Can a Lawyer Be a Sole Proprietorship?
Lawyers can start their businesses as sole proprietorships, the most common business structure in the United States. The process of setting up sole proprietorships is very easy; in fact, lawyers who are already working on their own are sold proprietors. It is inexpensive to start sole proprietorships, but owners are not provided legal protection if they’re, ironically, sued in court.
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Setting Up
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Lawyers are considered sole proprietors when they decide to go into business for themselves. However, they have to file some paperwork with their state and local governments. First, if their business names are different than their legal names, they have to file it with their county clerks’ offices and pay the filing fees. Lawyers may also need to obtain building permits or business licenses and meet local zoning requirements if they want to run their practices out of home or commercial offices.
Benefits
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Besides the ease and inexpensiveness of setting up sole proprietorships, lawyers also benefit from the structure. There are no government regulations to meet or annual meetings to schedule like corporations. As sole owners of their companies, lawyers have total control over business operations and are able to change practice hours, fee schedules and hire employees without consulting partners or members as if they were in partnerships or limited liability companies, LLCs.
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Taxation
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As sole proprietors, lawyers file their taxes through a process called pass-through taxation. This means all profits and losses are included in their incomes and reported on their individual tax returns. They use form Schedule C on 1040 tax forms to report their business profits and losses. Besides paying income taxes at the local, state and federal levels, lawyers would also pay self-employment taxes, which covers Medicare and Social Security. The Internal Revenue Service, IRS, encourages sole proprietors to make quarterly tax payments if they expect to make profits.
Considerations
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The major downside for lawyers to operate their businesses as sole proprietorships is they’re not afforded limited liability protections. This protection, afforded to owners of LLCs and corporations, limits the personal responsibility of owners of company actions. Without limited liability protections, lawyers could lose their personal assets such as their homes and cars if they have to pay damages awarded in lawsuits. However, lawyers can purchase malpractice insurance to protect their personal assets from being seized to pay award amounts.
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References
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