I want to open my own law practice, what are the first steps?

Misbah Jalal Siddiqui

I want to open my own law practice, what are the first steps?

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Opening a law practice can be challenging for an attorney. Many attorneys don’t have business degrees and have never run a business in the past, so it can be overwhelming for them to know where to start when opening a law firm. The following is a high-level overview of the steps to take when opening a law firm:

Step One: Business Planning

Half of new businesses, including law firms, do not survive more than 5 years.[1] Law firms fail for a variety of reasons, including insufficient capital, bad credit management, cash-flow interruptions, and improper handling of payroll tax funds.[1][2] A business plan that describes the law firm’s services, structure, management practices, finances, and marketing can help you to avoid some of these pitfalls.[2][3] So the first and most important step in opening your own law practice is to develop a business plan which addresses these issues.

Step Two: Business Formation

Once you have your business plan, the next step is to set up your business entity with the state, obtain the necessary state and local business licenses, and obtain a Federal Employer Identification Number from the Internal Revenue Service.[4][5]

If your law practice areas do not include business formations, you may want to consider hiring an attorney who focuses on that type of law. Since each entity type has specific legal benefits and liabilities, you could overlook an important consequence that arises from the type of entity you select, especially if you are not familiar with business formation and tax law. Further, poorly drafted operating agreements, partnership agreements, or corporate by-laws can have a significant impact on your firm down the road.[6]

Step Three: Setting Up Your Bank Accounts

Your firm will need to set up a business bank account where you will deposit all money received from clients in payment on balances due and owing. Your firm will also need to set up an IOLTA (a pooled trust account) for advanced fee deposits and retainers received from clients.

All fifty states plus the District of Columbia, and U.S. Virgin Islands have IOLTA programs.[7] Most states have mandatory IOLTA programs, but some do not.[8] Check with your state bar association to see whether or not you are subject to a mandatory IOLTA program.

Also, verify with your bank that they understand how to set up an IOLTA properly. The interest from an IOLTA account must go to the bar association automatically every month. You may want to consider choosing a bank that is on your state IOLTA program honor roll, as that will ensure that your IOLTA account complies with the program requirements.[9]

Finally, keep in mind that in certain situations you may not be permitted to deposit client trust funds into your IOLTA, but may have to open a separate bank account in trust for an individual client.[10][11][12] This type of bank account is in the individual client’s name “in care of attorney or the law firm.”[10]  You will use the client’s Taxpayer ID number to open the account, and the interest will stay in the trust account rather than going to the legal foundation.[10] Bar associations require this when a client has a significant amount of funds to be deposited into trust and the funds are going to be in trust long enough to generate a significant amount of interest.[10][11][12] Unless you have clients at the outset who are going to be putting large sums into trust for long periods of time, you probably won’t have to worry about this at start-up, but you should bear this in mind once you start operating, and remember to check with your bar association to find out the specific rules for your state.

Step Four: Infrastructure Set Up

If your business plan involves having a physical office, the next step is to purchase office equipment and rent office space within the budget your firm made in the plan. The firm will also need to purchase and implement all technology (equipment and software) identified in the business plan. Whenever possible, enter into written contracts rather than relying on hand-shake deals.[2]

Step Five: Staffing

Evaluate whether or not your law firm even needs to hire staff at the outset.[13] It is possible that your firm could outsource some of the activities, for example, there are virtual administrative assistants, bookkeepers, paralegals, and attorneys that you can hire on a contract basis. If you determine that you want to hire an employee, your law firm might want to consider using an agency to help with the hiring process.[13] That way the agency spends time sorting through the resumes and cover letters based on your firm’s criteria and you only have to take the time to attend a few interviews.

Your law firm might also want to consider hiring an employee through a temporary agency. This allows you to “audition” prospective employees without having to worry about employment law issues. The employee works for the agency, not your firm. So if the person assigned to your firm isn’t working out, you just let the agency know and they will assign a different agency employee.


1. Top Reasons for Small Business Failure
2. Tips for a Successful Small Business
3. Business Plan Overview
4. Checklist for starting a business
5. Do’s & Don’ts of Starting a Business
6. Attorney Need for Starting Business
7. Directory of IOLTA programs
8. State IOLTA Programs
9. Information for Banks
10. Managing Client Trust Accounts Booklet
11. Trust Accounts Primer
12. IOLTA or Separate Client Trust Account
13. How to hire your first employee

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