Non-Lawyers with Stakes in Law Firms, the ARM Implications

Mike Ginsberg

The old adage “that’s the way it’s always been” may not hold up much longer for non-lawyers seeking to own equity stakes in law firms.

Plaintiffs’ firm Jacoby & Meyers, well known for using an extensive advertising campaign to transform itself from a small practice into one of the most well-known brand names in the legal profession, is now using another platform to invoke change on an entire industry.   The law firm filed lawsuits in New York, New Jersey and Connecticut to lift restrictions on law firms that bars non-lawyers from owning equity stakes in law firms.

Sides are forming on the issue.  On the one side are those who fear that relaxing restrictions on outside investors could cause ethics issues including jeopardizing attorney-client privilege and potentially putting profits over client interests.  But pressure is building to enable law firms to raise capital from non-laywers.

According to a recent Wall Street Journal blog, Australia and England have enacted laws allowing non-lawyers to own stakes in law firms, and legislation is now pending in North Carolina that would likewise permit law firms to raise capital from non-lawyers. The American Bar Association is exploring the issue of relaxing the outside ownership rules, which some lawyers consider outdated.

The blog from the Wall Street Journal is a must read for anyone who has a legal collection agency.  I see both sides but, with increased costs of running, scaling and automating professional law firms, the time has come to allow for outside capital influence.  It clearly would also allow for the sale of some partners’ interests to non-partners which could open up options and add value to the law firm enterprise created.

What do you think about this topic?