An IPO is the process in which a company goes from being privately owned to issuing shares on a public stock exchange that members of the public can freely buy and sell. For most “normal” companies, the IPO is a right of way and an indicator that a company has “achieved” and can now list on the stock market. However, law firms have generally refused to conform to this tradition. Publicly traded law firms are still a long way off in the United States.
The rules on whether non-lawyers can own law firms are regulated by the state judiciary, in most cases, the supreme court of each state, and there are no states considering changes that would come close to allowing a law firm to go public. It is the only jurisdiction that even allows non-lawyers to co-own a law firm. That exception was established decades ago because many firms in Washington also lobby, and many lobbyists are not lawyers, but they have roles of responsibility and participation in the capital of their firms. When a company goes public, it initially receives all the money raised through the IPO.
When stocks are listed on a stock exchange after the IPO, the company receives none of that money. It is the money that is exchanged between investors through the purchase and sale of shares on the stock exchange. In most law firms, equity partners, sometimes called shareholders, are asked to contribute capital in exchange for a portion of the firm, an amount that is generally a percentage of their profits that can vary depending on their business portfolio. Subscribe and receive breaking news, comments and opinions on law firms, lawyers, law schools, lawsuits, judges and more.
In addition to the unique employment and ownership traditions of law firms, there are also myriad ways in which law firms often refuse to behave like a normal company. Lawyers need to advise on issues such as disclosure standards, prospect liability issues, due diligence defense, cross-border legal and regulatory issues, conflicts between corporate law requirements in two jurisdictions, double taxation issues that arise in connection with statements that investors benefit from their investments and other complex issues. Law firms that need a more modest injection of capital have easy access to obtain it through other channels. Although the most prestigious firms in Australia and the UK remain private, there are now enough publicly traded firms to indicate that the listed law firm model is here to stay.
If a law firm went public, profits would no longer be distributed solely to partners, since profits that must be diverted to shareholders are dividends. He works in the Los Angeles office and focuses exclusively on partner and general counsel placements for major firms and companies. Michael graduated summa cum laude from the University of California, San Diego before earning his Juris degree, cum laude, from Harvard Law School. The problem would be even more serious in the context of law firms than in finance, given that partners in junior law firms are highly mobile in the lateral market.
Last year, Akin Gump joined the growing number of law firms asking their partners to bring in more capital, an increasingly popular strategy among firms to increase cash reserves without borrowing from banks. Molot argues that the current structure of law firms' equity partners who put in capital and then withdraw it when they retire or go to another firm discourages long-term growth, and that law firms would benefit from being structured as publicly traded companies. If a major U.S. law firm went public, such as Goldman, it would face shareholder pressure to keep compensation growth under control.