Eight Considerations When Starting a Law Firm in Ontario

Starting a law firm in Ontario can be an exciting and profitable venture; however, in addition to the Law Society of Ontario (LSO) rules (which are covered in another module), there are other business, legal and practical considerations which must be taken into account.

Below is a list which serves as a primer on the issues which must be considered when starting a law firm in Ontario, as well as some useful links and resources.

1) Business Plan and Budget

Before venturing out on your own, it is important to plan for risks and budget for expenses. Failing to plan will result in unforeseen expenses, delays and problems. Please see Schedule A below, which is a basic business plan and budget. The purpose of the business plan and budget is to get you thinking about issues that will arise in the course of your business venture so that you can plan for them and either avoid them entirely or have a contingency plan in place.

The life blood of any business is cash flow. Planning for 3-6 “dry” months will help prop up the business during slow periods. It could take several months before you bill your first clients and during that time expenses will continue to accrue. It is important to have a contingency plan in place, such as personal savings or a line of credit, to ensure business continuity during the growth phase of your practice.

2) Your Structure

Generally speaking, lawyers have three options available in terms of structuring: sole proprietorship, partnership and incorporation. You may also have a partnership between corporations. Sole proprietorships and partnerships are similar in that all liability accrues to the individual, and so neither of those two business vehicles are considered “entities” in the eyes of the law. The “entity” in a sole proprietorship is a person, while the entities in a partnership can be comprised of people, corporations or a combination of the two.

Unlike regular corporations, Law Firm Professional Corporations (PCs) must comply with the LSO rules and must obtain a certificate of authorization to operate. They must also receive name approval in accordance with the LSO guidelines. PCs are unlike other corporations in other ways as well: strict shareholder rules limit opportunities for tax structuring, and the liability protection of PCs is limited to commercial liability since the LSO requires that you hold professional liability insurance from the Lawyers Professional Indemnity Company (LawPro).