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Starting Up or Starting Over Hanging Your Own Shingle

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Presentation on theme: "Starting Up or Starting Over Hanging Your Own Shingle"— Presentation transcript:

1 Starting Up or Starting Over Hanging Your Own Shingle
Presented by: Christopher Anderson Johnathan Stone Richard Vanderslice

2 Introduction to Panel Christopher Anderson Started out as assistant district attorney in NYC and Athens, GA before working his way from associate to managing partner of an eight-attorney firm in GA. Johnathan Stone Recent graduate who decided to start out as a solo practitioner at the Law Office of J.D. Stone, PLLC in Austin, TX. Richard Vanderslice Previously a large law attorney, left and partnered with another attorney, and later broke off to be the managing partner of Richard L. Vanderslice PC in Philadelphia, PA.

3 Items of discussion Selecting an area of practice
Law firm formation– sole proprietor, professional corporation, limited liability company, limited liability partnership (should you consult a CPA to understand tax and reporting issues?) Developing a start-up budget and plan Identifying and knowing your competency when it comes to running a business like project management, marketing, and getting and staying organized Lease Office space or go Virtual When does it make sense to hire an assistant vs. outsource Investing in a web site and technology – DIY, outsource, self-hosted or hosted, hardware, software Office equipment, services and supplies Insurance protection The items you didn’t learn in law school Other resources to leverage

4 Selecting An Area of Practice
Considerations you should take when selecting an area of practice: Prior experience Formal education Market need Accessibility to get up to speed through CLE, courses, certifications

5 Law Firm Formation ? Sole Proprietor ? Limited Liability Company
? Limited Liability Partnership ? Professional Corporation There are Pros and Cons for each formation type. What questions should you ask yourself before choosing? Johnathan Stone: Sole Proprietorship A sole proprietorship has a single owner and is not incorporated. There can be an unlimited number of employees; but, only one owner. The owner is personally liable for all the debts of the law firm. This is general not the best solution for attorneys because they are personally liable for the debts and liabilities of their practice. LP and LLP A partnership is an association of two or more persons to carry on a business for profit. There are no required formalities or filings. A general partnership can be formed through an oral agreement. Sharing in profits is prima facie evidence that a partnership exists. A partnership can be formed without deciding on how to divide profits. Absent an agreement to the contrary, each partner is entitled to an equal vote. A partnership can be formed accidentally because of an oral or written agreement. A Limited Partnership (LP) is created by filing a certificate of formation with the secretary of state. An LP has two distinct groups of owners, general partners and limited partners. The limited partners are not personally liable for the liabilities of the partnership. The general partners are personally liable. The limited partners do not have control of the partnership (i.e. passive investors). A Limited liability Limited Partnership (LLP) is created from a pre-existing partnership or limited partnership. An LLP is formed by registering with the Secretary of State. An LLP provides personal liability protection to the general partners. The advantages of an LLP are personal liability protection for the partners. The partners are still liable for their own malpractice. Considerations: There are default rules that govern a partnership. These rules can be modified by agreement. The partnership should consider what share each partner will have in the decision-making of the partnership. The default rule is that each partner is entitled to an equal share. Each partner is entitled to an equal share of the profits and losses of the partnership, absent agreement. Absent agreement, each member of the partnership has the agency to create binding contracts on the partnership. Conflicts will arise during the course of a partnership. The partners need to determine how decisions will be made when conflict arises, particularly if the partners are evenly divided on the resolution. A third-party tie-breaker is one possible solution. Each partner must be repaid his loans and capital contributions, plus that partner’s share of the profits or minus that partner’s share of the losses. Under the UPA dissolution occurs upon the death or withdrawal of any partner. Under RUPA, a partner’s death or withdrawal causes disassociation, which leads to dissolution unless the partner is bought out. The partnership should consider the impact and process of expulsion of a member. Partners can usually seek a court order to expel a partner or dissolve the partnership and form a new one without the mischievous partner. LLC A professional limited liability company is formed by filing articles of organization. The owners of the LLC are called members. Members are not personally liable for the liabilities of the LLC. An LLC has pass through taxation like a partnership. It is not taxed on an entity level like a corporation. The LLC has standing to sue as a fictitious person. There are member-managed LLC’s where all the members share in the management of the entity and manager-managed LLC’s specific managers are designated to manage the LLCS. Member-managed LLC’s look like a partnership. Manager-managed LLC’s look like a corporation. Profits and losses are split based on contribution or split equally, depending on the state and absent agreement. Ownership can be transferred, but only interest in profits and losses and not management, absent agreement. In a manager-managed LLC, only the managers have agency to bind the LLC to contracts. If you plan on giving owners a lot of fringe benefits you would get better tax treatment as a corporation (no self-employment tax). It can be harder to raised money as an LLC because the members are not personally liable for the liabilities of the business. If you want to pay employees using stock options a corporation might be easier. Additional Considerations: Don’t forget to apply for a Federal Employer Identification Number from the IRS. You can usually complete all the necessary paperwork to start your business entity through your Secretary of State’s website. Remember that you still need to register as a Sole Proprietorship. The self-employment tax is 15.3% for income under $110,100; however, the Tax Relief Act has lowered it to 13.3% for 2010 and 2011. Richard Vanderslice: Consult your tax professional Partnership or LLC, partners generally liable for all of the partnership Corporation – professional corporation (Association) Corporate profession; s- corporation available (may also be available for LLC) Sole Proprietorship – easy start and tax but liability is an issue All types – check with matrimonial attorney re: how treated in a divorce Know when to engage with an expert like an Accountant to understand tax and other implications

6 Developing a Start Up Budget and Plan
By failing to prepare, you are preparing to fail. (Benjamin Franklin) For every minute spent in organizing, an hour is earned (Unknown Source) The general who wins the battle makes many calculations in his temple before the battle is fought. The general who loses makes but few calculations beforehand. (Sun Tzu) Developing a Start Up Budget and Plan A budget can be a difficult thing when you’ve never started a business before. There are some great resources out there to give you an idea of what it costs to get started. Referral networks usually take a percentage of the cases they refer to you. Think about hiring a web designer and accountant. Christopher Anderson: This is a good segué from talking about the “corporate structure” of your firm. That set the stage for acknowledging the truth … that for all the high goals that we may have in practicing law, and for all the ways this is a noble profession, with great capacity for good … a law firm must also be a business. You must pay rent, utilities, bar dues, CLE, staff, copier paper, malpractice insurance. You must achieve a source of income, typically fee revenue to do this. If you are hanging your shingle, the business world has a defined word for you. “Start up.” They also have an uncomfortable truth attached to that word. Most fail. Many of those failures are anticipated in the quotes above. Using Business Plan templates available Local bars BusinessPlanPro (Palo Alto), etc. Marketing Plan is also key!

7 Getting Organized and Staying that way
Self Analysis - SWOT Understand your strengths, weaknesses, opportunities and threats when it comes to running a business Marketing Project Management Getting Organized and Staying that way

8 Lease Office Space or Virtual Law Office
Contractual obligation Client meeting space Furnishings Shared services (e.g. administrative and janitorial) Parking Location Equipment covered under separate topic Formal office space Client phone calls and consultations i.e. in-person client meetings P.O. Box or Physical Address for clients Depreciate office or not Turning off the office Johnathan Stone: Lease Office Space or Virtual Office I personally use a virtual office. I’m downtown with a great view. It is convenient for clients and I am next to the courthouse. I couldn’t afford to rent out an office in the same location. Parking isn’t really an issue because I can use the meters. I have a reception that answers my calls and sorts my mail. I also have access to fax machines and all the normal office amenities, at an additional cost per use. The downside is that it is harder to turn work off. Richard Vanderslice: Virtual office great for start up with cash flow issue Offers mailing address Conference room May not be available in Lease Benefit of having designated space, more permanent address Check with established attorneys in regarding sharing space and or services Look for synergy with your practice, i.e. no overlap but possible referral attorney

9 Hiring vs. Outsourcing Staff
When does it make sense to hire an employee vs. outsourcing the resource through a temporary agency or business? Is there a threshold, calculation or methodology you should use to figure this out? Other considerations and risks: A contractor who might be classified as an employee, know your state laws and regulations Do back ground checks and get references Hiring vs. Outsourcing Be careful when hiring an independent contractor. You may create an employee relationship without realizing it, even if your contract states they are an independent contractor. The IRS has a 20 factor test that is commonly used by the States when determining whether an individual is an independent contractor or employee. More information can be downloaded at Christopher Anderson: The answer is, as fast as humanly possible. Your business plan, and risk tolerance, and ability to borrow, will dictate when you can. There are a hierarchy of tasks in operating a law practice: Marketing/Client Development Client Relationships Strategic Planning Strategic Management High level legal skills Middle level legal skills Client service Technical legal skills Systems documentation Office Management Mail and Attorney Desk and Office Organization Telephone answering Supplies Clerical Bookkeeping Your goal is to stop doing the stuff on the bottom, so you can do more of the stuff on the top. That is what makes money. More money than you will spend to get the lower stuff done.

10 Web site and other technology
DIY = do it yourself or BILL = brother in law labor Web site creation: Reputable company who has references and expertise in the area of marketing, not just building a web site; importance of ranking and search ability Other technology: Hardware – computer: Mac vs. PC; stationary vs. laptop; other mobile devices, i.e. iPads, tablets, phones; hosted vs. on-premise Software – types – project management, billing, accounting; hosted vs. on-premise; word processing; etc. Website and other technology: You will need practice management software and accounting software. Quicken and Quickbooks are commonly used for accounting. Lexis Nexis Firm Manager is one of the best practice management programs available. When seeking a web designer, try to get a bundled package where he can brand your company and create a logo.

11 Equipment, Services and Supplies
Tips and Tricks Copiers Scanners Printers All-in-one Courier and process services Office supplies Office equipment – lease Services – outsource dictation – keep track of these expenses and bill the client for this; make sure its in your fee agreement.

12 Insurance Protection Sources for finding more information about:
Insurance for health, life and disability Professional liability insurance Other - Bonding employees / D&O insurance Insurance Protection This should be a mandatory purchase when starting a law firm. You should not accept cases without malpractice insurance. You can usually contact your State Bar to find out what insurance programs are available. An attorney practice less than 3 years in Texas can usually get a $300k plan for around $600 a year. Make sure you include arbitration clauses in your contracts with employees and clients to resolve disputes. Christopher Anderson: Insurance is about protecting your business, your license, and yourself, against events, both forseeable, and not, avoidable, and not, which could otherwise jeopardize you professionally, financially, emotionally, and physically.

13 Develop an Exit Strategy
Be prepared for closing your business! Many reasons: You get an offer to work somewhere else Your firm was not profitable and you were not able to make ends meet You run into health problems Etc. etc. Developing an Exit Strategy Planning an exit strategy when starting a new business is as important as developing a start-up budget. It is essential. There are great checklists and resources out there from bar associations to assist in exiting a firm. When organizing a business entity it is important to consider the consequences of a partner or member leaving. Lawyers have a number of ethical considerations when closing a law practice. They need to give opposing parties, clients, bar associations, and courts reasonable notice. They need to destroy documents and advertising that would give the appearance they are still doing business. Settling accounts needs to be contemplated, particularly interrupted flat fee agreements. Consider forming an assumption attorney relationship with another attorney to take over your cases. Consider purchasing tail malpractice insurance for your previous cases. How will you store and safeguard client files? Change the voic message and website page to give notice that the attorney is no longer at the business.

14 What You Didn’t Learn In Law School
The importance of continuing legal education courses and webinars. Accounting and business management Dealing with difficult clients What you didn’t learn in law school The importance of continuing legal education courses and webinars. Accounting and business management Dealing with difficult clients

15 Additional Resources [list resources you know of – could include local bar association; solosez; ABA solo small firm division; your practice management advisor; web sites you’ve found etc.] Other resources to leverage: Google Business Places Networking websites and Linkedin Merchant circle one

16 Questions and Contacting Us
Use the Go to meeting window pane to type in your questions for the panelist(s) To contact panelists directly, them at: Christopher Anderson Johnathan Stone Richard Vanderslice To learn more about LexisNexis Firm Manager™ visit us at:

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