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Most law firms exist as partnerships of their main lawyers who are the owners/directors.

Why isn't the model popular where a non-lawyer but talented leader/organizer/visionary just puppets lawyers on the payroll who represent clients of the firm? Are lawyers too smart and/or noble to be puppeted that way?

Boann
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Greendrake
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  • This is the case in general. Companies are usually started by people who have certain expertise and want to go independent from their employers. – Davor Jun 15 '20 at 12:23
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    It probably would be a good idea if we ran nuclear plants by the same logic (well, with nuclear engineers instead of lawyers, of course :D ). – MSalters Jun 15 '20 at 12:59
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    @MSalters Let's prohibit running airlines by anyone but pilots! – Greendrake Jun 15 '20 at 13:52
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    Apple didn't become the behemoth it is now until they stopped hiring professional CEOs and put Steve Jobs in place. – Barmar Jun 15 '20 at 14:16
  • @Greendrake That's what they did with the USAF. – Therac Jun 16 '20 at 03:15
  • @Greendrake I suspect that if you did that, you'd have separate plane-flying companies (run by pilots) and everything-else-like-baggage-handling companies (possibly run by airports, or possibly still separate). – user253751 Jun 16 '20 at 19:06
  • Now I'm wondering the same thing about, say, a hospital - does the director of a hospital have to be a doctor themselves? Seems the skills necessary to manage a hospital would be separate from the skills needed to treat patients. (You'd have hiring managers who are doctors to make sure any new staff are qualified, no reason that decision has to go all the way to the top...) – Darrel Hoffman Jun 16 '20 at 19:36

3 Answers3

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In some jurisdictions it's against the code of ethics.

For example, in the , Model Rule of Professional Conduct 5.4(b) says:

A lawyer shall not form a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law.

The idea has to do with independence: Lawyers are officers of the court and—as members of a regulated profession—can be bound to professional codes. Talented leader/organizer/visionaries aren't bound in any such way. The comment to the Rule explains, "Where someone other than the client pays the lawyer's fee or salary, or recommends employment of the lawyer, that arrangement does not modify the lawyer's obligation to the client." This can create a conflict, and states resolve it by regulating the partnership's composition.

Other jurisdictions go even further and it’s prohibited in law.

Dale M
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Pat W.
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    In the uk the regulator straight up prohibits non-lawyers from having an ownership of general law practices. https://www.sra.org.uk/solicitors/standards-regulations/authorisation-firms-rules/ Again the reason is that of the ethics that the lawyer should not be influenced by a non-lawyer, but also that any liabilities for negligence should rest with someone qualified to know what they are signing off on. – user1937198 Jun 14 '20 at 21:17
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    This is true in every U.S. jurisdiction, even though those rules are adopted on a state and territory by state and territory basis. And, for all practical purposes, the Rules of Professional Conduct have the force of law. They are not mere suggestions. The remedies would be to disbar and/or suspend from practice the attorneys involved and to, under a separate statutory enactment, prosecute the non-lawyers for unauthorized practice of law (which could lead to fines and incarceration). It doesn't mean, however, that non-law firms can't hire lawyers, just not for the purpose of being law firms. – ohwilleke Jun 15 '20 at 00:16
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    Side question, can companies have lawyers on payroll or are they always sub-contracted? – MonkeyZeus Jun 15 '20 at 15:51
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    @MonkeyZeus sure, companies can have lawyers on payroll ... to represent the interests of that particular company. The limitation is on hiring them out to someone else with the assertion that the lawyer on your payroll will fairly represent someone else's interests instead of doing what's good for their paymaster. – Peteris Jun 16 '20 at 00:59
  • So it boils down to things like lawyer-client privilege no longer holding up if the director isn't a lawyer? That would actually make sense. – Mast Jun 16 '20 at 08:33
  • @user1937198 That is incorrect. The law changed in 2007 with the Legal Services Act 2007 Pt 5. If you look at Rule 1.1(A) of the SRA rules that you linked to, you will see that "you will be eligible to apply for authorisation as a licensed body, if you are a licensable body and have at least one manager that is an authorised person". Licensable body has the meaning given in s 72 of the Act. Note that the only requirement is that you have at least one lawyer manager. The owners can be non-legally qualified (s 72(1)(b) of the Act) – JBentley Jun 16 '20 at 09:42
  • @user1937198 See also the Law Society: "The Legal Services Act 2007 (LSA 2007) allows non-lawyers to own and manage law firms.". – JBentley Jun 16 '20 at 09:48
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    @Mast No, it doesn't work like that in the UK at least. The SRA code of conduct requires solicitors to maintain confidentiality regardless of external factors. It trumps even a solicitor's duty to the court (so e.g. requiring a solicitor to cease acting if the two duties come into conflict). There are well established rules and procedures to keep information confidential between different individuals in the same firm. A director of a law firm would be no more entitled to receive confidential information than anyone else. – JBentley Jun 16 '20 at 09:51
  • @jbentley am I misunderstanding the difference between licensed body and authorised body? My understanding was that a general practice had to be an authorized body, whilst licensed body was for thinks like estate agencies also doing convincing, or an accountancy firm setting up companies. – user1937198 Jun 16 '20 at 09:53
  • @user1937198 The SRA defines authorised body as an umbrella term for the two distinct terms licensed body and recognised body. A licensable body is what I linked to above - it's an alternative business structure defined in s 72 of the Act as one with a non-authorised (i.e. non legally qualified) manager or owner. A recognised body is simply an old-style law firm where everyone is legally qualified. No, it does not work in the way you have described in your last comment. – JBentley Jun 16 '20 at 09:58
  • @user1937198 I assume you mean conveyancing (not "convincing") in which case that's something else entirely and not regulated by the SRA. A conveyancer is a lawyer which specialises in a particular area of law (property) and is regulated by a different body. An accounting firm setting up companies is completely unrelated to the legal industry and is not regulated at all as it has nothing to do with accounting either. Selling shares in companies generally is regulated by FSMA 2000, but there are exemptions when selling controlling interests (as would be the case for setting up companies) – JBentley Jun 16 '20 at 10:02
  • I did mean conveyancing, sorry autocorrect. So I completely misunderstood the terms and thus the rules. – user1937198 Jun 16 '20 at 10:22
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Lawyers have what are functionally continuations of Medieval Guilds(they may be called State Bars, Legal Associations, etc, but that's just window dressing) that set rules(either as legally enforceable "ethics" violations or by successfully lobbying for these to be made into laws) that prevent the dilution of their members' power and collective financial status by doing what you describe: e.g. a rich entrepreneur hiring a bunch of heavily indebted (through crushing law-school student debt) young lawyers, desperate for any work and experience, to toil away and massively undercut the Guild's rates.

A law firm that has to be owned by rich old lawyers, will not rock the boat and declare war on the rest of the Guild by undermining the system that made them rich, old lawyers in the first place. It's a self-perpetuating cycle.

The restrictions aren't any different from what a medieval Blacksmiths or Shoemakers Guild had, except that the former were open about the purpose of the rules. Tellingly, they haven't survived, but law guilds have, because lawyers are proverbially smart and connected and can come up with fancy excuses like the need for "independence".

Eugene
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    How about other professional bodies, like engineers or accountants, many of which have similar restrictions for the exact same reasons. The difference between a lawyer and a shoemaker is the client should be able to know if they are being given a good product by a shoe maker. Most lawyers clients need a lawyer because they can't make that distinction themselves. – user1937198 Jun 15 '20 at 10:12
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    @user1937198: Engineering firms can be owned by non-engineers. Accountant firms can be owned by non-accountants. What you propose are restrictions on practice, not restrictions on ownership. Lawyers have that too (admission to the bar) but that's not the subject here. – MSalters Jun 15 '20 at 13:02
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    The question is not tagged with a country, so this answer is not valid for the general case. In the UK for example, law firms can structure as limited companies (subject to some additional regulation). The question from the OP is why such structures are not popular (as opposed to why they don't exist at all, which is what this answer seems to address). – JBentley Jun 15 '20 at 18:56
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    This Answer is not correct. Yes, the "membership" aspect of mandatory bar associations resembles medieval guilds in that one must be a member to practice the profession. Unlike guilds, however, mandatory bar associations have no authority to regulate fees. Once they have a license, lawyers can work for whom they please, at what rates they set or negotiate. Downvoted. – DavidRecallsMonica Jun 16 '20 at 02:13
  • @DavidSupportsMonica, (1) dude, the relevant quote is already in another answer "A lawyer shall not form a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law" This means that the only people who can provide capital for a law firm are rich old lawyers, who got that way under the current fee structure and will not undercut the guild. Given the massive oversupply of law graduates, it's a struggle to find a law job, even after passing the bar, unless you're from a top school and the barista with a law degree is a stereotype for a reason. – Eugene Jun 16 '20 at 03:38
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    @DavidSupportsMonica, (2) these people are desperate for any legal job that will allow them to get some experience. If guild rules didn't prevent it, it would be a slam-dunk business model to hire them at minimum wage and charge like $35/h for legal services, especially routine stuff that can mostly be done by software, with a bit of human tweaking. That's why it's banned, with sweet sounding excuses like "professional independence of judgment". – Eugene Jun 16 '20 at 03:44
  • @DavidSupportsMonica, (3), here's a perfect example: https://www.larrybodine.com/nj-lawyers-forbidden-to-use-avvo-because-of-unethical-fee-splitting. A company tries to innovate and shake up the market by taking a flat 25% referral fee for easily matching clients to lawyers, which is an awesome deal for young lawyers starting out independently, vs slaving away in a law-firm. The guild(who all the judges are also card carrying members of btw), swats them down: "Unethical Fee Splitting". – Eugene Jun 16 '20 at 04:01
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    @Eugene The Bodine matter prohibits sharing fees. Does that set a lawyer's charges? It does not. All your underemployed lawyers can work for $35/hr if they wish, no one's stoping them. You have a firm POV, and seem far more interested in ranting than discussing. Please carry on without me. – DavidRecallsMonica Jun 16 '20 at 04:15
  • @Jbentley not quite, in the UK law firms can't be limited companies, but they can be limited liability partnerships, a wierd oddity where the liability is not pooled between partners – user1937198 Jun 16 '20 at 09:01
  • @user1937198 That is wrong. The law changed in 2007 - see the Legal Services Act 2007 Pt 5, or google "alternative business structures". You can also visit the SRA's licence application pages where you will see plenty of references to limited companies. – JBentley Jun 16 '20 at 09:28
  • @JBentley as licensed or authorized bodies? as an amateur I may be completely misunderstanding the current situation. – user1937198 Jun 16 '20 at 09:54
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    @user1937198 See my comment on this answer where I've addressed that. – JBentley Jun 16 '20 at 10:00
  • Probably a quarter of my graduating class raised a shingle. The notion that only old lawyers have law firms is very misguided. Any attorney that wants to can form their own law firm. But another ethics consideration is that to take a case, you have to be competent to take it. While that generally means if you passed the Bar you can take it, most people still want to have experience first. – Andrew Jun 22 '20 at 18:19
  • @Andrew what is the socio-economic background of your law-school and the people who could go into practice for themselves straight away?I suspect that they are the ones who had rich families to bank-roll their start-up period(offices, advertising, computers, etc.) until they started doing enough business to stand on their own feet.Even simple things,like fee sharing for driving business: https://www.larrybodine.com/nj-lawyers-forbidden-to-use-avvo-because-of-unethical-fee-splitting are somehow unethical despite having no effect on the attorney client relationship,all to prevent outside capital – Eugene Jun 22 '20 at 19:30
  • @Eugene My cohort that hung their shingle were not from wealthy families that could afford to bank-roll them. I can only think of a small handful of my classmates that had wealth going into law school and ten times more that owed money when they graduated. I can tell you that it is not exceedingly expensive to start a law firm. I have helped a friend get her's setup. Monthly overhead was only a couple hundred. The largest single monthly expense was the docketing software, but most docketing companies provide discounts to startups. The Bar provides free legal research software for members. – Andrew Jun 22 '20 at 19:57
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The primary work product of a law firm is legal work, which the lawyers do directly. This is not a high-capitalization job: it's possible to be a Starbucks lawyer (or Lincoln lawyer lol) and not even have an office. It has this in common with the professional trades, like plumbers, electricians, etc.

Contrast that with a baker, who needs a workplace and significant capital infrastructure for mixers, ovens, cooling racks, trucks, packaging, inventory, etc. That's where the capitalist enters the picture.

If someone gave a law firm a cash infusion of $500,000, there isn't really a way to invest that into the business to get a payout. They can't buy better case files. There's no "litigation machine" that can litigate faster than ten lawyers. That's just not how that business works; it doesn't lend itself to capitalization.

It's true that many law firms have significant capitalizations, but they didn't get there overnight. They typically raise themselves on their bootstraps. Even then, the prestigious offices tend to be leased.

Harper - Reinstate Monica
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