Law Firms on the Big Board? A Proposal for Nonlawyer Investment in Law Firms

Every state has a rule proscribing nonlawyer investment in law firms. This sixty-plus-year-old prohibition has created an inefficient legal services market. Firms cannot access capital markets, limiting their opportunities for expansion, curtailing investments in technology and training, and hindering competition. Furthermore, every jurisdiction except the District of Columbia prohibits lawyers from entering into a business association with nonlawyers as partners or directors if the business provides legal services. These prohibitions against nonlawyer investment and participation in law firms have long hindered the legal profession with no signs of change. This Article advocates that these prohibitions be lifted. It discusses the source of these prohibitions and the historical and ethical arguments of critics, which are shown to be merely phantom concerns. These concerns are far outweighed by the substantial benefits of allowing law firms to incorporate, to engage in business associations with nonlawyers, and to receive investments by nonlawyers. The benefits include capital for expansion, capital for investment in new technologies and new lawyers, financing for contingency fee cases, and a myriad of other rewards. Most persuasively, perhaps, as the practice of law continues to be increasingly transformed from a profession into a business, it makes little sense to prevent lawyers from using the financial tools that virtually every other business has available to it.