Law firm

The examples and perspective in this article may not represent a worldwide view of
the subject. Please improve this article and discuss the issue on the talk page.

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
[hide]

• 1 Arrangements
o 1.1 Restrictions on ownership interests
• 2 Structure and promotion
o 2.1 Partnership
 2.1.1 Termination of one's partnership
o 2.2 "Of counsel" role
o 2.3 Mergers and acquisitions between law firms
• 3 Size
o 3.1 United States development
 3.1.1 First law firms
 3.1.2 Boutique law firms
 3.1.3 "Megafirms"
o 3.2 "Full service" firms
o 3.3 Worldwide
o 3.4 Recession
• 4 Salaries
o 4.1 United States
• 5 Location
• 6 Rankings
• 7 In popular culture
o 7.1 Books
o 7.2 Movies
o 7.3 Television shows
• 8 References
• 9 See also

• 10 External links

[edit] 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.

[edit] 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.

[edit] Structure and promotion

[edit] 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.

[edit] 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.

[edit] "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 situation
"of counsel" could be considered to be a transitional status in the firm.
[edit] 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.

[edit] 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.

[edit] United States development

[edit] 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]

[edit] 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]

[edit] "Megafirms"

However, 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] Thus in New York, several hundred
attorneys would be required for a "large firm", whereas in Las Vegas, perhaps only 50 attorneys
would be needed to be a "large firm".

[edit] "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.

[edit] 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]

[edit] 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]

[edit] Salaries
[edit] 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.

[edit] 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.

[edit] 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]

[edit] In popular culture

Main article: Legal drama

[edit] Books

See also: Category:Legal thriller novels

[edit] Movies

See also: Category:Legal films

[edit] Television shows

See also: Category:Legal television series

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.

[edit] References
1. ^ American Bar Association ABA Journal July 2009[1]
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=ho
 me 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&hbxlogi
n=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 [2]. 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". 2008.
http://www.goodwinprocter.com/Careers/Career-Opportunities/Law-Students/JD-
MBA.aspx. Retrieved November 12, 2008.
45. ^ "Paul Hastings Career Center FAQ". 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=4b0cd842
61ffe5b4&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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