Why Can't Law Firms Go Public?


The personal injury law firm Jacoby & Meyers (known for its TV commercials) is suing to overturn state laws in New York, New Jersey and Connecticut that prohibit non-attorneys from owning stakes in law firms. From The Wall Street Journal:

The firm, which has more than 60 lawyers and specializes in personal-injury cases, claims that the restrictions have hurt its ability to raise capital to cover technology and expansion costs, and have hampered it in providing affordable legal services to its working-class clients.

U.S. law firms typically are owned by their senior-most lawyers, called partners. The structure was designed to ensure that all the principals of the business were accountable for the firm’s work and that of their fellow partners.

The ban on law firms accepting nonlawyer investors is nationwide, with the exception of Washington, D.C., under ethics rules established largely by state supreme courts. Violations of the rules can lead to disbarment.

The restriction on investors is decades old and stems from even older strictures against lawyers sharing fees with nonlawyers, for fear that might compromise their professional independence.

So, should non-lawyers be allowed to hold shares in a law firm?


They can barely keep their conflicts of interest straight without adding shareholder concerns to the mix.

Although this does somewhat mirror the discussion that occurred around DLJ back in the 60's (should an investment firm be allowed to go public?). The results on that can be debated, but the system didn't collapse.

Ryan Phelps

I don't think so. Look at what happened when the investment banks went public.

Justin Bassett

Anyone know where the various bar associations fall on this issue?


There would be disastrous consequences from allowing public investment in lawsuit mills.

Besides, there's currently no deficiency in the partnership system for law firms; it's far and away the most logical system for ownership, and it's a very well functioning system. Look at the hourly pay partners make, the stability of their firms, the opportunities made available to new litigators thanks to them, etc. They are very much 'partnerships' of several lawyers, and there is no need for a new method of fundraising.

What would the public be investing in? That people are more litigious next quarter? That Democrats are able to block some tort reform measure being debated? The moral hazards abound. I'm assuming J&M wants to raise money to pay for more ads to get poor people to come in and agree to file weak cases against companies that are invariably settled for some unfair but optimal amount for the company, and which, in total, create tremendous inefficiencies in our country.



We have rich people getting richer speculating lawsuit outcomes already so why not? At least in going public we may actually learn how much money law firms actually make.


I don't know about law firms, but a similar dilemma exists in medicine.

In New York, medical practices must be owned by M.D.'s. Many enterprising non-M.D.'s skirt the issue by opening "medical consultation" companies.

They will lease space, equipment and trained staff to a doctor who is legally the 'owner'. Most importantly to the doctor, the consultant will provide a steady flow of patients and do the billing and collections.

While on paper it appears otherwise, in effect, the practice is not the doctor's but the consultant's. If the doctor does not do the bidding of the consultant, he is soon shown the curb (hello higher medical bills). The consultant, however has no medical license to lose when unnecessary procedures are performed.

Therfore, I think the point is moot. It may or may not be unethical for a layman to 'own' a law firm, but no law can stop someone from 'leasing' office space, staff, research or any expensive hi-tech service.



Having just settled a completely frivolous patent troll lawsuit, I'd love to be able to invest in patent troll firms -- government-backed, legalized extortion is one hell of a business to be in these days, and I don't see why lawyers should be the only ones allowed to profit from it.


Hilarious. Sorry, Bill!

I can commiserate. I work for a medical devices company, and we pay millions of dollars every year in ridiculous settlements to morbidly obese (a legal term) people with new artificial knees who decide that despite what their doctors and (you would think) common sense tell them, they can continue to waterski. When the device fails, they sue, and we can't afford take them to trial because there is no precident set in these civil cases, so they settle for a lot of food money. None of them deserve a dime. We pass the costs on to the consumer, raising the cost of medical treatment (an issue that hasn't see much attention in the news recently). The government is unwilling to reform these lawsuits, largely because the lawyer lobby is shockingly good at lawyering, and thus very influencial, and because the 'victims' know which politicians support their victimhood at the hand of 'evil corporations' (owned by eeeevil pension funds... huh?). This is not a just system. But it could be, I have hope for change in the future.



Chad, you say you "pass the costs on to the consumer, raising the cost of medical treatment". If you are able to charge a higher price than before, why were you not charging that to begin with?

It seems to me that this "pass the cost" thing is just something corporations say to get sympathy.


Just because you can command a high price need not be enough reason to do it. There are different market segments and customers and not all companies operate at the same.
For example, as a company I might be looking to reduce my costs, lower the price and reach a bigger customer base and so on...


It is possible...

Australia has a listed law firm (http://www.slatergordon.com.au/) which is listed on the Australian Stock Exchange.

Not saying it's right, but it's there...


Must be the new trend in Australia - another firm has also listed: https://www.shine.com.au/

Ayush Neupane

I was talking about the same thing only a day ago, and was not aware of the law suit that had been filed. I think that if there will be no problems associated with access to information by the shareholders, then law firms should be allowed to go public. A more complete response can be found here in my blog post:

Can Law Firms Go Public? http://t.co/KrXbsYR



Its the one big gap in the financial markets. We positively need investment vehicles that allow investors to cash in on Ambulance Chasing and Patent Trolling.

Do it now!

Drew F

Well, we certainly couldn't have a lawyer doing anything "unethical."


@Olli: If one company just started charging more, their customers would go elsewhere. It's different with legal restrictions because it applies to everyone equally. Corporations usually complain because it hurts their revenue as well.


I am against it. I think one of the reasons we have so much corporate irresponsibility is that the owners (shareholders0 are so far removed from any responsibility for the operation of the company. Today, most individuals who own pieces of the company are far removed from the business, either because the shares are held in mutual funds or pension funds and the like. I own pieces of thousands of companies through my 401(k)s, but couldn't name more than a handful of them. How am I, as an owner, supposed to influence the responsible running of these companies? I think making law firms public would be a bad idea.


My first reaction is "I don't see why not, yes". But then I wonder if a law firm could ever become the size of Wal-mart. And if so, a law firm that size, owned by investors, run by CEO's, solely pursuing profits, lobbying government... This worst case scenario makes me think twice.

John B

Realistically, what would happen is that opponents would have people buy a few shares in the law firm and then either object to their actions or claim they have a conflict with their shareholders. It would make it impossible for them to accomplish anything.

Jim in StL

I think the example of the financial firms wild excesses since they went public should give us pause. The profit motive is generally a good thing but the spoils of liability litigation are not profits in the usual economic sense and definitely do not result from an increase in the total wealth of society. So, improving the ability of law firms to extract profits will reduce the total wealth available for productive investment. Therefore law firms should not be allowed to sell stock.