Can Non-Lawyers Own a Law Firm?
Can Non-Lawyers Own a Law Firm?
Apr 28 2011, 02:27 PM
Joined: 17-July 09
Member No.: 125
Given that Model Rule 5.4 prohibits firms from selling equity shares in law firms to non-lawyers by stating that a lawyer shall not share legal fees with a non-lawyer, the answer to our title question has always been a clear no. (See sidebar.) Now, however, there are more reasons to answer maybe, or even yes. In the last several years, the prospect that non-lawyers would be able to participate in the ownership of American law firms emerged from the British Commonwealth. Australia already allows this and it will soon be permitted in England, where the 2007 Legal Services Act that authorized new alternative business structures for solicitor firms has cleared the way for such firms to list on the London Stock Exchange or Alternative Investment Market (AIM).
Similar changes are happening in the U.S. already. North Carolina has a bill before its Senate that would allow 49% non-lawyer ownership. The District of Columbia already permits non-lawyer ownership to the extent of 25% interest in a law firm. This may be because more large firms are employing non-lawyer lobbyists in Washington. The Washington Post* recently called this an “uneasy marriage,” because non-lawyer lobbyists can be treated like second-class citizens in law firms, not least because they typically are paid by retainer rather than the standard hourly rate. Allowing such professionals to have an ownership stake could change all that.
The use of professional lobbyists illustrates how law firms have expanded and are now very large organizations. In order to grow, they need additional capital, which is best raised in the capital markets, not from individual partners of law firms. Capital market ownership means non-lawyer ownership. With large law firms looking more and more like their corporate clients, is it still a stretch to suggest that law firms should raise outside capital?
There is, of course, the issue that stock sales might force lawyers to put shareholder interests above duty to clients, and create conflicts between attorney-client privilege and Securities and Exchange Commission disclosure requirements. Some also argue that the rules of professional conduct wouldn't bind non-lawyers in matters of confidentiality and charging reasonable fees. Either way, the independence of lawyer's judgment might come into question. But, the rules have been bent, if not changed or discarded entirely, when large firms' economic interests were at stake. So, it will be fascinating to see who argues on which side and how this issue develops.
It’s likely that the major law firms can develop some way to finesse this issue if necessary.
The more fundamental issue is whether corporate law firms need to grow as large as their clients. Why can't corporate clients' interests be served well by smaller regional law firms that use technology to leverage their capabilities? Is it possible that this issue will finally cause the breakup of the mandatory (integrated) bar association into state licensing agencies and voluntary bar associations serving the economic interests of sole and small firm practitioners? Don’t say it’s impossible – the Commonwealth countries, with their two-tier legal sectors of barristers and solicitors, may well offer an organizational model to go with their capital-raising one.
Check out Ed on YouTube
Follow Ed on Twitter
Join the LawBiz Forum
Become a fan of Ed's on Facebook
8 Steps to Greater Profitability The Lawyer's Path to Prosperity
Are you frustrated with how your law firm or practice is running? Are you looking for ways to jump-start your business? Do you want to make the dream of starting your own successful firm a reality?
This 8-CD set provides the most complete audio guide to law practice management available. From crafting a business plan to selling your practice for maximum value, Ed will lead you from start to finish through the eight most crucial steps to law firm success. Earn the living you deserve and find fulfillment throughout your career - embark on the path to success today!
Special New Release Price: $149 (until March 31)
Regular Price: $199
or Order Online at: lawbiz.com
Ed's Latest Book, Published by WEST ®
Growing Your Law Practice in Tough Times
By Edward Poll
Following the worst economic crisis since the Great Depression, and facing a sea change in clients' demands and expectations, law firms must respond and adapt quickly and effectively. Law firms must choose the kind of law practice they will be; the marketing and business development tactics they will use; the overhead that is critical to their functioning; how to price, bill and collect for services; and how to manage the cash flow cycle. Success lies in identifying and capturing the right kinds of clients, providing the services those clients need in ways that add value, and ensuring prompt payment and the ability to grow profits. This book, based on the experiences of the author and his clients over 20 years of coaching and consulting, provides the keys to successfully thriving in the new era.
Call or Order Online at:
1-800-837-5880 or www.lawbiz.com
2011 LawBiz® Management. All rights reserved.
|Lo-Fi Version||Time is now: 28th September 2016 - 04:55 PM|