A law firm can set up its organization in a variety of ways. Some of the most common choices include sole proprietorships, professional corporations, general partnerships, limited liability companies and limited liability partnerships. The choice depends on the laws and taxation rates of the state where the law firm is being formed.
Sole proprietorships do not require formal registration. They're often used by lawyers engaging in solo practice. Professional corporations are an entity separate from the individuals in the law firm, which shields the members from liability. Professional corporations differ from partnerships and LLCs because they are taxed like a corporation. In a general partnership, the partners share equally in the firm's profits and losses. In a limited liability partnership, only some or all of the partners do that. Limited liability companies aren't available in every state, but they provide the protection of a corporation with the tax structure of a sole proprietorship.