Incorporating Law Firms: Dc's Unique Requirements

Law firms in the US capital have incorporated non-legal experts as co-owners, taking advantage of a unique District of Columbia Bar rule change. This has spurred interest as other states consider similar changes. When it comes to incorporating a business in Washington, D.C., there are several options to choose from, including for-profit and nonprofit corporations, limited liability companies, limited partnerships, and more. The District of Columbia also allows professionals such as lawyers, accountants, and doctors to register as a Professional LLC (PLLC). This provides limited liability protection similar to that of professional corporations.

Characteristics of Law Firm Incorporation in DC

Benefits of incorporating a law firm in DC

Incorporating a law firm in Washington, DC offers several benefits. Firstly, DC is home to one of the strongest economies in the nation, with a positive business climate and over $3.36 billion in capital investment forecasted over the years. It is a thriving marketplace for invention and innovation and is the headquarters for giants like Lockheed Martin, General Dynamics, The Advisory Board, Blackboard, CoStar, Hilton Worldwide, Fannie Mae, and the World Bank. This makes DC an attractive location for businesses looking to benefit from the district's strong economic outlook and favourable business environment.

Another advantage of incorporating a law firm in DC is the ability to incorporate non-legal experts as co-owners. A unique District of Columbia Bar rule modification allows law firms to capitalise on the expertise of non-legal professionals, such as PR specialists, as co-owners. This provides law firms with access to diverse skill sets and perspectives, enhancing their overall operations and competitiveness.

In addition, DC offers various business incentives and programs that newly incorporated companies can benefit from. These include the Anacostia Economic Development Corporation (AEDC) Program, which facilitates storefront facade improvement projects in low- to moderate-income areas, providing grant assistance of up to 75% of the project cost. The Community Development Financial Institutions (CDFI) Fund is another initiative that has awarded $2.3 billion to small and emerging businesses. DC also offers a Tech Incentive Program with benefits such as a reduced corporate franchise tax rate, lowered costs of hiring and training, and reduced capital gains tax rates.

Furthermore, incorporating as a law firm in DC provides protection for the personal assets of the firm's owners. If the corporation faces legal issues or financial difficulties, the shareholders' personal assets, such as homes, cars, and personal bank accounts, are shielded from the corporation's creditors. This limited liability structure ensures that shareholders only risk their investment in the business, providing a layer of protection for their personal wealth.

Lastly, incorporating as a law firm in DC offers flexibility in the business structure. Law firms can choose from various entity types, including Limited Liability Partnerships (LLPs), Limited Liability Companies (LLCs), C and S Corporations, Nonprofit Corporations, Professional Corporations, and General Partnerships, each with its own advantages in terms of taxation, paperwork, and liability protection.

Rules and regulations for law firms in DC

The District of Columbia has specific rules and regulations for law firms and lawyers practising within DC. These regulations are set out by the DC Bar, which outlines the requirements for professional conduct and independence.

One notable regulation is the rule regarding the involvement of non-lawyers in law firms. The DC Bar rules permit lawyers to practice in partnership with, or under the employment of, non-lawyers. This includes situations where non-legal professionals hold financial interests or managerial authority in the firm. This rule is designed to allow lawyers to collaborate with other professionals, such as economists, psychologists, and accountants, to better serve their clients. However, there are conditions that must be met for this arrangement to be permissible. These include that the non-legal partner must abide by the Rules of Professional Conduct, and that the primary purpose of the partnership must be to provide legal services to clients.

In addition, the DC Bar rules do not permit external entities or individuals to acquire ownership or a financial interest in a law firm for investment purposes. This means that corporations, investment firms, or individuals cannot claim entitlement to the profits of a law firm unless they are directly providing professional services within the firm.

Law firms in DC must also adhere to regulations regarding the registration of their business structure. The District of Columbia requires all businesses, including law firms, to register with the Superintendent of Corporations of the Corporations Division of the Department of Consumer and Regulatory Affairs. This is a crucial step to limit personal liability for the lawyers involved in the firm.

Furthermore, there are rules in place regarding competition and client representation. For example, a restriction that prohibits a lawyer from agreeing not to represent other persons in connection with settling a claim on behalf of a client.

How to incorporate a law firm in DC

To incorporate a law firm in Washington, D.C., you must register with the Superintendent of Corporations of the Corporations Division of the Department of Consumer and Regulatory Affairs. This is a necessary step to operate in the District of Columbia as a for-profit or non-profit corporation.

Choosing a Corporate Structure

The District of Columbia offers several business structures, including a corporation, limited liability company, limited partnership, limited liability partnership, general cooperative association, limited cooperative association, and statutory trust. Each structure has different tax implications, so it is essential to consider these carefully. Professionals such as lawyers, accountants, and doctors should register as a Professional LLC (PLLC).

Articles of Incorporation

To form a corporation, you must file articles of incorporation with the Department of Consumer and Regulatory Affairs and pay a filing fee. The corporation's existence begins when these articles are filed. The articles of incorporation must include the following:

• The corporation's name
• The number of shares the corporation is authorized to issue, including any different classes or series of shares and the rights associated with each
• The street address of the corporation's registered office in the District of Columbia
• The name and address of the corporation's registered agent in the District of Columbia, who must be either a commercial registered agent, a non-commercial registered agent, or a member of the District of Columbia Bar
• The purpose of the corporation, which must be to engage in lawful business

Bylaws

In addition to the articles of incorporation, a corporation must also have bylaws, which are the internal rules and procedures of the company. The bylaws are kept at the corporation's principal offices and are not filed with the Department of Consumer and Regulatory Affairs. The bylaws should include provisions for managing the corporation's business, such as the number and term of directors, the duties of officers, and the way shareholder meetings are conducted.

Law firms in DC with non-legal experts as co-owners

The District of Columbia is the only jurisdiction in the United States that allows law firms to incorporate non-legal experts as co-owners and share fees and profits with them. This unique rule has sparked interest from law firms in other states and even from firms outside the Beltway that are considering moving to or opening offices in Washington, DC.

This rule enables law firms in DC to bring in non-legal experts as co-owners and partners, such as PR specialists, legislative specialists, architects, social workers, and scientists. For instance, Davis Goldberg & Galper, a law firm in DC, has a PR specialist as a partner, and Ryan, MacKinnon, Vasapoli, and Berzok have a legislative specialist, Jeff MacKinnon, as a non-lawyer partner. These non-legal experts bring valuable skills and knowledge to the law firms, enhancing their ability to serve clients and providing equal value to the partnership.

While this rule presents opportunities for law firms to expand their services and expertise, it has also sparked a philosophical debate among lawyers. Some argue that non-lawyers without legal ethics training should not influence how a law firm represents its clients. They believe that law firms should be solely owned and controlled by lawyers to ensure adherence to regulatory structures and ethical standards. On the other hand, supporters of the rule contend that non-lawyer partners can enhance client services without compromising the independent judgment of attorneys. They assert that there is no evidence that lawyers cannot practice in conformance with ethical rules within organisations owned or run by non-lawyers.

In conclusion, while the concept of non-legal experts as co-owners and partners in law firms in DC is novel in the United States, it offers both benefits and considerations for the legal community. As the American Bar Association group and the ABA Commission on Ethics 20/20 continue to deliberate on this topic, the impact of this rule and its potential extension to other states remain to be seen.

Differences between incorporating as a general corporation vs. a professional LLC

When deciding how to incorporate a law firm in Washington, D.C., there are several options to consider, each with its own advantages and limitations. The District of Columbia allows professionals, such as lawyers, to form a professional corporation (PC) or a professional limited liability company (PLLC). Here are the key differences between incorporating as a general corporation and a professional LLC:

General Corporation

Incorporating as a general corporation means forming a company that is a separate legal entity from its owners (shareholders). This provides personal liability protection for the shareholders, as they are not personally responsible for the company's debts or claims against it. The corporation itself is responsible for these liabilities. The steps to forming a corporation include filing the Articles of Incorporation with the state and creating corporate bylaws. The corporation's name must contain words like "Corporation," "Company," or "Incorporated." Corporations have more management requirements, such as holding annual shareholder meetings and directors' meetings. They must also list the name and address of a registered agent in DC who can accept legal and tax documents during business hours.

Professional LLC (PLLC)

A Professional LLC (PLLC) is a hybrid business structure that combines characteristics of both corporations and partnerships. A PLLC provides limited liability protection for its members, similar to a corporation. Professionals, such as lawyers, register as a PLLC. A PLLC is managed according to its Articles of Organization and operating agreement, which provide flexibility in management compared to corporations. For example, meetings are not required, and managers can be non-natural persons who can vote by proxy. An LLC is taxed differently from a corporation and may offer certain tax advantages.

The choice between incorporating as a general corporation or a professional LLC depends on the specific needs and circumstances of the law firm. It is essential to consider factors such as liability protection, management requirements, taxation, and the level of flexibility desired in management. Consulting with an attorney and/or an accountant is recommended to determine the most suitable business structure for a law firm in Washington, D.C.

Frequently asked questions