates in your state’s IOLTA program. The bank must report any overdrafts directly to the state bar, and the interest earned on the account goes to a designated foundation that funds legal aid for low-income clients, not to you or your firm.11American Bar Association. A Guide to Ensuring IOLTA Account Compliance Most state bars require the account to be titled as a Trust Account, with checks labeled the same way.
Mixing client funds with your own, even temporarily, even by accident, is called commingling, and it’s one of the most common reasons attorneys face discipline. Consequences range from reprimand to suspension to disbarment, depending on severity and whether client funds were actually misappropriated. If commingling leads to missing client money, criminal embezzlement charges become a possibility. Set up accounting systems to prevent this from day one: separate bank accounts, separate bookkeeping entries, and regular three-way reconciliation of your trust ledger, client ledgers, and bank statement.
Build a Conflict-Checking System
Before you take on a single client, you need a system for detecting conflicts of interest. Under ABA Model Rule 1.10, when one attorney in a firm has a conflict, every attorney in that firm is generally treated as having the same conflict.12American Bar Association. Rule 1.10: Imputation of Conflicts of Interest: General Rule For a solo practitioner the imputation issue is simpler, but you still need to screen every prospective engagement against your existing and former clients.
At minimum, maintain a searchable database recording client names, adverse party names, and a brief description of each matter. Before accepting any new engagement, search that database and evaluate whether the new matter creates a conflict. A well-organized spreadsheet can work for a solo practice; a growing firm will outgrow that quickly. What matters is that the records are complete and quickly searchable.
When a conflict does exist, screening may cure the problem in limited circumstances. Under Rule 1.10, if the conflict arises from a lawyer’s prior firm association rather than the current matter, the conflicted attorney can be timely screened from the matter, receive no fee from it, and the firm must notify the affected former client in writing with details about the screening procedures.12American Bar Association. Rule 1.10: Imputation of Conflicts of Interest: General Rule This matters most when you hire a lateral attorney from another firm. Their prior client relationships follow them, and you need a screening protocol ready before they start.
Buy the Insurance You Actually Need
Professional Liability (Malpractice) Insurance
Very few states actually mandate that lawyers carry malpractice insurance. Most jurisdictions instead require you to disclose to clients whether you have coverage, leaving the purchase decision up to you. Going without is a gamble most solo and small-firm lawyers can’t afford. A single claim can exceed your personal assets many times over, and clients are increasingly savvy about checking whether their attorney is insured.
Coverage amounts vary. Policies typically start at $100,000 per claim for solo practitioners and scale into the millions for larger firms. Get quotes from multiple carriers and pay attention to tail coverage, the provision that extends protection for claims filed after your policy ends but arising from work you did while covered. If you change carriers or close your practice, tail coverage is what keeps old matters from blowing up unprotected.
Cyber Liability Insurance
Law firms handle sensitive client data, including financial records, medical information, and personally identifiable details, which makes them attractive targets for breaches. ABA Model Rule 1.6(c) requires lawyers to make reasonable efforts to prevent unauthorized access to client information.13American Bar Association. Rule 1.6: Confidentiality of Information No jurisdiction explicitly mandates cyber insurance by name, but the duty to safeguard client data is well established, and carrying a policy is one of the clearest ways to show you’re meeting that obligation.
A cyber liability policy covers breach notification costs, forensic investigation, credit monitoring for affected individuals, and legal defense if clients sue over exposed data. For a small firm, premiums are modest compared to the cost of responding to a breach out of pocket.
Keep the Entity Alive
Formation is a one-time event. Compliance is ongoing, and letting it lapse creates problems that range from annoying to catastrophic.
Nearly every state requires business entities to file an annual or biennial report updating basic information: registered agent, principal office address, names of current owners or officers. Fees are generally lower than the initial filing cost. Miss the deadline and you’ll face late penalties and eventually administrative dissolution, where the state revokes your entity’s authority to do business. An administratively dissolved firm loses the power to file lawsuits, enter into contracts, or complete any transaction that requires proof of valid corporate existence.
For a law firm, administrative dissolution is especially dangerous. If your entity is dissolved and you continue practicing under that name, you’re operating without the liability protections the entity was supposed to provide. Your state bar may also view continued practice through a dissolved entity as an unauthorized practice issue. Reinstatement is usually possible by filing the overdue reports and paying accumulated penalties, but any business you conducted during the gap happened without the entity’s protections in place.
Beyond annual reports, keep your bar registration current, maintain any required malpractice insurance disclosures, and update your registered agent information if the agent changes. Set calendar reminders for every recurring deadline. The formation work is the exciting part. The compliance work is what keeps the firm alive.