A law firm is a business entity formed by one or more lawyers to engage in the practice of law.
Table of contents
The primary service provided by a law firm is to advise clients (individuals or corporations) about their legal rights and responsibilities, and to represent their clients in civil or criminal cases. Smaller firms tend to focus on particular specialties of the law (e.g. patent law, labor law, tax law); larger firms may be composed of several specialized practice groups, allowing the firm to diversify their client base and market, and to offer a variety of services to their clients.
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.
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.
Structure and Promotion
Larger firms are typically organized around partners, who are joint owners and business directors of the legal operation; associates, who are employees of the firm with the prospect of becoming partners; and a variety of staff employees, providing paralegal, clerical, and other support services. An associate may have to wait as long as 9 years before the decision is made as to whether the associate "makes partner". Many law firms have an "up-or-out policy": associates who do not make partner are required to resign, either to join another firm, go it alone as a solo practitioner, go to work in-house in a corporate legal department, or change professions (burnout rates are very high in law).
Making partner is very prestigious, especially at a large or midsize firm. Such firms take out advertisements in legal newspapers to announce who has made partner. Partners share directly in the profits of the firm, after paying off salaried employees, the landlord, and the usual costs of furniture, office supplies, and books for the law library (or a database subscription). And it is very rare for a partner to be forced out by his fellow partners; that happens only when the partner commits a crime or malpractice, or becomes insane or senile. In contrast, most corporate executives are at much higher risk of being fired, even when the underlying cause is not directly their fault, such as a drop in the company's stock price.
Many large and midsize firms have attorneys with the job title of "counsel", "special counsel" or "of counsel." These attorneys are employees of the firm like associates, although some firms have an independent contractor relationship with their of counsel. But unlike associates, and more like partners, they generally have their own clients, manage their own cases, and supervise associates. However, even though the firm trusts them enough to take them under its roof and let them share its brand name and resources, the firm does not trust them enough to make them partners and let them share in the firm's profits or in its management. The title is often seen among former associates who do not make partner, or who are laterally recruited to other firms, or who work as in-house counsel and then return to the big firm environment. At some firms (such as Skadden, Arps), the title "of counsel" is given to retired partners who maintain ties to the firm.
Law firms range widely in size. At the bottom are solo practitioners (lawyers practicing alone), who form the vast majority of lawyers in most countries. In North America, there are also many small firms (2 to 50 lawyers) and midsize firms (50 to 200 lawyers).
Lawyers in small cities and towns may still have old-fashioned general practices, but most urban lawyers tend to be highly specialized due to the overwhelming complexity of the law today. Thus, some small firms in the cities specialize in practicing only one kind of law (like employment or intellectual property) and are called "boutique" firms.
At the top are the huge megafirms with more than 1,000 lawyers. These firms have offices on multiple continents, bill $500 per hour or higher, and have a high ratio of support staff per attorney. They can and do litigate every issue, often burying their opponents in a blizzard of paper; the result has been a kind of legal "arms race" where every large corporation tries to retain the services of the biggest law firm they can afford.
Megafirms like to call themselves "full-service" firms because they have departments specializing in every type of legal work that pays well, which usually means transactions and defense. These firms rarely do plaintiffs' personal injury work. However the largest law firms are not very large compared to other major businesses. The tradition of firms being based in a single state limits the size of U.S. firms and four of the six largest firms in the world are based in London in the United Kingdom . In 2003 the largest was Clifford Chance, which had revenue of just over one and a half billion U.S. dollars.
Most law firms are located in office buildings of various sizes, ranging from modest one-story buildings to some of the tallest skyscrapers in the world (though only in 2004, Paul, Hastings, Janofsky & Walker LLP was the first firm to put its name on a skyscraper). Some solo practitioners practice out of their homes or in offices built as special additions to their homes.
Because their "work product" is often intangible, or at least conceptually difficult for clients to grasp, firms are notorious for using jaw-dropping interior design as a crude "shock and awe" tactic to impress prospective clients and terrify opposing counsel. Besides fantastic views and enormous amounts of open floor space, the offices of the largest megafirms are usually decorated with designer furniture and fine art worthy of the most extravagant dot-coms. In contrast, the typical small public interest firm is located in a cramped two-story building with bars on the windows, lead paint, asbestos, and furniture older than many of the younger lawyers who work there.
In early 2005, it was widely publicized that one personal injury plaintiffs' firm in the state of New York has been experimenting with bus-sized "mobile law offices." The firm insists that it does not chase ambulances. It claims that a law office on wheels is more convenient for personal injury plaintiffs, who are often recovering from severe injuries and thus find it difficult to travel far from their homes for an intake interview. It is not yet clear whether this experiment will grow into a trend.
A number of television shows such as LA Law, The Practice, and Boston Legal have revolved around relationships occurring in fictional law firms, highlighting both public fascination with and misperception of the characteristic lives of lawyers in high-powered settings.