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Law Firm
A law firm
is a business entity formed by one or more lawyers to engage in
the practice of law. 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, business transactions and
other matters in which legal assistance is sought.
* 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 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.
In many countries, including the United States and the United
Kingdom, 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 through initial public offerings on
the stock market, like most corporations. In the United States
this rule is promulgated by the American Bar Association and
adhered to in almost all U.S. jurisdictions.
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.
In the United Kingdom, lawyers are divided between barristers,
who plead in the higher courts and give expert opinions on
points of law, and solicitors who act directly for clients. Even
though barristers are traditionally seen as the senior branch of
the legal profession, and the most distinguished British lawyers
are generally barristers, most barristers are self-employed sole
practitioners (although they share facilities in sets of rooms
known as "chambers", usually at one of the four Inns of Court).
All the main UK law firms are firms of solicitors.
Large law firms usually have separate litigation and
transactional departments. The transactional department advises
clients and handles transactional legal work, such as drafting
contracts, handling necessary legal applications and filings,
and evaluating and ensuring compliance with relevant law; while
the litigation department represents clients in court and handle
necessary matters (such as discovery and motions filed with the
court) throughout the process of litigation.
Structure and promotion
Law 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" (pioneered around 1900 by partner Paul
Cravath of Cravath, Swaine & Moore): 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. Traditionally,
partners shared directly in the profits of the firm, after
paying salaried employees, the landlord, and the usual costs of
furniture, office supplies, and books for the law library (or a
database subscription). Partners in a limited liability
partnership can largely operate autonomously with regards to
cultivating new business and servicing existing clients within
their book of business. However, many large law firms have moved
to a two-tiered partnership model, with equity and non-equity
partners. Equity partners are considered to have ownership
stakes in the firm, and share in the profits (and losses) of the
firm. Non-equity partners are generally paid a fixed salary
(albeit much higher than associates), and they are often granted
certain limited voting rights with respect to firm operations.
It is rare for a partner to be forced out by fellow partners,
although that can happen if the partner commits a crime or
malpractice, experiences disruptive mental illness, or is not
contributing to the firm's overall profitability. However, some
large firms have written into their partnership agreement a
forced retirement age for partners. This age can be anywhere
from age 65 on up. 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.
In the United States and Canada, 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.
These relationships are structured to allow more senior
attorneys share in the resources and "brand name" of the firm
without being a part of management or profit sharing decisions.
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, the title "of counsel" is given to
retired partners who maintain ties to the firm. Sometimes an "of
counsel" is a senior or experienced attorney, such as a foreign
legal consultant with experience in international law and
practice, and his own clients. They are hired as independent
contractors by large firms as a special arrangement, that may
lead upon profitable results to partnership. In these situation
an "of counsel" could be considered as a transitional status in
the firm.
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