Law firm

A law firm is a business entity formed by one or more lawyers to engage in the practice of law.

Organization

Law firms are organized in a variety of ways, depending on the jurisdiction in which the firm practices. Common arrangements include:

~ ~ ~ ~ ~ ~ ~ ~ ~ ~

• Sole proprietorship, in which the attorney is the law firm and is responsible for all profit, loss and liability;
• General partnership, in which all of the attorneys in the firm equally share ownership and liability;
• Professional corporations, which issue stock to the attorneys in a fashion similar to that of a business corporation;
• Limited liability company, in which the attorney-owners are called "members" but are not directly liable to third party creditors of the law firm;
• Professional association, which operates similarly to a professional corporation or a limited liability company;
• Limited liability partnership (LLP), in which the attorney-owners are called "partners", but are not liable to third party creditors of the law firm, except in certain limited circumstances.

Regardless of the form of entity of the law firm, however, there is a general rule, promulgated by the American Bar Association and adhered to in almost all U.S. jurisdictions, that only lawyers may have an ownership interest in the firm. Thus, law firms cannot quickly raise capital through initial public offerings on the stock market, like most corporations.

Related Topics:
American Bar Association - Initial public offering - Corporation

~ ~ ~ ~ ~ ~ ~ ~ ~ ~

The rule was created in order to prevent conflicts of interest. In the adversarial system of justice, a lawyer has a duty to be a zealous and loyal advocate on behalf of the client. Also, as an officer of the court, a lawyer has a duty to be honest and to not file frivolous cases. A lawyer working as a shareholder-employee of a publicly traded law firm would be strongly tempted to evaluate decisions in terms of their effect on the stock price and the shareholders, which would directly conflict with the lawyer's duties to the client and to the courts.

~ ~ ~ ~ ~ ~ ~ ~ ~ ~