Law Firm Ownership: Can Non-Lawyers Invest In Malaysia?

In Malaysia, all legal services are regulated by the Bar Council of Malaysia, which requires law firms to be 100% Malaysian-owned. Foreign lawyers can be employed by Malaysian law firms, but they must first obtain a license to do so. This means that, while non-lawyers cannot own a law firm in Malaysia, it is possible for foreign lawyers to practice in the country by partnering with a Malaysian law firm or obtaining the relevant license. This is a similar situation to the US, where non-lawyers are generally barred from owning law firms, with a few exceptions.

Foreign lawyers can practice in Malaysia by partnering with a Malaysian law firm

In Malaysia, foreign lawyers are permitted to practise law under a few conditions. One option is for foreign lawyers to partner with a Malaysian law firm to form an International Partnership (IP). This partnership allows them to practise in permitted practice areas, which typically involve transactions regulated by both Malaysian law and at least one other national law, or transactions regulated solely by non-Malaysian law.

To establish an International Partnership, a foreign law firm must collaborate with a Malaysian law firm, with the partnership name combining both firms' names. The Malaysian Bar recommends that the Malaysian law firm should hold at least 60% of the equity and voting rights in the IP, and Malaysian lawyers should comprise a minimum of 60% of the total lawyers in the partnership. However, the Selection Committee may decide otherwise during their review of the application. Additionally, the foreign equity partner of the IP must reside in Malaysia and be an equity partner of the foreign law firm.

Foreign lawyers intending to practise in Malaysia, either through an International Partnership or a Malaysian law firm, must first obtain a certificate of registration as a foreign lawyer from the Bar Council. The Bar Council will refer the application to the Selection Committee for case-by-case consideration before granting or refusing it based on the Committee's recommendation. The license to employ foreign lawyers by a Malaysian law firm is valid for three years.

It is important to note that certain areas of law are reserved for Malaysian lawyers and are excluded from the permitted practice areas for foreign lawyers, including trust law, charity and foundation law, and retail banking. Foreign lawyers are also prohibited from appearing in any hearing before a quasi-judicial or regulatory body, authority, or tribunal in Malaysia.

Foreign lawyers must obtain a certificate of registration to practice in Malaysia

In Malaysia, foreign lawyers are permitted to practise law under specific conditions. To operate in Malaysia, foreign lawyers must obtain a certificate of registration to practise as a foreign lawyer. This certificate is valid for 12 months from the date of issue and must be renewed annually.

Foreign lawyers can practise in Malaysia in three ways: through a Qualified Foreign Law Firm (QFLF), an International Partnership (IP), or directly with a Malaysian law firm. To practise in Malaysia, foreign lawyers or foreign law firms must apply to the Bar Council for a licence. The Bar Council will refer the application to the Selection Committee, which will consider it on a case-by-case basis. The Selection Committee is co-chaired by the Attorney General and the President of the Malaysian Bar, with three additional members. The Bar Council will then decide whether to grant or refuse the application based on the Selection Committee's recommendation.

Foreign lawyers must possess a valid and subsisting licence to practise law in a country other than Malaysia. They should be of good reputation and should not be subject to any disciplinary proceedings or have been involved in any disciplinary offences. Foreign lawyers working in International Partnerships and Qualified Foreign Law Firms must reside in Malaysia for at least 182 days in any calendar year.

The QFLF licence is specifically for foreign law firms with expertise in international Islamic finance. At least two equity partners of the QFLF must reside in Malaysia for no less than 182 days in any calendar year. The Bar Council's Guidance Notes specify that any work regulated by Malaysian law must be done in collaboration with an external Malaysian lawyer holding a valid Practising Certificate.

It is important to note that foreign lawyers and foreign law firms can only practise in permitted practice areas. These areas typically involve transactions regulated by Malaysian law and at least one other national law or transactions regulated solely by non-Malaysian law.

While there is a trend in some countries, like the United States, towards allowing non-lawyer ownership of law firms, it is not clear if this applies to non-citizens owning law firms in Malaysia.

Malaysian law firms must apply for a license to employ foreign lawyers

In Malaysia, a non-lawyer cannot own a law firm. However, foreign lawyers are allowed to practice in Malaysia under specific conditions.

Firstly, foreign lawyers must obtain a certificate of registration to practice in Malaysia. They can then practice in either a Qualified Foreign Law Firm (QFLF), an International Partnership (IP), or a Malaysian law firm. To work in a Malaysian law firm, the firm must have a license to employ foreign lawyers. The Malaysian law firm must apply to the Bar Council for this license, which will then be referred to the Selection Committee for consideration. The Selection Committee is co-chaired by the Attorney General and the President of the Malaysian Bar, with three other members. The Bar Council will then make a decision based on the Selection Committee's recommendation. The license is valid for three years and can be renewed.

The QFLF license is specific to foreign law firms with expertise in international Islamic finance, supporting the Malaysian International Islamic Financial Centre initiative. There are certain restrictions on the work foreign lawyers can do in Malaysia. For example, they cannot provide services in a commercial association with local lawyers and cannot establish a permanent office to offer advisory services in foreign and international law. Additionally, the Malaysian Bar has recommended that foreign lawyers should not exceed 30% of the total number of lawyers in a Malaysian firm, although the Selection Committee can decide otherwise.

In summary, while non-lawyers cannot own law firms in Malaysia, foreign lawyers can be employed in Malaysian law firms as long as the firm obtains the necessary license and the foreign lawyers have the relevant registration to practice in the country.

Non-lawyers cannot own law firms in most US states

In Malaysia, foreign law firms may set up and practice law by partnering with a Malaysian law firm to operate an International Partnership or by practicing as a Qualified Foreign Law Firm. However, foreign law firms or lawyers wishing to practice in Malaysia must obtain a license from the Bar Council.

Regarding the question of non-lawyer ownership of law firms in the US, the general rule across most states is that only licensed attorneys can own law firms. This is based on the American Bar Association (ABA) Rule 5.4, which places several restrictions on lawyers working with non-lawyers. The rule also effectively bars non-lawyers from holding any ownership interest in law firms. The reasoning behind this rule is to prevent non-lawyer owners from prioritizing profits over ethical duties and providing good legal services. It also aims to protect attorney-client confidentiality.

However, this rule is slowly changing, with a growing recognition that non-lawyer ownership of firms may not be as harmful as previously thought. Exceptions to the rule currently exist in Washington, D.C., where non-lawyers can hold minority stakes, and in Arizona and Utah, where non-lawyers can hold ownership interests under limited circumstances. Additionally, at least eight other states are considering or implementing programs that allow non-lawyers to own law firms, including Minnesota, New Hampshire, and Colorado. These changes aim to boost access to justice and provide benefits such as increased access and lower costs for legal services.

Non-lawyer ownership of law firms is allowed in Washington, D.C., Arizona, and Utah

In Malaysia, foreign lawyers can practice law in the country by partnering with a Malaysian law firm or by practicing as a Qualified Foreign Law Firm. Foreign lawyers must obtain a certificate of registration and a license to employ foreign lawyers.

In the United States, the general rule is that only licensed attorneys can own law firms. However, there are a few exceptions to this rule, including Washington, D.C., Arizona, and Utah. In these jurisdictions, non-lawyers are allowed to hold minority ownership stakes in law firms under specific circumstances.

In Washington, D.C., non-lawyers have been permitted to hold financial interests in law firms since 1991, as long as they provide professional services that assist the firm in providing legal services to its clients. Arizona eliminated its Rule 5.4 in 2020, allowing non-lawyers to own Alternative Business Structures (ABS) that provide legal services. Each ABS must include at least one lawyer to serve as compliance counsel. Utah has instituted a similar framework, creating a regulatory "sandbox" to oversee non-traditional firms with non-lawyer ownership. This program has been extended from a two-year pilot to seven years, demonstrating a growing recognition that non-lawyer ownership of firms may not be harmful and could even benefit the public.

While these three jurisdictions currently allow non-lawyer ownership of law firms under certain conditions, it is important to note that most other states in the U.S. have not followed suit. Some states, like Florida, have explicitly rejected non-attorney ownership. However, the success of these programs in Arizona and Utah could influence more states to adopt similar approaches in the future, particularly given the demand for efficient and cost-effective legal services.

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