The Partnership Mystique: Law Firm Finance and Governance for the 21st Century American Law Firm

This Article identifies and analyzes the de facto and de jure end of lawyers’ exclusivity over the practice of law in the United States. This development will have profound implications for the legal profession, the careers of individual lawyers, and the justice system as a whole. First, the Article argues that various financial products that have recently flooded the legal market are functionally equivalent to investing in and owning law firms and create all the same governance challenges as allowing nonlawyers to directly own stock in law firms. Second, the Article analyzes Arizona’s groundbreaking legalization of nonlawyer participation in law firms, effective January 1, 2021, and the effects it will have nationally. Third, the Article explains that the drawbacks of liberalizing the practice of law are rooted in the conception of shareholder primacy, a bedrock principle of corporate law. This principle would encourage lawyers to prioritize profit maximization for the benefit of their investors over the interests of clients and the courts. Fourth, despite the apparent dangers, there are reasons to celebrate the end of the era of the legal practice as the exclusive purview of lawyers. Lawyers’ monopoly on the practice of law hinders inclusion and diversity and, counterintuitively, undermines practitioners’ dignity and well-being. Fifth, the apparent dangers of liberalization can be avoided if states follow Arizona in allowing nonlawyer participation in the practice of law but condition it on organization as an Alternative Business Structure with certain professional responsibilities. More specifically, the Article proposes a type of “benefit entity,” which I call “legal benefit entity” (LBE). LBEs will be required to privilege the interests of clients and the courts over those of investors. The final Part explains what an LBE should look like