Research Handbooks in Corporate Law and Governance series
Edited by Robert W. Hillman and Mark J. Loewenstein
Chapter 17: The law firm as an industry model for entity choice and management
The selection and management of a business entity is driven by the particular business at hand. Every business is shaped by the history of its industry, the culture of its owners, the needs of its customers and regulatory and legal pressures. The law firm is a particularly instructive example of how these forces shape entity selection and management. The law firm as a business is driven by service to clients, by regulation, by historically rigid ownership notions, by imminent threats of litigation, and by culture. These forces have resulted in an entity unlike any other. The legal profession once enjoyed a reputation as an almost untouchable learned profession, driven by the pursuit of intellectual and professional artistry. Notions of entity selection, everyday managerial considerations, and liabilities were beneath it. To whatever extent that was ever the case, it is no longer. The law firm is a high-risk, business-driven enterprise tied to its history and its regulatory restraints. Although lawyers prefer a more precious reputation, the law firm is just a service company and its revenue is generated by a fee structure (typically, the billable hour) charitably described as arcane. It is also one of the most regulated professions that modern industry has ever sustained—boasting advertising regulations that at one time prohibited so much as a sign on one’s door for fear of appearing untoward and unworthy of the profession.
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