Opening A Law Firm: Who Can Do It?

Starting a law firm can be a challenging but rewarding endeavour. While the general rule in the US is that only licensed attorneys can own law firms, there are some exceptions, and this rule is slowly changing, with more states considering reforms. Opening a law firm requires a well-thought-out business plan, funding, and a strong marketing strategy to acquire clients. It also demands a shift in mindset, as lawyers must learn to think like business owners while also practising law.

Non-lawyer ownership

In the United States, the general rule has been that only licensed lawyers can own law firms. However, this is changing, with an increasing trend towards allowing non-lawyer ownership. The exception to the rule has been the District of Columbia, where non-lawyers have been allowed to hold minority stakes. Now, more states are slowly considering or adopting similar reforms.

Despite the benefits, there are still some restrictions in place regarding non-lawyer ownership of law firms. For example, the American Bar Association (ABA) prohibits lawyers from sharing fees with non-lawyers, except under certain circumstances. Additionally, the New York State Bar Association declared in 2021 that a New York lawyer cannot work for a firm that allows ownership by non-lawyers.

While the legal industry is evolving, starting a law firm remains a challenging endeavour. It requires a strong business plan, careful consideration of expenses and revenue goals, start-up costs, and a comprehensive marketing plan. Acquiring the first clients and generating revenue are critical factors in achieving profitability. Law firm owners must also navigate various insurance policies, workers' compensation, and regulatory guidelines for handling client funds.

Business plans

In the United States, the general rule is that only licensed attorneys can own law firms. However, there are a few exceptions, such as in Washington, D.C., where non-lawyers can hold minority stakes, and other states are slowly considering or adopting similar reforms. In 2022, the Arizona Supreme Court granted an ABS license to Elevate, making it the first entity to hold ABS licenses in both the UK and the US.

Starting a law firm requires a well-thought-out business plan that covers finances, startup costs, tools, and marketing. It is important to select a practice area that aligns with your passions and interests, and where you can offer the most value to clients. Building a firm around your strengths can be a competitive advantage.

The business plan should include an executive summary with an overview of the law firm, its mission, vision, key objectives, and target market. It should also address the firm's growth plan and identify potential problems. A strong marketing plan will help to generate revenue by finding enough clients.

When starting a law firm, it is crucial to get your books in order early and consider the various types of insurance you will need, such as workers' compensation insurance, disability insurance, and life insurance. It is also important to stay up-to-date with the constantly evolving legal world.

If you are considering a virtual law firm, your business plan should outline how you and your staff will communicate in a distributed environment as the firm grows.

Specialising in one area

While anyone can open a law firm, specialising in one area of law has its advantages.

First, it helps you build a brand and a reputation in a specific area. This makes marketing and business development easier, as you can position yourself as an expert in your field. As you gain more experience in your chosen area of law, your knowledge and expertise will expand, making it easier to convert potential clients and giving them confidence in your abilities. Specialising in one area of law can also lead to a natural flow of leads and may result in lower advertising and marketing costs.

Second, specialising in one area of law can simplify your workflow and processes, allowing for a better work-life balance. It gives you more time to concentrate on fostering your expertise and finding your own clients, which can lead to greater trust between colleagues and clients.

Third, being a specialist in one area of law can make your firm more agile and able to react quickly to opportunities in the market. Larger firms may have set policies and differing partner views, which can slow down decision-making and limit your ability to seize opportunities.

Finally, specialising in one area of law can help you stand out from the competition. While some clients may prefer to instruct a larger, more traditional law firm, there is an increasing demand for firms with real expertise that can offer better service and great results at a lower price.

However, it's important to note that specialising in one area of law may also have some drawbacks. For example, expansion may be difficult as there may be a limited number of experts in your field, and recruiting and training junior staff may require a significant investment of time and resources. Additionally, larger business clients often look for firms that can handle volume work or provide a one-stop-shop service, which may not be feasible for a specialist firm.

Managing malpractice claims

While anyone can technically open a law firm, there are some prerequisites. In the US, for example, you must be a licensed attorney and a member of your state bar. There are some exceptions, such as in Washington, D.C., where non-lawyers can hold minority stakes, and other states are slowly considering or adopting similar reforms.

Now, onto the topic of managing malpractice claims.

• Notify your legal malpractice carrier immediately: Regardless of whether you believe a claim is viable, it's crucial to notify your carrier as soon as you become aware of a potential claim. This could be when you recognize a mistake or receive a letter from a client.
• Seek counsel: Consult with legal experts or attorneys who have experience in handling malpractice claims.
• Mitigate the damage: Take prompt action to minimize any further harm or negative impact.
• Withdraw from representation (if applicable): If you are still representing the client, consider withdrawing from the case to avoid further complications.
• Cease direct communication with the client: It's important to maintain a professional distance and manage the situation through appropriate channels.
• Analyze what went wrong: Address the root cause of the issue and implement corrective measures to prevent similar incidents in the future.

It's important to remember that a malpractice claim does not automatically lead to a lawsuit. However, the financial costs of a malpractice claim can be significant, often including legal defense fees, settlement amounts, and increased malpractice insurance rates. Therefore, it's crucial to have the right systems in place, ensure proper training for your staff, and stay calm when dealing with a malpractice claim.

Virtual law firms

In most U.S. states, only licensed attorneys can own law firms. The exception is Washington, D.C., where non-lawyers can hold minority stakes, and a few other states are slowly considering or adopting similar reforms. However, this trend towards allowing non-lawyer ownership is gaining traction in the U.S.

Running a virtual law firm is becoming increasingly popular. A virtual law firm is a legal practice that operates from the homes or satellite offices of its lawyers, usually delivering services to clients remotely using modern technology for communication. A virtual law firm has lower overheads than a traditional firm because it does not have a physical office space. The business plan for a virtual firm would be similar to that of a traditional firm, but without the costs associated with renting an office. However, the business plan should clearly state how you and your staff will communicate in a distributed environment as the firm grows.

A virtual law firm can use video conferencing, document sharing, and other tools to provide legal services to clients anywhere in the world. Axiom, for example, is a leading alternative legal services provider (ALSP) with a virtual legal team online in every major U.S. city. They offer hourly, daily, and weekly secondments, as well as full-service legal support, at rates up to 50% lower than national law firms.

To start a virtual law firm, you will need to be a lawyer and a member of your state's bar. You will also need to have a secure section of your website where clients can log in with a unique username and password to ensure you are complying with the professional rules of conduct that govern law practice in each U.S. state.

Frequently asked questions