According to the American Bar Association (ABA) Model Rules of Professional Conduct Rule 5.4(b), lawyers are not permitted to form a partnership with nonlawyers for a business that involves the practice of law. If a potential partner is not licensed to practice law, then he or she cannot have equity in the law firm.
What’s the main reason for this limitation? Two words: professional independence. Lawyers want to handle legal matters themselves, not leaving nonlawyers to look over these possibly life-altering issues. Nonetheless, some lawyers find that this rule actually hinders professional independence. For example, if a non-lawyer investor or computer scientist cannot own stake in the business, this could deprive the company of developing business models or technology that would advance the firm and increase productivity. Nonlawyer ownership would also allow the firm to explore innovative thoughts and ideas through diverse professional lenses and even expand access to justice.
Recently, two states have challenged this long-observed restriction. The Arizona Supreme Court in 2020 held that nonlawyers may hold an economic interest in a law firm and share legal fees with lawyers. Utah followed suit and adopted reforms that permit nonlawyers from owning or investing in law firms. Specifically, Utah has adopted a “regulatory sandbox” approach, allowing the state to test new legal service models that include nonlawyer ownership. On the other side of the globe, the United Kingdom and Australia have also opened up to the idea of nonlawyer ownership of firms.
Can a nonlawyer be a partner in a law firm in New York?
Bottom line: No. New York has yet to make reforms to its “no nonlawyer as partners in law firms” rule. Nonetheless, there is momentum among the Commission to Reimagine the Future of the New York’s Courts to change this rule; although, any sort of change to New York’s version of the ABA Rule 5.4 is not expected to happen any time soon because New York has historically resisted reform that impacts lawyer independence and ethics standards.
Can a nonlawyer own a law firm in California?
Like New York, nonlawyers in California cannot be partners in a law firm. Rule 1-310 under the State Bar of California’s Rules of Professional Conduct takes after the ABA and prohibits a lawyer from sharing business equity with a nonlawyer. However, California is considering a test regime modeled on Utah’s pilot program, which allows citizens to use a company’s independent attorney services.