OTLA Trial Lawyer Winter 2021

32 Trial Lawyer • Winter 2021 By Blair Townsend OTLA Guardian Note: The author wishes to thank Scott Schnuck of AltusLaw LLC for his assistance with this article . W ell, you’ve done it! You survived law school, you have a few years’ experience under your belt, and the shingle is swinging outside your new law firm. But wait, no one taught you (my law school certainly didn’t) the “business” of being a lawyer — investment strate- gies, business plans, marketing and outreach and the selection of the type of business entity for your firm. Suddenly, fantasies of courtroom glory under your masthead is replaced with questions about a bunch of abbreviations. GP? PC? LLC? What do they even stand for? This article offers a very general introduction to the world of business entity selection. For more particularized advice for your firm, please consult a business attorney and your CPA or tax attorney in selecting the best business entity for you. Before starting your own practice (or advertising), you must choose the orga- nizational structure for your business. A myriad of business entities exist for at- torneys starting their own firm. The main types of entities are: (1) sole proprietor- ship, (2) general partnership (GP), (3) professional corporation (PC), (4) lim- ited liability partnership (LLP), and (5) limited liability company (LLC). There is no one-size-fits-all approach to choos- ing the right entity type for your busi- ness. One may be more suitable for your needs depending on factors like the number of owners, how profits/losses are shared, limitations on liabilities and the tax consequences you seek. LLCs and PCs are the most common entities cho- sen by law firms. GP, PC, LLC…ABC Bottomline — the entity you select should limit your personal liability as much as possible. A fall at your office’s water cooler should not result in creditors collecting a judgment on your personal assets, like your home. On that note, please do not become a sole proprietorship or a general partner- ship. If you do nothing when you form your law firm, your default entity will be one of these entities. The only effective Blair Townsend difference between the two is if you are practicing alone or with others. You do not have to register with the secretary of state but you receive none of the liability protections the other entity forms provide . Whi l e these two forms theoretically offer the greatest flexibility and fewest legal controls, the proprietors/ partners are personally liable for the debts of the business. The partners would be liable jointly and severally to creditors and claimants (with exceptions). In sum- mary, I do not recommend this type of entity. For instance, we had a medical malpractice case against a chiropractic practice and incredibly, it was set up as a sole proprietorship. Once they under- stood their economic exposure, they absconded out-of-state in a desperate attempt to avoid bankruptcy. See ORS Chapter 67. The necessity of a limited liability Limited liability entities protect you, the individual business owners. In an LLC, members’ liabilities for the debts and obligations of the LLC are limited to their own investment in the firm. For example, if your firm gets sued for non- professional negligence, your personal assets, like bank accounts and real estate, are protected. At most, you can only lose the money you put into the business and nothing else. However, this shield is not all-encom- passing. You must maintain fairly Selecting a Business Structure for Your Law Firm