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From Wikipedia, the free encyclopedia

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.

Contents

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 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.

Restrictions on ownership interests

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 is adhered to in all U.S. jurisdictions, except the District of Columbia.[1] The U.K. has a similar rule, but in recent years there have been discussions about relaxing it in order to allow law firms to expand more rapidly.

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, 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. 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

Partnership

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[2]): 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[3]).

Making partner is very prestigious, especially due to competition at a large or mid-sized firm. Such firms may 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. The world's oldest continuing partnership is that of Cadwalader, Wickersham & Taft, founded in 1792 in New York City.

Termination of one's partnership

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.

"Of counsel" role

In the United States, Canada and Japan, many large and midsize firms have attorneys with the job title of "counsel", "special counsel" or "of counsel." As the Supreme Court of California has noted, the title has acquired several related but distinct definitions which do not easily fit into the traditional partner-associate structure.[4] 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 "of counsel" refers to senior or experienced attorneys, such as foreign legal consultants with experience in international law and practice and their own clients. They are hired as independent contractors by large firms as a special arrangement, which may lead to profitable results for the partnership. In these situations "of counsel" could be considered to be a transitional status in the firm.

Mergers and acquisitions between law firms

Mergers, acquisitions, division and reorganizations occur between law firms as in other businesses. The specific books of business and specialization of attorneys as well as the professional ethical strictures surrounding conflict of interest can lead to firms splitting up to pursue different clients or practices, or merging or recruiting experienced attorneys to acquire new clients or practice areas. Results often vary between firms experiencing such transitions. Firms that gain new practice areas or departments through recruiting or mergers that are more complex and demanding (and typically more profitable) may see the focus, organization and resources of the firm shift dramatically towards those new departments. Conversely, firms may be merged among experienced attorneys as partners for purposes of shared financing and resources, while the different departments and practice areas within the new firm retain a significant degree of autonomy.

Size

Law firms range widely in size. The smallest law firms are sole practitioners (lawyers practicing alone), who form the vast majority of lawyers in nearly all countries.[5]

Smaller firms tend to focus on particular specialties of the law (e.g. patent law, labor law, tax law, criminal defense, personal injury); 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.[6]

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.

Anglo-American development

First law firms

The United States pioneered the concept of the large law firm in the sense of a business entity consisting of more than one lawyer. The first law firms with two or more lawyers appeared in the U.S. just prior to the American Civil War (1861–1865).[7] The idea gradually spread across the Atlantic to England, although "English solicitors remained a corps of solo practitioners or very small partnerships until after World War II."[8] Today, the United States (and the United Kingdom) have many small firms (2 to 50 lawyers) and midsize firms (50 to 200 lawyers).[9]

Boutique law firms

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.[10] Thus, some small firms in the cities specialize in practicing only one kind of law (like employment, antitrust, intellectual property, or telecommunications) and are called boutique law firms.[11]

"Megafirms"

The largest law firms have more than 1,000 lawyers. These firms, often colloquially called "megafirms" or "biglaw", generally have offices on several continents, bill up to US$750 per hour or higher, and have a high ratio of support staff per attorney.[12][13] They can, and in some cases do, litigate every issue, burying their opponents in a blizzard of paper in the process; the result has been a kind of legal "arms race" where every large corporation tries to retain the services of the largest, most powerful law firm they can afford.[14] Because of the localized and regional nature of firms, the relative size of a firm varies.[15]

"Full service" firms

The largest firms like to call themselves "full-service" firms because they have departments specializing in every type of legal work that pays well, which in the U.S. usually means mergers and acquisitions transactions[16], banking, and certain types of high-stakes corporate litigation. These firms rarely do plaintiffs' personal injury work. However the largest law firms are not very large compared to other major businesses (or even other professional services firms). In 2008, the largest law firm in the world was the British firm Clifford Chance, which had revenue of over US$2 billion. This can be compared with $404 billion for the world's largest firm by turnover Exxon Mobil and $28 billion for the largest professional services firm PricewaterhouseCoopers.

Worldwide

The largest law firms in the world are based primarily in the United Kingdom and the United States. The American system of licensing attorneys on a state-by-state basis, the tradition of having a headquarters in a single U.S. state and a close focus on profits per partner (as opposed to sheer scale) has to date limited the size of most American law firms. Thus, whilst the most profitable law firms in the world remain in New York, four of the six largest firms in the world are based in London in the United Kingdom[17]. But the huge size of the United States results in a larger number of large firms overall — a 2003 survey found that the United States alone had 901 law firms with more than 50 lawyers, while there were only 58 such firms in Canada, 44 in Great Britain, 14 in France, and 9 in Germany.[18] There is an increasing tendency towards globalisation of law firms.

Due to their huge size, the U.S. and UK-based law firms are the most prestigious and powerful in the world, and dominate the international market for legal services. A 2007 paper noted that firms from other countries merely pick over their leftovers: "[M]uch of the competition is relatively orderly whereby predominantly Australian, New Zealand, and Canadian firms compete for business not required by English or American law firms."[19]

Recession

With the US recession, in 2008 and 2009, many US law firms have downsized their staffs considerably, and some have closed. The Denver Post reported that major law firms have cut more than 10,000 jobs nationwide in recent months.[20] On February 12, 2009, Bloomberg reported that 700 jobs were cut that one day at law firms across the country.[21] Among the firms closed included Heller Ehrman, a San Francisco-based firm established in 1890.[22] And firms cutting positions included Baker & McKenzie cut 124 attorney and staff positions.[23]DLA Piper cut 121 attorneys and staff.[24] Hinshaw & Culbertson eliminated 28 attorneys and staff.[25] Law firm layoffs have become so common that American Lawyer produces an ongoing and growing “Layoff List” of the 112+ law firms nationwide that have cut jobs in the past year.[26]

Salaries

United States

Salaries typically depend on firm size (small-firm salaries vary widely and are not often publicly available). In 2006, median salaries of new graduates ranged from US$50,000 per year in small firms (2 to 10 attorneys) to US$160,000 per year in very large firms (more than 501 attorneys)[27].

According to alreadybored.com, many large firms in major markets such as New York City,[28] Los Angeles,[29] Washington DC,[30] Boston[31] and Chicago[32] compensate new associates using the following pay scale:

Year Salary (US$)
First 160,000
Second 170,000
Third 185,000
Fourth 210,000
Fifth 230,000
Sixth 250,000
Seventh 270,000
Eighth 280,000

Other markets such as Texas[33] start at US$160,000, but the annual increases are much smaller than the above scale.

With a few exceptions, markets such as Atlanta,[34] Philadelphia,[35] New Jersey,[36] Florida,[37] Denver,[38] and Seattle[39] generally start at US$35,000-US$50,000 for small law firms to US$130,000 or US$145,000 for large law firms.

With a few exceptions, most other U.S. markets start within US$20,000 to US$100,000.

As a result of the current recession, many firms froze salaries (no annual salary increases in January 2009), reverted back to the early 2007 pay scale shown below, and/or cut salaries.[40]

Year Salary (US$)
First 145,000
Second 155,000
Third 170,000
Fourth 190,000
Fifth 210,000
Sixth 225,000
Seventh 240,000
Eighth 255,000

NYC bonuses (the highest in the U.S.) in 2007 were as follows:[41]

Year Bonus (US$)
First 45,000 (35,000 + 10,000 special bonus)
Second 55,000 (40,000 + 15,000)
Third 65,000 (45,000 + 20,000)
Fourth 80,000 (50,000 + 30,000)
Fifth 95,000 (55,000 + 40,000)
Sixth 110,000 (60,000 + 50,000)
Seventh 115,000 (65,000 + 50,000)

In 2008, several firms reverted back to the 2006 bonus structure (e.g., no special bonus) or creating a new scale as shown below.[42]

Year Bonus (US$)
First 17,500
Second 20,000
Third 22,500
Fourth 25,000
Fifth 27,500
Sixth 30,000
Seventh 32,500

Larger markets outside NYC typically match the base bonus without the special bonus. Smaller markets and/or smaller firms pay $5K to $20K bonuses, if any at all.[43]

Some prominent law firms, like Goodwin Procter and Paul Hastings, give generous signing bonuses (e.g., $20k[44][45]) to incoming first-year associates who hold JD/MBA degrees.

Location

Most law firms are located in office buildings of various sizes, ranging from modest one-story buildings (e.g. SLC[46]) to some of the tallest skyscrapers in the world (though only in 2004, Paul Hastings 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, large corporate firms are notorious for using jaw-dropping interior design (huge amount of floor space and fantastic views) as a "shock and awe" tactic to impress prospective clients and intimidate opposing counsel. Other firms will find more modest office space, depending on the nature of the practice.

In late 2001, 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."[47] 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.

Rankings

As legal practice is adversarial, law firm rankings are widely relied on by prospective associates, lateral hires and legal clients. Substantive rankings typically cover practice areas such as The American Lawyer's Corporate Scorecard [48] and Top IP Firms. Work place rankings are directed toward lawyers or law students, and cover such topics as quality of life, hours, family friendliness and salaries [49]. Finally, statistical rankings generally cover profit-related data such as profits per partner and revenue per lawyer [50].

In an October 2007 press conference reported in the Wall Street Journal and the New York Times, the law student group Building a Better Legal Profession released its first annual ranking of top law firms by average billable hours, pro bono participation, and demographic diversity.[51][52] Most notably, the report ranked the percentages of women, African-Americans, Hispanics, Asian-Americans, and gays & lesbians at America's top law firms. The group has sent the information to top law schools around the country, encouraging students to take this demographic data into account when choosing where to work after graduation.[53] As more students choose where to work based on the firms' diversity rankings, firms face an increasing market pressure in order to attract top recruits.[54]

In popular culture

Books

Movies

Television shows

A number of television shows have revolved around relationships occurring in fictional law firms, highlighting both public fascination with and misperception of the lives of lawyers in high-powered settings.

See also

References

  1. ^ American Bar Association ABA Journal July 2009
  2. ^ Robert L. Nelson, Partners With Power: The Social Transformation of the Large Law Firm (Berkeley: University of California Press, 1988), 71-72.
  3. ^ Michael H. Trotter, Profit and the Practice of Law: What's Happened to the Legal Profession (Athens, GA: University of Georgia Press, 1997), 83.
  4. ^ See People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc., 20 Cal. 4th 1135, 1152-1153 (1999).
  5. ^ Geoffrey C. Hazard, Jr. & Angelo Dondi, Legal Ethics: A Comparative Study (Stanford: Stanford University Press, 2004), 39.
  6. ^ Wayne L. Anderson and Marilyn J. Headrick, The Legal Profession: Is it for you? (Cincinnati: Thomson Executive Press, 1996), 111.
  7. ^ Hazard, 37-39.
  8. ^ Hazard, 39.
  9. ^ Trotter, 46.
  10. ^ Nelson, 172, and Trotter, 50.
  11. ^ Lawrence M. Friedman, American Law in the 20th Century (New Haven: Yale University Press, 2002), 462.
  12. ^ Trotter, 56.
  13. ^ Richard L. Abel, American Lawyers (New York: Oxford University Press, 1989), 190-199.
  14. ^ Trotter, 114.
  15. ^ Anderson, 113.
  16. ^ Friedman, 462.
  17. ^ Bmacewen.com
  18. ^ Eliane Botelho Junqueira, "Brazil: The Road of Conflict Bound for Total Justice," in Legal Culture in the Age of Globalization: Latin America and Latin Europe, eds. Lawrence M. Friedman and Rogelio Pérez-Perdomo, 64-107 (Stanford: Stanford University Press, 2003), 92.
  19. ^ Ashly H. Pinnington & John T. Gray, "The global restructuring of legal services work? A study of the internationalisation of Australian law firms," 14 Int'l J. Legal Prof. 147, 151-152 (2007).
  20. ^ http://www.denverpost.com/theeconomy/ci_12050886 Denver Post, Big law firms cut attorneys, staff in tight economy, 2 April 2009
  21. ^ http://www.bloomberg.com/apps/news?pid=20601087&sid=aWC1nJ1AQX3I&refer=home Bloomberg, Law Firms in US eliminate 700 jobs as economy slows, 13 February 2009
  22. ^ http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/09/25/BUQF135ES8.DTL&tsp=1 San Francisco Chronicle, Heller Ehrman law firm to dissolve Friday, 26 Sept 2008
  23. ^ http://www.amlawdaily.typepad.com/amlawdaily/2009/04/baker-mckenzie-layoffs.html American Law Daily, Baker & McKenzie eliminates 124 legal and nonlegal jobs, 7 April 2009
  24. ^ http://www.law.com/jsp/article.jsp?id=1202432119451 Law dot com, DLA Piper cuts 121 in second round of layoffs, 9 July 2009
  25. ^ http://www.jdjournal.com/2009/02/06/hinshaw-culbertson-lays-off-11-attorneys-17-staff JD Journal, Hinshaw Culbertson lays off, 6 February 2009
  26. ^ http://www.law.com/jsp/tal/PubArticleTAL.jsp?id=1202425647706&slreturn=1&hbxlogin=1 American Lawyer, The Layoff List, 3 Sept 2009
  27. ^ "What Do New Lawyers Earn? A 15-Year Retrospective as Reported by Law School Graduates". The distribution of these salaries is highly bimodal, with the majority of new lawyers earning at either the high end or the low end of the scale. The median salary is US$62,000 [1]. The Association for Legal Career Professionals, http://www.nalp.org/content/index.php?pid=520
  28. ^ alreadybored.com/NYC/Salary
  29. ^ alreadybored.com/CA/Salary
  30. ^ alreadybored.com/DC/Salary
  31. ^ alreadybored.com/MA/Salary
  32. ^ alreadybored.com/IL/Salary
  33. ^ alreadybored.com/TX/Salary
  34. ^ alreadybored.com/GA/Salary
  35. ^ alreadybored.com/PA/Salary
  36. ^ alreadybored.com/NJ/Salary
  37. ^ alreadybored.com/FL/Salary
  38. ^ alreadybored.com/CO/Salary
  39. ^ alreadybored.com/WA/Salary
  40. ^ alreadybored.com
  41. ^ alreadybored.com/NYC/Bonus
  42. ^ Abovethelaw.com
  43. ^ Law Firms and Salaries - AlreadyBored.com
  44. ^ "Goodwin Procter Careers, Law Students". Goodwin Procter. 2008. http://www.goodwinprocter.com/Careers/Career-Opportunities/Law-Students/JD-MBA.aspx. Retrieved November 12, 2008. 
  45. ^ "Paul Hastings Career Center FAQ". Paul Hastings. 2008. http://www.paulhastings.com/careers_attorneys_FAQs.aspx. Retrieved May 12, 2008. 
  46. ^ SLC ,
  47. ^ Alan Feuer, "Next Stop for a Legal Team? A Personal Injury Case in Queens," New York Times, 26 December 2001, D1.
  48. ^ http://www.law.com/jsp/article.jsp?id=1175223828867 The Corporate Scorecard
  49. ^ http://www.averyindex.com Law Firm Rankings
  50. ^ http://www.law.com/jsp/article.jsp?id=1177664676190 AmLaw 100
  51. ^ Amir Efrati, You Say You Want a Big-Law Revolution, Take II, "Wall Street Journal", October 10, 2007.
  52. ^ Adam Liptak, In Students’ Eyes, Look-Alike Lawyers Don’t Make the Grade, New York Times, October 29, 2007, http://www.nytimes.com/2007/10/29/us/29bar.html?em&ex=1193889600&en=4b0cd84261ffe5b4&ei=5087%0A
  53. ^ Henry Weinstein, Big L.A. law firms score low on diversity survey: The numbers of female, black, Latino, Asian and gay partners and associates lag significantly behind their representation in the city's population, according to a study, "Los Angeles Times", October 11, 2007, http://www.latimes.com/news/local/la-me-diversity11oct11,1,661263.story?coll=la-headlines-california
  54. ^ Thomas Adcock and Zusha Elinson, Student Group Grades Firms On Diversity, Pro Bono Work, "New York Law Journal," October 19, 2007, http://www.law.com/jsp/nylj/PubArticleNY.jsp?hubtype=BackPage&id=1192698212305

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