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Deciding On The Legal Form

There are two aspects to consider before you start your law practice.
  1. Would your law practice be a partnership or a sole proprietorship?
  2. What are the practice areas for your law practice?

Partnership vs Sole Proprietorship

The table below shows the advantages and disadvantages of operating as a sole proprietorship and a partnership.
  Sole Proprietorship Partnership
  • Easier decision-making power
  • Entitlement to all profits from the business
  • Taxation based on income less allowable expenses
  • Less capital investment
  • Start up is quicker than setting up a large multi-partner firm
  • Overhead may be divided among the partners
  • Workload may be distributed among the partners
  • Liability may be shared among the partners
  • Sole liability for all debts
  • Reduced borrowing powers
  • May encounter difficulties in competing with major players
  • Joint liability may be imputed to all partners due to one partner's inappropriate conduct.
  • Profit would be divided among the partners.
  • Financial dealings must be made with the arrangement of all partners
  • Based upon trust among the partners.
Source: Bar Council Malaysia, 'Setting Up Practice' (2010)

If you decide on a partnership, you should have a Partnership Agreement in place to stipulate the hierarchy, basic management structure and the relevant responsibilities of each partner.

Preferred Areas of Work

Your preferred areas of work and personal expertise may dictate that your law practice is of a certain size, e.g.. certain areas of legal work require many staff and other resources.
Lawyers who fail to initiate some discipline in the types of cases they accept early in their practice are the lawyers who eventually find that they are not managing their law practice - their law practice is managing them!

A word of caution: If practice areas look like a laundry list of legal areas, you run the risk of becoming a jack of all trades, master of none.
Factors that may be considered in establishing the preferred work your new practice will accept are:
  • Practice areas you wish to develop or in which you have the expertise
  • Types of cases within practice areas for which you have expertise or desire to develop
  • The types of clients with whom you would like to work with
  • The revenue generated by selected practice areas or case types
  • The labour and cash requirements of the law practice by certain types of cases or practice areas
  • The type of fee arrangement of the case (i.e. scale fees or progressive billing)
Note: The information above is extracted from "Setting Up Practice". For more information, please contact the PII and Risk Management Department.

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