What are the costs to start and maintain a legal consulting firm?

The costs of starting a legal consulting firm are quite small if you already have a qualifying law degree. You will also need to invest in: Renting out an office space Purchasing accounting software Getting business cards and a business website When it comes to ongoing expenses, your largest cost will likely be utilities, insurance premiums, and labor. Visit our How to Start a Legal Consulting Firm guide to learn more about the costs of starting and maintaining this business.

Should I Start an LLC for My Legal Consulting Firm?

Starting a limited liability company (LLC) for your legal consulting firm can provide several benefits.

Most importantly, an LLC structure offers limited liability to its owners, which can protect their personal assets from lawsuits and creditors.

For a legal consulting firm, lawsuits can arise from things like professional malpractice allegations (e.g., as a result of giving negligent legal advice, breaching your duty of care, etc.).

LLCs are also affordable, highly flexible (from a tax point-of-view), and can make your legal consulting firm seem more credible.

Recommended: Use Northwest to form an LLC for $29 (plus state fees).

Do I Need an LLC for a Legal Consulting Firm?

LLCs are a simple and inexpensive way to protect your personal assets and save money on taxes.

You should start an LLC when there's any risk involved in your business and/or when your business could benefit from tax options and increased credibility.

LLC Benefits for a Legal Consulting Firm

By starting an LLC for your legal consulting firm, you can:

Protect your savings, car, and house with limited liability protection
Have more tax benefits and options
Increase your business’s credibility

Limited Liability Protection

LLCs provide limited liability protection. This means your personal assets (e.g., car, house, bank account) are protected in the event your business is sued or if it defaults on a debt.

Legal consulting firms will benefit from liability protection because law services face a variety of risks associated with workplace injuries, potential copyright and trademark infringement with firm advertisements, breach of contract claims, and data breaches.

Example 1: When you are unable to pay your employees on time, your business faces several breach of contract and employment law lawsuits. Since your law firm is registered as an LLC, your personal assets will remain protected from the claimants regardless of how the claims progress.

Example 2: You decide to apply for a large business loan in order to purchase new office furniture and hire additional employees. If your business is unable to repay the loan back on time — and begins accruing debt — the lending party will not be able to sue you personally in order to recoup their investment as a result of your limited liability in law.

Example 3: While entering your office, one of your paralegals falls down and fractures their left ankle. Since this happened during work, they ask you whether you could offer them some time off, as well as reimburse them for their medical bills. When you refuse, they threaten to file a lawsuit against your LLC. As a result of your business’s LLC classification, you would not need to personally compensate the claimant even if your law firm was unable to.

Example 4: A client sues your business, claiming that advice you gave them caused them to violate several state industry regulations.

An LLC will also protect your personal assets in the event of commercial bankruptcy or loan default.

To maintain your LLC's limited liability protection, you must maintain your LLC's corporate veil.

LLC Tax Benefits and Options for a Legal Consulting Firm

LLCs, by default, are taxed as a pass-through entity, just like a sole proprietorship or partnership. This means that the business's net income passes through to the owner's individual tax return.

The business’s net income is then subject to income taxes (based on the owner's tax bracket) and self-employment taxes.

Sole proprietorships and partnerships are taxed in a similar way to LLCs, but they do not offer limited liability protection or other tax options.

S Corp Option for LLCs

An S corporation (S corp) is an IRS tax status that an LLC can elect. S corp status allows business owners to be treated as employees of the business (for tax purposes).

S corp tax status can reduce self-employment taxes and will allow business owners to contribute pre-tax dollars to 401k or health insurance premiums.

The S corp status requires that the business pay the employee-owner(s) a reasonable salary for the work they perform.

In addition, the business might need to spend more on accounting, bookkeeping, and payroll services. To offset these costs, you'd need to be saving about $2,000 a year on taxes.

We estimate that if a legal consulting firm owner can pay themselves a reasonable salary and at least $10,000 in distributions each year, they could benefit from S corp status.

You can start an S corp when you form your LLC. Our How to Start an S Corp guide will lead you through the process.

Credibility and Consumer Trust

Legal consulting firms rely on consumer trust. Credibility plays a key role in creating and maintaining any business.

Businesses gain consumer trust simply by forming an LLC.

A growing business can also benefit from the credibility of an LLC when applying for small business loans, grants, and credit.

Northwest will start an LLC for you for just $29 (plus state fees).

Get Started

How to Form an LLC

Forming an LLC is easy. There are two options for forming your LLC:

You can hire a professional LLC formation service to set up your LLC for a small fee
Or, you can choose your state from the list below to start an LLC yourself

Select Your State

For most new business owners, the best state to form an LLC in is the state where you live and where you plan to conduct your business.

Do LLCs Need Insurance?

All businesses need insurance to protect their business assets — even LLCs. This is because the limited liability protection from an LLC protects your personal assets, not your business assets.

When it comes to a legal consulting firm, insurance can protect your business’s assets (e.g., company vehicles, office furniture, etc.) against torts that you or your employees may commit.

Common Situations Business Insurance May Cover for a Legal Consulting Firm

Example 1: Your new billboard features a photo protected by copyright, and the owner has named you in a lawsuit. General liability insurance should cover your legal representation and awarded damages in the copyright infringement lawsuit.

Example 2: A client brings her son to a meeting, where he breaks a glass vase and cuts himself. Your general liability policy should cover his medical bills.

Example 3: A delivery driver slips on the ice in your parking lot and is suing for the cost of his medical bills and lost time out of work. General liability insurance should cover his damages and your legal representation.

Example 4: You have applied for a loan in hopes of moving to a larger office. The loan officer requires evidence of liability insurance as part of the terms of the loan. Your general liability policy should meet these requirements.

Other Types of Coverage Legal Consulting Firms Need

While general liability is the most important type of insurance to have, there are several other forms of coverage you should be aware of. Below are some other types of insurance all legal consulting firms should obtain:

Professional Liability Insurance

Your clients rely on your team’s professional expertise. If they feel their needs are not met, either from professional negligence or errors and omissions, professional liability insurance would provide coverage for a related lawsuit. The policy, also known as Errors and Omissions insurance, covers expenses and awarded damages up to the limits of your policy.

Commercial Property Insurance

If your legal consulting firm is in an owned building, this should be part of your insurance portfolio. In addition to insuring the building, it covers business-owned assets kept on-premises.

Insurance companies can also write this policy for renters to cover only specific building sections. Business owners should discuss their business model and needs with an insurance professional to ensure optimal coverage.

You can purchase commercial property insurance as part of a business owner’s policy (BOP).

Data Breach Insurance

As a legal consultant, your firm stores a significant amount of personal and important information. This can make you vulnerable to online hackers. Since general liability policies exclude cyberattacks, data breach insurance can help fill any gaps and keep your information safe.

You can purchase this coverage, also known as cyberattack insurance, as an endorsement or a separate policy.

Workers’ Compensation Insurance

The state requires all business owners to carry workers’ compensation insurance on their employees. It provides coverage for on-the-job illness and injury, including payment for medical bills and lost wages. If a claim results in a lawsuit, workers' compensation would also pay for the business owner’s legal representation and awarded damages.

Workers' compensation insurance is often purchased as a standalone policy.

Commercial Umbrella Liability Insurance

As a legal consulting firm, you are no stranger to today’s litigious society. If a lawsuit brought against your firm becomes expensive and lengthy, you could exhaust your underlying general liability limits. A commercial umbrella insurance policy takes over where general liability insurance leaves off and keeps your personal and professional assets protected.

Should I Start an LLC FAQ

Choosing the right business structure depends on your business’s unique circumstances and needs. However, unless your business is very low risk (like a hobby), an LLC is likely the better option.

Visit our LLC vs. Sole Proprietorship guide to learn more.

At a minimum, you’ll need general liability insurance, professional liability insurance, and commercial property insurance.

Read our Business Insurance for Legal Consulting Firms article for more info.

The costs of starting a legal consulting firm are quite small if you already have a qualifying law degree. You will also need to invest in:

Renting out an office space
Purchasing accounting software
Getting business cards and a business website

When it comes to ongoing expenses, your largest cost will likely be utilities, insurance premiums, and labor.

Visit our How to Start a Legal Consulting Firm guide to learn more about the costs of starting and maintaining this business.

Ongoing expenses are relatively limited and will include those costs associated with utilities, insurance, labor, and other office expenses.

Learn more about running a legal consulting firm.

Profit is generated by charging clients hourly or a flat rate for legal consulting.

Learn more about starting a legal consulting firm.

Since there are so many contracts, consumer protection laws, and industry regulations, lawsuits are not an uncommon part of doing business.

Legal consulting firms are hired to advise companies’ legal departments to draw up compliance plans and ensure operations are in line with local, state, and federal guidelines.

Larger legal teams have the ability to profit as much as seven figures in a year.

Learn more about starting a legal consulting firm.