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by Wendy Oughtred © 2014 Canada Law Book. Reprinted with permission.
Excerpt from: Chapter 4: Business Structures [Download the full chapter in PDF]
This chapter is about business styles. In a traditional sense, there are three to choose from: sole proprietorship, partnership or incorporation. For the purpose of this book, I have added the home office, associate practice and the purchase of a law practice as alternative choices. In any of these scenarios, the issue of incorporation is a viable consideration, but it will be dealt with separately in the next chapter.
As a sole proprietor, you are working strictly on your own, be it from an office in your home or in your own commercial office space. There are certain benefits to this style. You can operate your business under your full name, with “Barrister & Solicitor” underneath and avoid having to register a business name. You will have complete control over your expenses, your workload, your trust account and your revenue. There will be no need to consult others if you choose to expand your business or you choose to work a reduced work week and you have the freedom to work out of your home to keep your overhead to a minimum. Most importantly, you will not be incurring potential liability as a result of anyone else’s negligence or malpractice.
Sole proprietors have the option of renting space in what is referred to as commercial chambers. There, the lawyer is essentially sharing space, reception, some operating costs and, often, secretarial services with other lawyers or other business professionals but is not required to enter into an association agreement. In this situation, the possibility for incurring joint liability with other practitioners is virtually non-existent. If this sort of arrangement meets your needs, it may be a very economical approach. Beware of hidden costs that may be imposed on you as a tenant at the whim of the landlord or owner. Ensure that your lease agreement specifies that there will be no additional costs on your tenancy (known as a gross lease). Lawyers who are not in partnership may not share trust accounts.
Negative Aspects of Sole Proprietorship
The negative aspects of sole proprietorship should be considered carefully. For many people, the isolation factor is extremely prohibitive. Many sole practitioners miss the ability to bounce ideas off their colleagues and obtain quick advice from other lawyers. There are no cross-referrals from office mates, and there is no sharing of advertisement costs, office equipment, letterhead, office supplies and other overhead expenses. Significantly, there is no one else on site to babysit your practice while you are on holidays. Practising alone is clearly not for everyone. One colleague who started out on his own right after the bar admission course tells me he felt like the Maytag repairman during his first three months of business. (The significance of that comment will only have meaning to those of us old enough to remember the Maytag commercial about the lonely repairman who never got called for service because of the alleged indestructibility of the Maytag washing machines.)
However, on the brighter side, the Internet has opened many new avenues of communication for sole practitioners. For example, many criminal defence lawyers who are members of the Criminal Lawyers Association find the CLA list service (list serv) to be a valuable resource. The list serv is an Internet-based private chat line for defence counsel. The flow of information relates to many diverse topics such as local legal practice, judges, crowns, trial strategy and Legal Aid issues, along with the dissemination of important information for counsel who practice criminal law. If you have a question, posting it to the list serv often results in a plethora of advice from senior counsel. It is sometimes like a cyber replication of the sharing of war stories in the lawyers’ robing rooms at court.
There are similar forms of online communication among members of family, civil and immigration law, to name but a few.
Home offices are increasing in popularity, largely due to current economic conditions, the ability of some lawyers to construct a cyber practice and the increased price of doing business. The costs of running a law practice, rising insurance fees and cutbacks to the legal aid plans have made it more difficult than ever to remain profitable, particularly if you are balancing child care responsibilities with operating a business. Also, lawyers are discovering that a home office may be particularly well suited to certain types of practices. One example is wills and estates. Meeting in the comfort of a lawyer’s home in a nice residential setting may be preferable to clients when they are dealing with such sensitive subjects as estate planning. Or, you could even offer to meet with clients in the privacy of their own home or office and use this aspect of your service as a marketing tool.
With a home office, even if you need to use a boardroom facility on occasion, it can be rented on a daily or even hourly basis. Reception services as well as secretarial and fax can also be rented on a pay-per-use basis. There is no reason why you can’t reduce your overhead significantly with creative structuring of your business.
Negative Aspects of a Home Office
On the other hand, a home office may not be practical for certain areas of law and, whether we like it or not, some clients will never retain you if you do not practise from a high-powered office in some large downtown highrise. With a home office, you can never escape to the office or from the office; there are always potential problems with client confidentiality in the use of the phone, computer and fax, and you need a lot of self-discipline to regulate your hours of work.Home office practitioners must be cognizant of by-law provisions, which may affect the proposed office site. Most cities have enacted by-laws restricting or prescribing the operation of a business in residential areas. Again, from a practical point of view, in some jurisdictions this by-law is not enforced unless the neighbours complain. It is best to consult with your municipality before you set up shop. There are often specific issues regarding signage, parking and employees, which may complicate matters.
If you decide to operate from your home, you must remain cognizant of your obligations under the Rules of Professional Conduct and The Law Society Act. Your office must be structured so as to preserve client privacy, property and confidentiality. Some renovation work may be needed. There must be sufficient space to allow storage of confidential files and financial records. It will be necessary to restrict access to your office and certainly to control access to your computer, your files and any electronic client information. If family members are allowed access to the home office computer, it may be necessary to use password protection on your work files, segregation of client files or encryption of electronic files. Make all of the necessary inquiries and adjustments if you are planning to choose this route.