#startupfirm Snap Shot: The Business Entity

By Gwynne Monahan

I learned the hard way about forming a business entity and registering a legal name, “Doing Business As,” or a DBA. This part is often breezed over in “how to start a business” books, often suggesting you speak to an accountant, check the IRS website or the Small Business Association website.

When my bank returned my first client check, since it was made out to my business and not to me, I called the bank, which clarified things. I had to register the legal name of my consulting company since it was different than my name. I checked both sites, and talked to a good friend of mine who is an accountant. He explained the options for forming a business entity, the pros and cons of each and pretty much cleared things up in less than 20 minutes. Establishing a sole proprietorship made the most sense, and I found myself shelling out fees to comply with state and county business registration rules. Needless to say, the fees caught me off guard, not to mention the “wait time” for “publication” in a local newspaper.

In short: the leg work and tedium up front is well worth avoiding the headaches later.

While I’m an advocate of researching and figuring things out on your own, I’ve realized there are times when it is more efficient to consult with an expert. And while I still encourage those of you thinking about starting your own firm to consult with an accountant, I also believe we can learn much from others, and avoid dumb mistakes.

So here are what some other solo and small firm lawyers, across the United States, have chosen as their business entities:

• Sole Proprietor (3)
• C-Corporation (1)
• S-Corporation (1)
• LLC (8)
• None (1)

Most opt for the LLC structure, citing its flexibility, cost-effective to setup, offers adequate liability protection and acts as a pass-through entity for Uncle Sam. Indeed, the IRS says as much:

LLCs are popular because, similar to a corporation, owners have limited personal liability for the debts and actions of the LLC. Other features of LLCs are more like a partnership, providing management flexibility and the benefit of pass-through taxation.

Figuring out, or deciding on a business entity or legal structure for your law firm is only step one. The SBA has this handy 5-Step Guide to Registering your Business, which helps you:

• Register your Business Name (DBA)
• Get your Federal Tax ID (EIN)
• Register with the appropriate state revenue agency
• Getting a Business License

It also has a handy list of links to the appropriate state agency with which to register your business.

3 Comments • Login or Sign Up to comment