Editing Law firm (section)

== Arrangements ==
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 the attorneys who are members of the firm share ownership, profits and liabilities;
* [[Professional corporation]]s, 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 (prohibited as against public policy in many jurisdictions but allowed in others in the form of a "Professional Limited Liability Company" or "PLLC");
* [[Professional association]], which operates similarly to a professional corporation or a limited liability company;
* [[Limited liability partnership]] (LLP), in which the attorney-owners are partners with one another, but no partner is liable to any creditor of the law firm nor is any partner liable for any negligence on the part of any other partner. The LLP is taxed as a partnership while enjoying the liability protection of a corporation.

=== Restrictions on ownership interests ===
In many countries, including the United States, there is a rule that only lawyers may have an ownership interest in, or be managers of, a law firm. Thus, law firms cannot quickly raise [[Capital (economics)|capital]] through [[initial public offering]]s on the stock market, like most [[corporation]]s. They must either raise capital through additional capital contributions from existing or additional equity partners, or must take on debt, usually in the form of a [[line of credit]] secured by their [[accounts receivable]].

In the United States this complete bar to nonlawyer ownership has been codified by the [[American Bar Association]] as paragraph (d) of Rule 5.4 of the [[American Bar Association Model Rules of Professional Conduct|Model Rules of Professional Conduct]] and has been adopted in one form or another in all U.S. jurisdictions,<ref>See [http://www.americanbar.org/groups/professional_responsibility/publications/model_rules_of_professional_conduct/rule_5_4_professional_independence_of_a_lawyer.html Rule 5.4 of the Model Rules of Professional Conduct].</ref><ref>{{cite magazine|url=http://www.abajournal.com/magazine/selling_law_on_an_open_market/ |title=Selling Law on an Open Market |first=Jason |last=Krause |magazine=[[ABA Journal]] |date=July 1, 2007 |access-date=October 4, 2010}} See also: [[American Bar Association]] Commission on Multidisciplinary Practices, Final Report, Appendix C, Reporter’s notes, July 2000</ref> except the District of Columbia and Arizona.<ref>See [http://www.dcbar.org/for_lawyers/ethics/legal_ethics/rules_of_professional_conduct/amended_rules/rule_five/rule05_04.cfm Rule 5.4 of the District of Columbia Rules of Professional Conduct]</ref><ref>{{Cite web |date=2020-08-31 |title=Arizona Is First State To Eliminate Ban On Nonlawyer Ownership Of Law Firms {{!}} LawSites |url=https://www.lawnext.com/2020/08/arizona-is-first-state-to-eliminate-ban-on-nonlawyer-ownership-of-law-firms.html |access-date=2025-05-24 |website=www.lawnext.com |language=en-US}}</ref> However, D.C.'s rule is narrowly tailored to allow equity ownership only by those nonlawyer partners who actively assist the firm's lawyers in providing legal services, and does not allow for the sale of ownership shares to mere passive nonlawyer investors. The U.K. had a similar rule barring nonlawyer ownership, but under reforms implemented by the [[Legal Services Act 2007|Legal Services Act of 2007]] law firms have been able to take on a limited number of non-lawyer partners and lawyers have been allowed to enter into a wide variety of business relationships with non-lawyers and non-lawyer owned businesses. This has allowed, for example, grocery stores, banks and community organizations to hire lawyers to provide in-store and online basic legal services to customers.

The rule is controversial. It is justified by many in the legal profession, notably the American Bar Association which rejected a proposal to change the rule in its Ethics 20/20 reforms, as necessary to prevent [[conflict of interest|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, and also has a duty to not bill the client excessively. Also, as an officer of the court, a lawyer has a duty to be honest and to not file frivolous cases or raise frivolous defenses. Many in the legal profession believe that a lawyer working as a shareholder-employee of a publicly traded law firm might be 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. Critics of the rule, however, believe that it is an inappropriate way of protecting clients' interests and that it severely limits the potential for the innovation of less costly and higher quality legal services that could benefit both ordinary consumers and businesses.<ref>See [http://works.bepress.com/ghadfield/29/ Gillian K. Hadfield "Legal Barriers to Innovation:  The Growing Economic Cost of Professional Control over Corporate Legal Markets" Stanford Law Review 2008]; [http://works.bepress.com/ghadfield/53/ Gillian K. Hadfield "The Cost of Law: Promoting Access to Justice through the (Un)Corporate Practice of Law" International Review of Law and Economics, 2013]</ref>

In 2020, Arizona became the first state ([[District of Columbia statehood movement|the District of Columbia is not a state]]) to authorize "alternative business structures" or "ABS" with nonlawyer owners.<ref name="Campisi">{{cite news |last1=Campisi |first1=Jon |title=KPMG Launches U.S. Law Firm After Landing Arizona Approval |url=https://www.law.com/americanlawyer/2025/02/27/kpmg-launches-us-law-firm-after-landing-arizona-approval/ |work=The American Lawyer |date=February 27, 2025 |url-access=subscription}}</ref> While not the first ABS authorized by the Arizona Supreme Court, [[KPMG]] was the first of the Big Four accounting firms to receive authorization as an ABS to deliver legal services in Arizona, but under the condition that it cannot provide legal services to clients for whom KPMG or its member firms were already providing audits or attestations.<ref name="Campisi" />

===Multinational law firms===
Law firms operating in multiple countries often have complex structures involving multiple partnerships, particularly in jurisdictions such as Hong Kong and Japan which restrict partnerships between local and foreign lawyers. One structure largely unique to large multinational law firms is the [[Swiss Verein]], pioneered by [[Baker McKenzie]] in 2004, in which multiple national or regional partnerships form an association in which they share branding, administrative functions and various operating costs, but maintain separate revenue pools and often separate partner compensation structures. Other multinational law firms operate as single worldwide partnerships, such as British or American limited liability partnerships, in which partners also participate in local operating entities in various countries as required by local regulations.<ref name=amlaw>{{cite news|last=Johnson|first=Chris|title=Vereins: The new structure for global firms|url=http://www.americanlawyer.com/PubArticleTAL.jsp?id=1202591158156|access-date=1 August 2013|newspaper=[[The American Lawyer]]|date=7 March 2013}}</ref>

=== Financial indicators ===
Three financial statistics are typically used to measure and rank law firms' performance:<ref>{{Cite web|url=http://www.americanbar.org/publications/law_practice_home/law_practice_archive/lpm_magazine_articles_v33_is4_an22.html|title=Profitability {{!}} Law Practice Division|website=www.americanbar.org|access-date=2017-03-13}}</ref>
* Profits per equity partner (PPEP or PPP): [[Earnings before interest and taxes|Net operating income]] divided by number of equity partners. High PPP is often correlated with prestige of a firm and its attractiveness to potential equity partners. However, the indicator is prone to manipulation by re-classifying less profitable partners as non-equity partners.
* Revenue per lawyer (RPL): [[Revenue|Gross revenue]] divided by number of lawyers. This statistic shows the revenue-generating ability of the firm's lawyers in general, but does not factor in the firm's expenses such as associate compensation and office overhead.
* Average compensation of partners (ACP): Total amount paid to equity and nonequity partners (i.e., net operating income plus nonequity partner compensation) divided by the total number of equity and nonequity partners. This results in a more inclusive statistic than PPP, but remains prone to manipulation by changing expense policies and re-classifying less profitable partners as associates.