4 ms·

How does the law prohibit a profit sharing plan at law firms? It's illegal to pay non lawyers bonuses?

meddlepal 8y ago
https://www.americanbar.org/groups/professional_responsibility/publications/model_rules_of_professional_conduct/rule_5_4_professional_independence_of_a_lawyer/ https://www.americanbar.org/groups/professional_responsibili... It's a bit more nuanced.
- SilasX 8y ago
  I see an exemption for "compensation", which I assume means "You can't pay out profits to non-managing non-lawyer silent partners, but you can do it for any non-laywer worker as part of their compensation arrangement." >(3) a lawyer or law firm may include nonlawyer employees in a compensation or retirement plan, even though the plan is based in whole or in part on a profit-sharing arrangement; and
- loeg 8y ago
  Do you know how that came about? It seems like a weird restriction. I can understand wanting to prevent shady firms from misrepresenting non-lawyers as lawyers to clients, but I don't understand why any of the rest of it follows. This bit seems like a loophole: > (3) a lawyer or law firm may include nonlawyer employees in a compensation … plan, even though the plan is based in whole … on a profit-sharing arrangement
- kakarot 8y ago
  "A lawyer shall not form a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law." Does anyone know the motivations and publicly stated reasons for this absurd restriction?
  - LanceH 8y ago
    It enriches lawyers. I'm sure they some other veneer for it.
  - philwelch 8y ago
    The Bar Association is a cartel. The motivations should be obvious.
    - kakarot 8y ago
      I'm more interested in the publicly stated reasons.
      - scarejunba 8y ago
        “It ensures that your legal work is done by professionals who have spent years to study the subject. The costs to making mistakes in this industry are high and we choose to maintain a high standard of quality by ensuring legal subjects are only handled by professionals with requisite experience” Essentially, think of anyone who argues for certification.
        kakarot 8y ago
        That's fair. So this is just partnerships, then? Is a lawyer still allowed to take part in leadership of a company that has non-lawyer leadership provided it's not a partnership, specifically?
        philwelch 8y ago
        Law firms are typically structured as partnerships. I'm not sure if that's because there's another restriction against operating a law firm as a non-partnership or what. If a lawyer was part of a company that wasn't a law firm, that would be fine. Actually, this happens pretty frequently--many sports agents happen to be lawyers, because sports agents are responsible for contract negotiations and legal skills are valuable in that situation--though they do not necessarily represent their clients as lawyers and hence the sports agencies they own and operate aren't treated as law firms. For example, Drew Rosenhaus is a lawyer and a prominent sports agent, and his firm is neither a partnership nor a law firm. Rosenhaus is famous for a number of things, such as being the real-life inspiration for the title character in the film Jerry Maguire and holding a press conference with his famously difficult client Terrell Owens during one of the many controversial incidents he got himself into and responding to every question from the reporters with the phrase, "next question". He was also the agent of Chad Johnson, who famously legally changed his name to Chad Ochocinco for four years to get around league rules preventing him from putting that inaccurate Spanish translation of his jersey number on his jersey in place of his surname.
  - tivert 8y ago
    >> "A lawyer shall not form a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law." > Does anyone know the motivations and publicly stated reasons for this absurd restriction? Total speculation, but maybe it's to keep the profession controlled by its practitioners and not financiers? The exclusion of paralegals, etc. could just be a side effect of keeping investors out. I do see some benefits for that kind of restriction. If your profession is bound by a code of ethics, it would help with compliance if all the top leadership were bound by it too. If they're just owners from outside the profession, there will always be pressure to compromise ethics to benefit the owner.
arminiusreturns 8y ago
I think it's per-state, but in Texas at least, it's illegal to do profit sharing with non lawyers. It is also illegal for a non lawyer to have majority or controlling ownership of a firm. I know because both my SO and my mother are best in class legal secretaries and we were investigating opening our own firm without the asshole lawyers taking all the money for 1/4th the work.
- haskellandchill 8y ago
  That's insane. How did such laws come to be? Lawyers lobbying?
  - elliekelly 8y ago
    It's meant to prevent investors from pressuring attorneys to prioritize profit over legal ethics. The thinking is that an attorney has their bar license on the line when making ethical decisions. If everyone's license is on the line they're likely to act in accordance with their ethical obligations. If a non-attorney invests in a law firm they could pressure the attorney to risk their license to generate more profit. Accounting firms used to have the same rule (though they've relaxed it a bit to allow non-CPAs to own less than 40% or 50% as the accounting firms got more and more into "consulting"). The rationale is explained well here[1]. Large law firms are making a similar, though slower, transition to expanding their consulting services. Particularly with respect to data privacy and cybersecurity. I would expect the rules to relax over time. The U.K. recently permitted non-lawyers to invest in law firms but it doesn't seem many investors have jumped in head-first. Law firms and accounting firms don't have much by way of "assets" so they can be quite risky. I briefly worked at Deloitte with a former Arthur Anderson partner. He was quick to warn all of the young staff about what a terrible investment his equity had been. One rogue partner can sink the entire ship and leave the rest without much ability to recoup the money they put in. [1] http://archives.cpajournal.com/old/14469513.htm http://archives.cpajournal.com/old/14469513.htm
    - arminiusreturns 8y ago
      Which really cracked me up, having consulted with firms on the IT side and knowing so many lawyers, I can say that one's that put ethics above profits are the exception, and so lawyers already violate the basic reasoning for that law in the first place! Just seems like an excuse to maintain a racket to me.

https://www.americanbar.org/groups/professional_responsibility/publications/model_rules_of_professional_conduct/rule_5_4_professional_independence_of_a_lawyer/ https://www.americanbar.org/groups/professional_responsibili... It's a bit more nuanced.

SilasX 8y ago
I see an exemption for "compensation", which I assume means "You can't pay out profits to non-managing non-lawyer silent partners, but you can do it for any non-laywer worker as part of their compensation arrangement." >(3) a lawyer or law firm may include nonlawyer employees in a compensation or retirement plan, even though the plan is based in whole or in part on a profit-sharing arrangement; and
loeg 8y ago
Do you know how that came about? It seems like a weird restriction. I can understand wanting to prevent shady firms from misrepresenting non-lawyers as lawyers to clients, but I don't understand why any of the rest of it follows. This bit seems like a loophole: > (3) a lawyer or law firm may include nonlawyer employees in a compensation … plan, even though the plan is based in whole … on a profit-sharing arrangement
kakarot 8y ago
"A lawyer shall not form a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law." Does anyone know the motivations and publicly stated reasons for this absurd restriction?
- LanceH 8y ago
  It enriches lawyers. I'm sure they some other veneer for it.
- philwelch 8y ago
  The Bar Association is a cartel. The motivations should be obvious.
  - kakarot 8y ago
    I'm more interested in the publicly stated reasons.
    - scarejunba 8y ago
      “It ensures that your legal work is done by professionals who have spent years to study the subject. The costs to making mistakes in this industry are high and we choose to maintain a high standard of quality by ensuring legal subjects are only handled by professionals with requisite experience” Essentially, think of anyone who argues for certification.
      - kakarot 8y ago
        That's fair. So this is just partnerships, then? Is a lawyer still allowed to take part in leadership of a company that has non-lawyer leadership provided it's not a partnership, specifically?
        philwelch 8y ago
        Law firms are typically structured as partnerships. I'm not sure if that's because there's another restriction against operating a law firm as a non-partnership or what. If a lawyer was part of a company that wasn't a law firm, that would be fine. Actually, this happens pretty frequently--many sports agents happen to be lawyers, because sports agents are responsible for contract negotiations and legal skills are valuable in that situation--though they do not necessarily represent their clients as lawyers and hence the sports agencies they own and operate aren't treated as law firms. For example, Drew Rosenhaus is a lawyer and a prominent sports agent, and his firm is neither a partnership nor a law firm. Rosenhaus is famous for a number of things, such as being the real-life inspiration for the title character in the film Jerry Maguire and holding a press conference with his famously difficult client Terrell Owens during one of the many controversial incidents he got himself into and responding to every question from the reporters with the phrase, "next question". He was also the agent of Chad Johnson, who famously legally changed his name to Chad Ochocinco for four years to get around league rules preventing him from putting that inaccurate Spanish translation of his jersey number on his jersey in place of his surname.
- tivert 8y ago
  >> "A lawyer shall not form a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law." > Does anyone know the motivations and publicly stated reasons for this absurd restriction? Total speculation, but maybe it's to keep the profession controlled by its practitioners and not financiers? The exclusion of paralegals, etc. could just be a side effect of keeping investors out. I do see some benefits for that kind of restriction. If your profession is bound by a code of ethics, it would help with compliance if all the top leadership were bound by it too. If they're just owners from outside the profession, there will always be pressure to compromise ethics to benefit the owner.

arminiusreturns 8y ago

I think it's per-state, but in Texas at least, it's illegal to do profit sharing with non lawyers. It is also illegal for a non lawyer to have majority or controlling ownership of a firm. I know because both my SO and my mother are best in class legal secretaries and we were investigating opening our own firm without the asshole lawyers taking all the money for 1/4th the work.

haskellandchill 8y ago
That's insane. How did such laws come to be? Lawyers lobbying?
- elliekelly 8y ago
  It's meant to prevent investors from pressuring attorneys to prioritize profit over legal ethics. The thinking is that an attorney has their bar license on the line when making ethical decisions. If everyone's license is on the line they're likely to act in accordance with their ethical obligations. If a non-attorney invests in a law firm they could pressure the attorney to risk their license to generate more profit. Accounting firms used to have the same rule (though they've relaxed it a bit to allow non-CPAs to own less than 40% or 50% as the accounting firms got more and more into "consulting"). The rationale is explained well here[1]. Large law firms are making a similar, though slower, transition to expanding their consulting services. Particularly with respect to data privacy and cybersecurity. I would expect the rules to relax over time. The U.K. recently permitted non-lawyers to invest in law firms but it doesn't seem many investors have jumped in head-first. Law firms and accounting firms don't have much by way of "assets" so they can be quite risky. I briefly worked at Deloitte with a former Arthur Anderson partner. He was quick to warn all of the young staff about what a terrible investment his equity had been. One rogue partner can sink the entire ship and leave the rest without much ability to recoup the money they put in. [1] http://archives.cpajournal.com/old/14469513.htm http://archives.cpajournal.com/old/14469513.htm
  - arminiusreturns 8y ago
    Which really cracked me up, having consulted with firms on the IT side and knowing so many lawyers, I can say that one's that put ethics above profits are the exception, and so lawyers already violate the basic reasoning for that law in the first place! Just seems like an excuse to maintain a racket to me.