Law Firm Structures
Legal practice structures range from sole practitioner through general partnership, limited liability partnership (LLP), limited company, and alternative business structures. Candidates must understand the trade-offs each structure presents on liability, taxation, governance, capital raising, and regulatory permission. A sole practitioner bears unlimited personal liability and has no separate legal personality. A general partnership is also not a separate legal entity in the classic model, with partners jointly and severally liable for partnership debts and each other's negligence in the ordinary course of business.
The LLP is a separate legal entity with legal personality; partners are "members" whose liability is limited to capital contributed, subject to clawback and insolvency rules. LLPs are typically tax-transparent. Limited companies are separate legal entities with shareholders and directors; they offer limited liability but impose Companies Act formalities and public filing. Alternative business structures permit non-lawyer ownership or management, subject to regulator approval.
Traps: confusing tax treatment with liability treatment (an LLP is often tax-transparent but liability-limited); assuming incorporation removes all personal risk (personal guarantees, directors' duties, and professional discipline survive); and overlooking reserved legal activities and who may own or manage the entity. Questions often test which structure best fits a stated goal such as raising outside capital or admitting a non-lawyer investor.
Rule of thumb: choose the structure that matches the firm's liability exposure, capital needs, and governance appetite, then layer the regulatory permissions on top.