5.4 of the ABA Rules of Professional Responsibility prohibits a non-lawyer from investing in a law firm.

The Rule states:

(a) A lawyer or law firm shall not share legal fees with a nonlawyer…
(4) (b) A lawyer shall not form a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law.
(d) A lawyer shall not practice with or in the form of a professional corporation or association authorized to practice law for a profit.
If:a nonlawyer owns an interest therein or a nonlawyer has the right to direct or control the professional judgment of a lawyer
The purpose of this prohibition is to avoid in any way with the independence of a lawyer.

All states follow the same rule, except for a limited exception in the District of Columbia.
The United Kingdom and Australia have now enabled private investment in law firms. The rationale for this change in the UK and AU is to increase access to the legal system by individuals who cannot afford high legal fees. In theory innovation will be stimulated by increased investment in the legal sector and the introduction of more modern management methods and technologies. In the US, some law firms, notably Clearspire, has developed a workaround to the Rule 5.4 prohibition by creating a well-financed management company that provides all of the technological and management process to the law firm, enabling the lawyer's in the firm to focus on the practice of law.
In theory, in the UK and AU, safeguards have been put in place to prevent any interference with the independence of the lawyer. Should the US follow the practice of the UK and AU? What do you think?

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  • As far as access to legal services in the U.S. goes, what effect would non-lawyer investment in law firms have on pro bono programs that many firms offer as a way to give back to the community? At the very least I think the emphasis on investor relations and ROI might curtail pro bono offerings.

  • Mind you, I primarily practice representing Plaintiffs in personal injury cases.  I can imagine a group of doctors backing a new lawyer and blitzing the advertising, forcing referrals to the group of investors/doctors and controlling the cases.  I have heard of issues like this in the current environment. We've been able to provide legal services without resorting to risky business and there is no need to do so now.

    /s Donald Kudler

  • See Ontario Canada Law Society’s Alternative Business Structures Working Group, -- Alternative Business Structures Discussion Paper has been posted on the Law Society’s dedicated web page at http://www.lsuc.on.ca/ABS/. Ontario is moving ahead of the United States in terms of allowing Alternative Business Structures.

  • I think it's a bad idea to allow private, non-attorney, companies to own any portion of a law firm.  We, as lawyers need to be able to make judgment and advise clients based on what's in their best interest.  We are supposed to avoid even the hint of any conflict.  Allowing private investments could lead a client, Bar Association, or others to questions whether the lawyer is acting in the best interests of the client or the investors.  We are already questioned as to whether we have our clients' interests at heart when advising on whether or not to proceed with a claim or settle it.  Adding another party into the mix can only make this worse.

    /s Donald Kudler

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