Tips and resources for how to start a solo law practice.
So, you’re an attorney and have decided to branch out and start your own law firm. Congratulations! The decision to start a solo law practice is a big deal, and can potentially lead to a very fulfilling and successful career. Whether you are leaving a firm job, or are fresh out of law school, running your own business may present new challenges that you have not had to deal with before. But with a little guidance and some proper planning, you can hit the ground running, and start building a successful practice.
This article is intended as a general overview and quick reference guide for how to start a solo practice law firm in California. The information here is not meant to be comprehensive, and you should also consult other sources when starting your practice. With that in mind, the following are a few initial key issues that you should consider:
- Entity Type
- Business Name
- Liability Insurance
- Business License
- Bank Account
- Phone Number
In starting a solo practice law firm, the first issue that you should consider is what type of entity you will form. In California, a solo attorney basically has 2 options for forming a legal practice. They can either operate as:
- Sole Proprietorship, or
- Professional Corporation.
It should be noted that many other states also allow professionals to form their business as a Professional LLC (or “PLLC”). However, that type of entity cannot be formed in California.
The benefit of a sole proprietorship is that it doesn’t have to be registered with the state, has pass through taxation, and is less expensive to maintain. However, the drawback is that it does not provide any limited liability for your personal assets. This means that if you are sued in connection with your legal practice, your personal assets may be at risk. This exposure can be lessened by insurance coverage, as discussed below.
A Professional Corporation (or “PC”) is a corporate entity for professional services such as attorneys, doctors, accountants, engineers, etc. The benefit of a PC is that it provides limited liability for the owner’s personal assets, and thus more protection than a sole prop. The drawback is that there are more guidelines in maintaining a corporate entity, including meetings, minutes, issuance of shares, and keeping separate finances, bank accounts and tax returns. In addition, the Franchise Tax Board assesses an $800 fee per year for maintaining a corporation.
Further, there is major catch that has a substantial affect on attorneys. The limited liability provided by Professional Corporations in California does NOT cover professional malpractice. Therefore, even if with a PC, an attorney is still personally liable for malpractice. The limited liability of a PC is mainly helpful for other forms of liability, including trip & falls at the office, or other forms of injury incurred aside from malpractice.
Which Is Right For You?
With either a Sole Proprietorship or Professional Corporation, an attorney should have Malpractice Insurance to protect from a malpractice lawsuit. If you are still working out of your home office, need to keep expenses at a minimum, and do not have substantial assets, then you may consider a Sole Proprietorship. However, if you have substantial personal assets you need to protect, work out of an office that clients regularly visit, and can absorb the extra cost and maintenance efforts, then you may want to consider a Professional Corporation.
Now that you have selected your business entity, its time to choose a name. Though this process can be fun and creative, it is not always as easy as it seems.
If you have formed a Professional Corporation, your business name should be something that is applicable to the profession, and that is not misleading, or substantially similar to an already existing business.
Keep in mind that under California law, a Professional Corporation name must also include an ending designation such as PC, APC, or A Professional Corporation. (ie. Smith Law PC, Smith Law APC, or Smith Law a Professional Corporation).
Legal Tip: The naming of a Professional Corporation is governed in part by California Corporations Code section 13409.
Sole Proprietorship & Fictitious Business Name
If you operate as a Sole Proprietorship, you can avoid all business filing requirements if the name of your business, (1) includes at least your last name, and (2) portrays the nature of your business (ex. John Smith Law, Smith Law, Smith Legal, or The Law Offices of John Smith.)
However, if a Sole Proprietorship is operated under a name that does not include the owner’s last name or portray the nature of the business, the owner must file a Fictitious Business Name Statement (aka “DBA”) in the county of the firm’s principal place of business. A Fictitious Business Name is also required if the name suggests the existence of additional owners (ex. Smith Company, Smith & Sons, Smith & Associates).
Legal Tip: The filing of a Fictitious Business Name is governed by the California Business & Professions Code section 17900.
Name Cannot be Too Similar to an Existing Business
Once you determine what you can legally name your business, the next step is to determine what name is actually available. If your name is John Smith you might technically be able to name your firm Smith Law under California law, but due to the popular nature of the name, there is likely already a person or company doing business as Smith Law.
If you attempt to register a name that is too similar to an existing one, the Secretary of State will likely reject the application. If you operate under a name that is too similar to an existing one, even of that business did not register its name, you potentially open yourself up to the risk of trademark or trade name infringement.
When in doubt, you should try to select a name that is appropriate, available and unique. This phase of the naming process can require a little trial and error, and a lot of patience, since your first choice may not be available. In order to select an available name, the following are several advisable steps to take:
- Search the database of California business entities registered with the Secretary of State
- Search the database of Fictitious Business Names registered with the Secretary of State
- Check the USPTO for registered trademarks
- Perform a regular online searching using your favorite search engine
- Check whether the domain name is available
If your name clears each of these, you are probably safe to move forward with your name. But if you find any conflicts, you should assess how much risk you are willing to take on, and possibly consider choosing a different name. But in the end, remember it’s just a name! Pick something that will work, and move on to the more fundamental aspects of your practice.
Professional Liability Insurance
One of the most important aspects of starting a solo practice law firm is securing a professional liability (aka legal malpractice) insurance policy. There are many insurance providers to choose from, and offer different rates and features.
The American Bar Association has a database of carriers categorized by state. Click here for a list of malpractice insurance carriers in California.
Some carriers such as Lawyer’s Mutual, offer relatively inexpensive insurance packages for new attorneys. This allows new attorneys with a solo practice to have proper insurance coverage, while keeping overhead low.
It’s important to have insurance coverage before you actually start conducting business. If you meet with a client, start performing work, and then get insurance, you may not be covered. Even if you have not yet solidified your business entity or name, you should have insurance in place if you plan on meeting with clients or conducting business.
Business Licenses & Permits
Many cities in California require business operating within their jurisdiction to obtain some form of a basic business license. This requirement basically allows the local governing agencies to have a record on file for the individuals and companies doing business within their borders. The tricky part is that each city (or county) may have its own rules regarding local businesses, may have different names for their licenses. Some cities may require a business license, others may require a business permit, or a business tax certificate. Some may not require any filings at all.
For example, all business operating in the city of San Diego are required to file a Business Tax Certificate, within 15 days after they have started doing business.
Depending on where exactly you do business, you may need to file business permits in several different cities or counties. For example, if an attorney primarily does business in San Diego, but regularly meets with clients in the neighboring city of Del Mar, they may be required to file for a Del Mar business license as well.
This list is not intended to be comprehensive. Continuing with San Diego as an example, additional licenses may also be required for areas like Coronado, Carlsbad, Encinitas, El Cajon, etc. If you are doing business in California, you should determine all cities and areas that you will be conducting business, and obtain all necessary permits and licenses for those areas.
Bank Account & Trust Account
As a solo practitioner you will likely be receiving money on your clients’ behalf, whether from your clients directly, or from other third parties in connection with a legal matter. Under California law, any money received or held on behalf of your client must be held in trust, separate and apart from the business’s finances.
A common banking structure is to maintain a trust account (to receive and hold all client related funds), and an operating account (for the firm’s finances). Once the trust funds have been earned through legal work, or otherwise become payable to your firm, the attorney may then transfer the funds from the trust to the operating account, and the funds then belong to the firm.
There are many banking institutions throughout California that offer trust and operating accounts. Trust accounts (aka IOLTA accounts) are typically free, with no cost to maintain. However, operating accounts will typically have a minimum balance requirement, and if that minimum is not met, the bank will typically charge a monthly maintenance fee. The minimum balance amount varies depending on the bank, but typically ranges from $1,000 to $3,000. And the monthly service charges also vary, but can range from $5 to $30 per month. Some banks will also waive the monthly service fee for a few months while you get up and running.
Some banks, such as the San Diego based Torrey Pines Bank, specifically market to lawyers, and provide a host of services specifically for lawyers. But larger banking companies, though they have more established services, typically have less flexibility in those services, and provide less personal banking experience. Whereas smaller local banks are more eager to establish a banking relationship, and probably more willing to tailor their services, and provide a more personal banking experience. In addition, some banks have more locations than others, but some offer free mobile banking where you can deposit checks simply by taking a photo of them.
The final decision will depending on (a) what specific services are important to you, (b) how much of a minimum balance you can comfortably maintain, (c) whether you value traditional or more personal service, and (d) where you are most comfortable.
Traditional v. Virtual Office
Traditionally, attorneys have operated their practice from a business office. This is very convenient for having a dedicated space to perform work, meet with clients, and otherwise operate your business. It is also potentially the largest source of overhead costs incurred by a firm. Traditional office spaces are quite plentiful, can be found in most areas of the city, and can offer a various combination of features depending on your requirements. Offices for a solo practitioner can range on the low end around $500 per month, upwards of $2,000+ per month. If you can absorb that range of cost, then start researching and contacting offices in your area to find a location that suits your needs.
For attorneys who either, do not prefer the traditional office environment, or prefer less overhead costs, more and more attorneys are opting for the new age “virtual office” environment. There are several companies in California, such as Regis, Premier, and Barrister Suites, that offer a range of virtual office services. Virtual office services include:
- Business mailing address
- Phone answering service
- Conference rooms
- Shared or part-time office space
- Full time office space
Such services come in a variety of combinations, at varying costs. But most executive suit companies will allow an attorney to upgrade their services as their legal practice grows. This is a great option for attorneys to start small, and grow safely.
With a virtual office practice, a solo practitioner can utilize all the benefits of operating a business, while minimizing costs. This allows an attorney to operate their practice remotely, either on-the-go, throughout difference counties, from a home office or other convenient location. Another large benefit of this practice is that it can greatly benefit an attorney’s clients. Reduced overhead costs means that an attorney can lower some of the costs of their services, and still run a successful business.
Whether a traditional or virtual office, the final decision will depend on each attorney’s preferences, requirements and financial strategies.
A legal practice is a highly technical, and detail oriented business. There are numerous factors that should be tracked and organized during day-to-day operations. Law firms, like most business should keep track of all open cases or projects, task lists, and deliverables. Attorneys must keep detailed records of their billable hours, and must also maintain accurate calendars for meetings, hearings, civil procedure deadlines, and other case related dates. In addition, a firm must keep records regarding its finances, client trust accounts, costs and expenses, accounts receivable, invoices, and more.
Even a smaller solo practice may have difficulty maintaining all of these details manually through Word docs or Excel spreadsheets. There are many companies and services that provide automation for some or all of these tasks.
Services like Clio or MyCase provide a broad range of case management services, and can be a great way to automate most of your calendars, tasks time tracking, invoicing. QuickBooks is a very well known and still widely used method of managing your finances. There are also numerous low cost apps available that are helpful for time tracking and invoicing, though most do not have the power and capabilities of other full case management software.
Choosing software that works for your practice, may require some experimenting. Different attorneys have different preferences for doing business, and a law firm’s software should work in a way that makes an attorney’s job more efficient and cost effective.
Phone & Fax Numbers
Business phone numbers and fax numbers can be obtained through most phone service providers. Google offers a phone service called Google Voice, where you can obtain a phone number and voice messaging system for free. Companies such as Ring Central and MaxEmail allow you to send or receive faxes online, without the need of a physical fax machine.
Clients & Cases
All of the points discussed above are important when thinking of how to start a solo practice law firm in California. But the most important thing by far, is developing a base of clients and cases. Without clients or cases, a legal practice has no purpose.
Practices for developing a stable and productive client base, is an entire industry in itself. Unfortunately this simple article is not intended to describe in detail the various types of networking, business development, or marketing strategies to build up a legal practice. If it were that easy, articles like this would be pointless. So get out there, build your practice and reputation, and put due time and focus in finding people that you can help.