Current Regulations in the United States
In the United States, the ownership of law firms by non-lawyers is generally prohibited or restricted. Each state and territory has its own regulations regarding the practice of law and the ownership of law firms within its jurisdiction, often promulgated by the state’s bar association. A common theme in these regulations is the prohibition against lay ownership. For instance, a majority of states adhere to the Model Rules of Professional Conduct and their corresponding commentaries set by the ABA, and some have opted out of certain comments that allow non-traditional arrangements. Model Rule 5.4(a), for example, bars lawyers from sharing legal fees with non-lawyers, unless the arrangement comes within a series of exceptions including payments to deceased lawyers’ estates, payments to non-lawyer partners of the lawyer’s firm, and payments as part of a retirement plan. Another common prohibition is of non-lawyer manager, employee, or shareholder. Model Rule 5.4(b) prohibits a lawyer from having professional independence compromised by someone who recommends employment of that lawyer’s services or otherwise directs the lawyer’s professional judgment in rendering legal services . And Model Rule 5.7(c) provides that "'[a] lawyer may not practice with or in the form of a professional corporation or other organization authorized to practice law for a profit, if: (1) a nonlawyer owns any interest therein, other than the undersigned, a law student, or an employee who is not a law student; or (2) a nonlawyer has the right to direct or control its professional judgment concerning the rendering of legal services. . . Other state bars have adopted or do contemplate similar rules. Even when a state does permit non-lawyer ownership it is often highly qualified, or subject to conditions or restrictions. For example, Utah and the District of Columbia, which both permit law firms to have non-lawyer owners, impose ownership caps. The Utah Model Rule of Professional Practice 5.7.5 permits "licensure of nonlawyers not to exceed 25% of the controlling interest in a firm," with certain exceptions. An extensive examination of each state’s ordinances and their variations is beyond the scope of this article. But what can be said without exception about these restrictions is that they aim to maintain standards of quality and ethics in the provision of legal services.
International Law Firm Ownership Practices
Globally, however, many countries either explicitly or implicitly permit non-lawyer ownership of law firms. The most notable example is the United Kingdom, whose Legal Services Act 2007 established Alternative Business Structures (ABS) in 2012. In fact, prior to implementing the new law, the SRA in England found that only 25% of lawyers agreed with the proposal. But today that number has increased to 73%. If a law firm wants to have non-lawyer ownership, it has to be authorized by the SRA. Under the ABS license, up to 100% non-lawyer investment is allowed to cross-subsidize services, invest in technology and innovation, and enter into joint ventures with other businesses. As a result, new types of law businesses have emerged. For example, Riverview Law, a startup law firm based in England, offers inexpensive legal advice for a flat fee using an online platform. Riverview uses an "early case assessment" system that limits costs and maximizes efficiency, which is largely responsible for its early success. Riverview hopes to offer more than 55 legal services worldwide through ABSs.
In Australia, the state of New South Wales permits multidisciplinary partnerships between professional service providers, including lawyers. In 2011, more than 8% of Australia’s 57,246 law firms had at least some non-lawyer owners, according to a survey by the Australian Solicitors’ Trust’s Office. The rise in multidisciplinary legal services organizations in Australia has given rise to debates regarding the complicated issues of client protections, professional codes of conduct, and conflicts of interest raised by lawyer and non-lawyer collaboration. For example, the biggest issue that arises from these new ABSs in Australia is whether the client’s confidentiality is properly addressed given the nature of the multidisciplinary partnership. If lawyers and accountants share the same office space and information, what happens when a conflict arises between the two professional camps? These questions will be important to resolve as the ABS system continues to gain traction in Australia.
The Netherlands also allows non-lawyers to form for-profit partnerships with lawyers. Other countries that allow some form of non-lawyer ownership in legal businesses are Israel, Japan, and Singapore. Canadian provinces, such as British Columbia, Ontario, and Alberta, have also pioneered regulatory reform aimed at allowing non-lawyer owners to invest in law firms.
The Advantages and Disadvantages of Non-Lawyer Ownership
Proponents of non-lawyer ownership argue that it opens the legal industry to innovation and investment from a greater pool of visionaries and entrepreneurs than just lawyers. Non-lawyer ownership supporters also say that non-lawyer ownership provides clients with wider access to affordable legal services, particularly for the middle market that has been largely underserved by the traditional business model. The 2013 law firm model survey by Altman Weil found that the lack of capital to invest in new technology was the number one deterrent to innovation.
Critics of non-lawyer ownership say it jeopardizes clients’ interests and raises ethical concerns because non-lawyers do not owe the same professional, fiduciary or ethical duties as lawyers. Others say that if non-lawyers owned law firms, they may have conflicts of interest in retaining the law firms’ services, such as when a non-lawyer owner of a litigation law firm owns stock in a client company.
A survey of law firms by the American Bar Association in 2013 found that 67 percent of surveyed law firms, mostly small and midsized firms, did not support non-lawyer ownership. A 2012 survey found that 61 percent of general counsel believed that allowing non-lawyers to own law firms could create conflicts of interest.
Others are concerned about the impact on the legal profession. The American Bar Association’s Model Rules prohibit non-lawyer ownership because of concerns over the unauthorized practice of law. The potential loss of control of firms by lawyers may reduce the profession’s autonomy and hinder ideologies.
Legal Precedents: Successful Law Firms Led by Non-Lawyers
Although the majority of legal services providers are law firms that are organized as partnerships, limited liability companies, or professional corporations, some law firms have had success with non-lawyer owners. The following case studies provide insights into how non-lawyer ownership can be structured to comply with legal and ethical considerations across jurisdictions.
The Park Legal Group
Choice of Entity: Professional Corporation
Ownership Structure: 51% Director-Shareholders / 49% Officer-Shareholders
Number of Lawyer/Non-Lawyer Partners: 2/1
Based in West Palm Beach, Florida, The Park Legal Group is a consumer bankruptcy firm with an innovative corporate structure as a professional corporation with non-lawyer shareholders . The firm uses a client-friendly website, and a computerized list of frequently asked questions. In Florida, the business and practice of law are regulated through two entities. The Florida Bar regulates the practice of law. The Florida Department of Business and Professional Regulation regulates the business of law. The Park Legal Group is licensed in Florida and operates in accordance with The Florida Bar, the Florida Department of Business and Professional Regulation, and the Florida Bar’s regulations on non-lawyer ownership.
The Future of Law Firm Ownership
As the debates surrounding non-lawyer ownership continue, some industry experts predict a slow but steady movement toward liberalization of laws in the medium term. According to Matthew Grace, a vice president with the international legal business-development consultancy Akina Group and publisher of the blog Wire Tap, "I honestly believe it’s inevitable that there will be liberalization over the next decade, as the industry realises its limitations and begins to pay lip service to some of the better ideas in legal reform." In addition to Keith Wetmore’s argument that liberalisation would increase competition and innovation, experts also assert that ownership liberalisation has already begun at an international level with alternative business structure rules in the United Kingdom and Australia. Richard Susskind in his groundbreaking 2013 book Tomorrow’s Lawyers stated that "the transformation of law firms into multi-disciplinary practices, perhaps with external investment, is well under way in other jurisdictions." Furthermore, as a result of economic pressure, low cost of entry and high market volatility, "Law companies will be able to beat law firms on price. They will be faster and more flexible than traditional law firms because they will not be constrained by the so-called ‘Sunday trading hours’ of the legal sector."
Ethical Debates and Considerations
The practice of law has always been seen as an exclusive profession, rooted in rigorous training and strict codes of conduct. Legal professionals traditionally view their discipline as one requiring a depth of knowledge and ethical practice that should not be diluted by the involvement of those without formal legal training. The potential involvement of non-lawyers in the ownership of law firms touches fundamental at the core of this perspective, leading to ethical debates about public interest, professional integrity, and the potential consequences of opening the gates.
Critics of allowing non-lawyer ownership in law firms often argue that such changes could undermine client protection, particularly given the myriad regulations governing the legal profession. Concerns include conflicts of interest, which could become more complex if owners have competing interests in other businesses, the potential erosion of the attorney-client privilege, and the possibility of reduced quality in legal service delivery as profit motives become prioritized over customer service. Furthermore, there are worries about the potential over-commercialization of the practice of law, putting financial gain above ethics and legal obligations, and eroding the trust the public has in legal competence.
In defense of non-lawyer ownership, advocates argue that such developments could actually lead to increased competition and thus lower legal costs over time. Some also argue that , as with any industry, the barriers to entry should not be so great that only a select few with years of extensive education can aspire to ownership. The changing legal landscape, including the expansion of technology and e-commerce, has led some to argue that innovation and alternative ownership structures, including non-lawyer participation, are necessary to keep apace with the rest of the business world.
In an effort to balance the risks and rewards of this novel structure, regulators have proposed various safeguards. Proposed models have included establishing tighter regulatory controls on non-lawyers, such as mandatory compliance with existing ethical rules; stricter provisions for lawyers to disclose their stake in non-lawyers’ businesses; and adjustments to the rules governing the unauthorized practice of law (UPL). Other proposals have suggested that non-lawyers may be involved as partial owners or franchisees, rather than as full owners in a majority-share structure.
Overall, the potential for non-lawyer ownership of law firms is a hotly debated topic, and further research and understanding of its implications is required before any decisive steps can be taken. The legal industry is a complex machine, and any changes to long-standing ownership rules or business structures should be approached with extreme caution and careful analysis. As the debate continues, one thing becomes certain: the world of law practice will never be the same again.