Selling Pieces of Law Firms?

by Jan Nussbaum
Assistant Director of Professional Development

A recent article in the New York Times discusses the trend by Australia and now the U.K. to allow law firms to sell pieces of the firm to outside private investors.

The article discusses whether the U.S. will be next as the ABA is expected to circulate by early November a draft proposal recommending that ethics rules be amended. However, the decision is ultimately up to individual states. Washington State currently allows outside private investment, and a bill to do so was introduced in the North Carolina legislature. The Law Firm of Jacoby & Meyers is suing New York State’s court system to allow it to receive capital from outside investors.

The article discusses various ethical concerns, such as the attorney-client privilege, and whether lawyers might feel pressured to settle cases in order to make shareholders happy versus what is in the best interest of the client. This assumes that lawyers who currently own law firms are not motivated by profit. If ownership is kept separate from the practice, it can give the lawyers distance from business side pressures.

Legal experts expect that small to mid-size firms will be at the forefront of this trend due to the difficulty of raising capital in this economy. The hope is that by giving law practices access to private capital the firms can expand more quickly, invest in technology and other resources, and operate more efficiently at cheaper rates, providing better service to clients.

As a law student or recent grad it will be interesting to see how this unfolds, and the affect it has on law firm competition over the next couple of years.

Click here for the full article.