Are Alternative Business Structures the Future of Legal Service?

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The UK parliament signed the 2007 Legal Services Act which allowed non-lawyers to invest directly into law firms. The person of the new legislation was to encourage more competition and to provide a new route for consumer complaints.

There are three main benefits of Alternative Business Structures:

  1. It encourages more competition which puts downward pressure on price. In the alternative, if prices do not decrease, lawyer value must increase.
  2. It encourages a diverse skill set in law firm management.
  3. Increased funding options for managing partners

More Competition

Most lawyers will say there are already too many lawyers. Why would increasing competition be a good thing? There are a lot of bad lawyers out there, and I want more efficient law firms to replace them. When alternative business structures are allowed, non-lawyers will be able to evaluate the efficiencies of each law firm. Law firms that are doing a good job will grow by receiving capital, and law firms that waste clients’ money will parish.

Law firms will have to learn to reduce overhead (wasteful fancy offices) or to increase their internal systems (think technology.)

Diverse Skill Set

Lawyers are great at practicing law. They may not be good at accounting, marketing, and technology. Most lawyers have no idea how to get clients. Once they have clients, they have no idea how to communicate and manage the client relationship. Business people are experts in managing client expectations and improving customer satisfaction. Clients who need legal services should be the biggest pusher for ABS.

Funding Options

It is now time for non-lawyer ownership of law firms to open up all over the United States and Canada. Lawyers will always be responsible to manage their clients trust accounts, provide great legal advice, and keep their clients information confidential. Nothing about ABS changes any of those key lawyer values.

Prior to non-lawyers being able to invest directly in law firms, many law firms, including my law firm, ClearWay Law, raised capital into a management company instead. The management company would enter into an exclusive agreement with the law firm. Law societies and state bars do not regulate management companies.

Washington, D.C., was the only jurisdiction in the United States that allowed non-lawyers to take an ownership stake in a law firm, though other countries had begun to experiment with alternative law firm structures. Partial ownership stake in law firms in Australia, New Zealand, England, Singapore, Scotland, Italy, Spain, Denmark and some eastern Canadian provinces.

Additional sources of capital may encourage legal service providers to take larger risks and innovate.How to get started?

If you want to join me on my quest to improve the legal industry, reach out to me on my LinkedIn.

Let’s lobby both the government, law societies, and state bars to encourage them to allow Canadian and U.S. law firms to join other countries. We will face opposition from old school lawyers who want to fight change. But as was the case between Uber and taxi companies, we know who will win in the end.

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