To start a law firm in California, you choose an approved business structure, file formation paperwork with the Secretary of State, register the entity with the State Bar, prove you have security for malpractice claims, get a federal EIN, and open a client trust account before taking your first retainer. Plan on roughly $1,500 to $2,000 in government fees and filings for year one, plus an $800 minimum franchise tax that kicks in starting in your second taxable year.
Pick the Right Business Structure
California is stricter than most states about who can practice law and how. You have three lawful options: a sole proprietorship, a law corporation (a professional corporation), or a Limited Liability Partnership with other attorneys. A standard LLC is not on the list.1California Legislative Information. California Code Business and Professions Code 6160
Sole Proprietorship
The simplest path. No filing with the Secretary of State, no entity registration with the State Bar. You report business income on your personal return and pay self-employment tax. The catch is exposure: your personal assets are on the line for any debt, judgment, or malpractice claim against the practice. Many solos start here and incorporate later.
Law Corporation
A law corporation is California’s version of a professional corporation, governed by the Moscone-Knox Professional Corporation Act.2California Legislative Information. California Code Corporations Code 13400 It shields shareholders from most business liabilities, but every director, shareholder, and officer must be a licensed attorney.3California Legislative Information. California Code Business and Professions Code 6165 Shares can only transfer to another licensed person, an existing shareholder of the same corporation, or another professional corporation.4California Legislative Information. California Code Corporations Code 13407 This is the standard choice for solo practitioners who want entity protection and for small firms.
Tax-wise, a law corporation is a C-corporation by default. Most small firms elect S-corporation status to avoid double taxation. California taxes S-corporations at 1.5% of net income with an $800 minimum franchise tax, and the S-corp election lets you split income between salary (subject to payroll taxes) and distributions (not).5Franchise Tax Board. S Corporations Business Type Newly incorporated corporations are exempt from the $800 minimum in their first taxable year.6Franchise Tax Board. Corporations
Limited Liability Partnership
An LLP is the usual structure when two or more attorneys share ownership. California recognizes registered LLPs and foreign LLPs for professional services, and all legal work must be performed by licensed individuals.7Justia. California Code Corporations Code 16951-16962 Each partner is protected from personal liability for the malpractice of other partners. LLPs are pass-through entities federally and pay California’s $800 minimum franchise tax annually.8Franchise Tax Board. Limited Liability Partnership
Why an LLC Is Not an Option
Attorneys cannot practice law through a limited liability company in California. The Moscone-Knox Act and the State Bar Act together authorize only law corporations and LLPs for legal practice, and the State Bar will not register an LLC. If you moved from a state that permits LLC practice, this trips people up regularly.
Name the Firm Correctly
California Rule of Professional Conduct 7.5 bars firm names that are false or misleading and names that suggest a connection to a government agency or public legal services organization.9State Bar of California. Rules of Professional Conduct 7.5 Firm Names and Trade Names A deceased partner’s surname can generally stay in the name. A grand institutional-sounding label on a two-person practice cannot.
If your firm name does not include the surname of every owner, file a Fictitious Business Name Statement with the county clerk where your principal office sits, within 40 days of first transacting business under that name.10Justia. California Code 17900-17930 – Fictitious Business Names Fees vary by county, usually $30 to $75, and most counties require newspaper publication after filing.
File Formation Papers With the Secretary of State
Before the State Bar will look at your application, the entity has to exist. For a law corporation, file Articles of Incorporation stating that the corporation is a professional corporation and identifying the profession. For an LLP, file Form LLP-1, the Application to Register a Limited Liability Partnership; the Secretary of State’s filing fee is $70.11California Secretary of State. Business Entities Fee Schedule
Once processed, you receive a certified, date-stamped copy. Keep it safe. The State Bar requires it in your registration package and will not proceed without it.12The State Bar of California. Application for Issuance of a Certificate of Registration as a Limited Liability Partnership
Register the Entity With the State Bar
After the Secretary of State approves your entity, you apply to the State Bar for a Certificate of Registration authorizing the entity to practice law. Law corporations submit the Application for Issuance of a Certificate of Registration as a Law Corporation.13The State Bar of California. Application for Issuance of a Certificate of Registration as a Law Corporation LLPs use their own equivalent form. New applications go through the State Bar’s Agency Billing system.14The State Bar of California. Law Corporations Program
Your package needs to include:
- The certified formation documents from the Secretary of State.
- Full legal names and active State Bar license numbers for every shareholder, partner, officer, and licensed employee.
- Proof of security for claims (see below).
- The $265 registration fee for a law corporation.15The State Bar of California. Appendix A – Schedule of Charges and Deadlines
Every attorney listed must be an active State Bar member in good standing. A suspended or inactive license on the application will stop the certificate from issuing. Processing takes several weeks and moves with application volume.
Post the Required Security for Claims
This is the requirement that catches new firm owners off guard. Under State Bar Rule 3.158, every law corporation must give the State Bar proof of security for claims arising from professional errors or omissions by the corporation or its attorneys.16State Bar of California. State Bar Rules Title 3 Division 2 Chapter 3 – Law Corporations No security, no Certificate of Registration.
The two common approaches are a Law Corporation Guarantee, where shareholders agree jointly and severally to pay claims, or a professional liability insurance policy meeting the same minimums. The required amounts are $50,000 per claim and $100,000 per attorney per calendar year, with caps of $500,000 per claim and $5,000,000 per calendar year.14The State Bar of California. Law Corporations Program
LLPs have their own rules under Corporations Code Section 16956. An LLP providing legal services must carry liability insurance, hold segregated funds for claims, or show a net worth of at least $15 million. For most new firms, buying a professional liability policy is the only practical option.
Solo practitioners are not required to carry malpractice insurance, but Rule 1.4.2 requires you to disclose in writing to every client at engagement if you don’t have coverage. Skipping that disclosure can void your fee agreement.
Get a Federal EIN
Your law corporation or LLP needs an Employer Identification Number from the IRS before you open a business bank account, hire staff, or file tax returns. EINs are free from the IRS, and paid third-party services offer no advantage.17Internal Revenue Service. Get an Employer Identification Number
The fastest route is the IRS online application, which issues the number immediately. You must have formed the entity with the Secretary of State first, since the IRS needs the legal entity to exist. The online tool times out after 15 minutes of inactivity, so pull your entity details together before you start. Phone, fax, and mail options exist if the online tool won’t work for your situation.17Internal Revenue Service. Get an Employer Identification Number
Open a Client Trust Account
Any firm that receives client funds must have an Interest on Lawyers’ Trust Account. Business and Professions Code Section 6211 requires client funds that are nominal in amount or held for a short period to be placed in an IOLTA at an eligible bank.18California Legislative Information. California Code Business and Professions Code 6211 Interest on the pooled account goes to the Legal Services Trust Fund for legal aid.
Open the IOLTA at a State Bar-approved institution before you take a retainer, keep detailed records of every deposit and disbursement, and report the account’s status to the State Bar annually.19California Legislative Information. California Code Business and Professions Code 6212 Commingling client funds with the operating account, even briefly, is among the fastest routes to discipline.
Plan for Annual Compliance and Ongoing Costs
Forming the entity is the start, not the finish. Missing any of the following can suspend the firm’s registration:
- Annual State Bar renewal for law corporations with a $106 fee, submitted through the Agency Billing system by the State Bar’s posted deadline. Old paper forms are not accepted.14The State Bar of California. Law Corporations Program
- The $800 minimum California franchise tax each year for both corporations and LLPs, waived for corporations in the first taxable year.6Franchise Tax Board. Corporations
- Updated proof of security whenever your insurance changes or lapses. A gap in coverage can trigger suspension.
- Notification to the State Bar within 30 days of any change in firm address or email.16State Bar of California. State Bar Rules Title 3 Division 2 Chapter 3 – Law Corporations
- Annual IOLTA reporting to the State Bar.
On the federal side, domestic entities formed in the United States are currently exempt from Beneficial Ownership Information reporting to FinCEN under the Corporate Transparency Act, following an interim final rule published on March 26, 2025.20FinCEN.gov. Beneficial Ownership Information Reporting The rule can change, so watch for updates, but a newly formed California law firm has no BOI filing to make as of now.
Between the State Bar registration fee, the Secretary of State filing, the franchise tax, insurance premiums, and IOLTA setup, a realistic first-year budget for launching a law corporation starts around $1,500 to $2,000 in government fees and filings alone, before office space, software, or marketing. The ongoing annual carrying cost for compliance fees and minimum taxes runs at least $900 a year, insurance renewals on top of that. Working those numbers into your business plan on day one is what keeps them from turning into surprises later.