A law firm is generally a partnership where two or more lawyers agree to work together and share profit, loss, and liability accordingly. It is important to understand the type or kind of law firm because it ascertains the amount of risk in a law firm and the revenue it can generate to partners and keep running the business. There are several law firms functioning in the country but not all are of the same calibre. Some functions exceptionally well while there are some who do not perform as well. Law firms can be categorized as top-notch, mid-category while there are others that are not up to the mark. But before we go on to categorize the law firms of India, let us understand the functions of a law firm in India. A law firm typically is a business entity that is formed by lawyers. The main function of the lawyers is to advise clients about their legal rights and responsibilities. At the same time, the lawyers of the law firm represent clients in various criminal cases and business transactions. A law firm is a business entity formed by one or more lawyers to engage in the practice of law. The primary service rendered by a law firm is to advise clients (individuals or corporations) about their legal rights and responsibilities, and to represent clients in civil or criminal cases, business transactions, and other matters in which legal advice and other assistance are sought.
TYPES OF LAW FIRMS:-
ON THE BASIS OF ARRANGEMENT
This is based on the agreement between the partners for the kind of law firm they need to establish. The arrangement determines the overall sharing of all the profits, losses and liabilities:
In this, a single lawyer is wholly and solely responsible for profit, loss, and liability of the firm.
Where two or more lawyers of the firm work together sharing profit, loss, and liability altogether.
In this type of firm, stocks are provided to the lawyers.
·Limited Liability Company
In this, the lawyers-owners are members of the firm but are not directly liable to the third party creditors.
·Limited Liability Partnership
In this lawyers-owners are partners but no one is liable for any act of negligence of any other partner.
ON THE BASIS OF THE STRENGTH/SIZE OF LAW FIRM
The size of a law firm determines the revenue a law firm will be able to generate. It is the principle of efficiency, more is the workforce, more is the amount of output produced in a given duration of time. The same can be inferred from the size of the law firm, the more the number of associates a law firm comprises, the more billable hours it charges and increases the output provided and therefore the strength of the firm increases the total revenue of the firm.
Boutique Law Firm
These firms are limited to small cities and towns and are limited to conventional practice. Lawyers are specialized and practicing in only one kind of law.
Virtual Law Firms
Use of modern communication technologies to conduct business with no physical presence. This is yet to be developed in India.
Big Law Firms
The law firms hire a large number of associates and charge more. These full-service law firms.
These firms consist of lawyers specialized in different areas of law.
The global presence of a law firm to represent a client at an international level.It should be kept in mind that the strength and arrangement of a law firm is only an initial plan of how a firm will function. A firm will always generate revenue with the quality of service it provides and the value it adds to a client’s interests. Therefore, it is better to diversify the portfolio of practice areas and specialize in every aspect to reach on top of the competition.
RESTRICTIONS ON OWNERSHIP INTERESTS
In many countries, including the United States, there is a rule that only lawyers may have an ownership interest in, or be managers of, a law firm. Thus, law firms cannot quickly raise capital through initial public offerings on the stock market, like most corporations. They must either raise capital through additional capital contributions from existing or additional equity partners, or must take on debt, usually in the form of a line of credit secured by their accounts receivable.
In the United States this complete bar to non-lawyer ownership has been codified by the American Bar Association as paragraph (d) of Rule 5.4 of the Model Rules of Professional Conduct and has been adopted in one form or another in all U.S. jurisdictions, except the District of Columbia. However, D.C.’s rule is narrowly tailored to allow equity ownership only by those non-lawyer partners who actively assist the firm’s lawyers in providing legal services, and does not allow for the sale of ownership shares to mere passive non-lawyer investors. The U.K. had a similar rule barring non-lawyer ownership, but under reforms implemented by the Legal Services Act of 2007law firms have been able to take on a limited number of non-lawyer partners and lawyers have been allowed to enter into a wide variety of business relationships with non-lawyers and non-lawyer owned businesses. This has allowed, for example, grocery stores, banks and community organizations to hire lawyers to provide in-store and online basic legal services to customers.
MULTINATIONAL LAW FIRMS
Law firms operating in multiple countries often have complex structures involving multiple partnerships, particularly in jurisdictions such as Hong Kong and Japan which restrict partnerships between local and foreign lawyers. One structure largely unique to large multinational law firms is the Swiss Verein, pioneered by Baker & McKenzie in 2004 or as GRATA International, in which multiple national or regional partnerships form an association in which they share branding, administrative functions and various operating costs, but maintain separate revenue pools and often separate partner compensation structures. Other multinational law firms operate as single worldwide partnerships, such as British or American limited liability partnerships, in which partners also participate in local operating entities in various countries as required by local regulations.
Three financial statistics are typically used to measure and rank law firms’ performance:
- Profits per partner (PPP): Net operating income divided by number of equity partners. High PPP is often correlated with prestige of a firm and its attractiveness to potential equity partners. However, the indicator is prone to manipulation by re-classifying less profitable partners as non-equity partners.
- Revenue per lawyer (RPL): Gross revenue divided by number of lawyers. This statistic shows the revenue-generating ability of the firm’s lawyers in general, but does not factor in the firm’s expenses such as associate compensation and office overhead.
- Average compensation of partners (ACP): Total amount paid to equity and non equity partners (i.e., net operating income plus non equity partner compensation) divided by the total number of equity and non equity partners. This results in a more inclusive statistic than PPP, but remains prone to manipulation by changing expense policies and re-classifying less profitable partners as associates.
WORKING OF LAW FIRMS
A conventional law firm diversifies the area of practice with time to increase its revenue, provide services in various fields of law and provide legal solutions. But recently, this practice has been changed. A law firm now in order to make credibility and generate leads which last long and create more impact, have started to engage in the areas of researching, legal products, and legal training too. These are explained below:
What can be a better USP of a law firm which can resolve the problems of a client efficiently, effectively and as per the interests of its client? This involves client counselling, dispute resolution, legal arrangements, contracting drafting, compliance due diligence, etc.
Research involves policy-making, analyzing legislation, and in-depth study of law to contribute to the academia of legal. Research enables a law firm to create a lasting impact as their research can be referred to as a citation and thereby generating leads and prospective clients.
With the rapid change in technology, law firms are also indulging in research to improve and modernize the legal fraternity so that it can dispense justice efficiently and effectively. In 2017, CAM setup the CAM Innovation Lab to embrace the opportunities technology and use it to provide the best in class services to the clients.
The major setback effectiveness and efficiency in the legal industry is the gap between the theoretical knowledge given in the institution and the lack of practical knowledge on the ground. To cover this up, a lot of law firms and lawyers engage in legal training by conducting lectures, seminars, workshops or internships. To improve the practical skill of lawyers and aspiring lawyers, the law firm improves its potential efficiency by improving the quality of the workforce and thereby increasing the revenue of the firm.
Apart from this, there are also new areas of law that a law firm should not ignore and indulge and specialize in them because there lie the potential business and revenue which a law firm will lose if it does not regard these areas of law.
NEW AREAS OF LAW WHICH ARE DEVELOPING AND PROFITABLE
Law is a dynamic subject if one needs to remain in the competition he needs to update and familiarize himself with various growing fields of law. With the advent of globalization and rapid development in technologies, the conventional fields are not the only place to increase revenue. In the competitive laissez-faire market, there are various organizations coming to a consensus to work together, or seeking efficient means to resolve their disputes, worried whether their online data is secure and what can be controlled, protection of the company’s brand and various other things.
If a lawyer can resolve such difficulties, he will be earning a considerable more money than others in the market. A law firm earns a significant clientele by specializing in such fields and establishing its credentials. Some of the areas of law which are developing and profitable are mentioned below:
Mergers & Acquisitions
Every business aims to increase profits, increase clientele, generate more leads and reach the top of the competition. Therefore, every business looks for the opportunity to work with others, acquire other businesses and expand itself more in the market.
Look at the deal feed of Legally India, daily millions of dollars of deals are made to expand the avenues of business. A law firm has to also deal with the Competition Commission and Security Exchange Board of India. A transaction of such type requires a lot of speculation, must adhere to compliance rules and it is not a simple and easy task. A lot of revenue can be earned if a law firm commands expertise and credibility in this field.
Intellectual Property Rights
R&D is an important part of the development of new technologies. Billions of dollars are invested to develop new technology. The vast amount of time is invested by authors to produce novel intellectual creations. When these creations are introduced to the public it encourages others to further develop the innovation but at the same time, it is possible that their ideas might get stolen. Therefore, to protect their novel innovations and works, there exists trademark, patents, and copyright under the field of intellectual property rights which provides protection to business marks, novel innovations, and artistic works.
The different areas in intellectual property include trademarks, patents, copyrights, and related rights, Industrial Designs, Layout Designs of Integrated Circuits, Plant Varieties, Information Technology and Cybercrimes, and Data Protection.
It is said that it is good if a person does not get to visit three places in his life: Police Station, Hospital and Court. In India, the condition of the judiciary, in terms of faster dispute redressal is not good, the Supreme Court of India alone has 59,272 cases pending before it. It takes years through the court to resolve a dispute. There are a lot of business companies that need binding speedy dispute resolutions and do not want to waste their capital on lawyers dealing with a single dispute for years. In this scenario, arbitration provides an alternate dispute resolution to contending parties to sit together and come to a conclusion. In this way the outcome reached would be favorable to both the parties and therefore will be obliged by both of them. Earlier, people used to hesitate to go for arbitration and preferred to litigate but with the changing scenarios, a law firm that specializes in dispute resolution will have an ace against the other competitors.Technology Law
This field is emerging rapidly with the pace of development in technology. There are various legal issues in this area from disputes in online trades and transactions to a simple click on the ‘I Agree’ button on terms and conditions of a website. To specialize in this area, a person should learn about the technical aspects of a business, its vulnerabilities, and various legal aspects involving the same.
A law firm, which can provide specialized services like Software Licencing, Dispute Resolution in tech, agreements for cloud service, IT services, etc will definitely give more revenue as this field generates a value to support a global population of over 7 billion people and growing.
Media & Entertainment Law
As per a report by IBEF, this sector is expected to grow up to $37.55 billion by 2021 in India. A media company has to comply with broadcasting rules, advertising procedures, enter into a contract with various persons and logistics, resolve disputes, comply with cyber laws and many other areas.
A law firm providing services in such a field can chunk out some revenue from this $37.77 billion.
NEW FIRMS WHICH ARE SUCCESSFUL
There are various law firms that specialize in these developing fields of law and are earning revenue by showcasing their skills and credibility to prospective clients.
The firm has been specialized to serve the needs of investors and startups. The firm focuses on delivering the best in class service with the aid of technology for improved efficiency and effectiveness.
Sports Law is also one of the emerging areas of law and this firm provides services of law with specialization in sports law.
·Economics Law Practice
This firm has been recognized as one of the leading Litigation, Arbitration, and Dispute Resolution firms in the country.
ADVANTAGES OF WORKING IN LAW FIRMS
If a lawyer starts his solo practice or sets up his own law firm, it takes a lot of time, money and investment to grow. On the other hand, if a lawyer commands appropriate skill sets he can work at a law firm and earn a decent amount of money during the starting phase of his career.
·Vast exposure in terms of clientele
A lawyer practicing solo will at least take 2.3 years to establish his name and credibility in the market. While at a law firm, already diverse clientele exists and there is no dearth of work. So, a lawyer does not need to worry about a lack of work while working at a law firm.
·Working with experts
A solo practitioner is the boss of his own, he has to manage all the things which include improving and updating himself with the different areas of law and affairs surrounding it. While at a law firm, a lawyer gets to interact with various experts of the legal fraternity and even work with them. This opportunity provides enormous value to a lawyer and helps him to build his network even further.
In a solo practice, every day is a new day whereby a lawyer searches for work to earn money. While on the other hand, there is no dearth of work at a law firm. The lawyer needs to keep working and the money keeps coming every month.
·Interest driven choice
Working in a law firm is thrilling and adventures. It is the interest and passion of an individual law to choose to work in a law firm. When the choice is interest-driven, a person cannot be unsatisfied with his work and he is expected to grow immensely by the tremendous opportunities provided by firms to increase one’s potential.
Therefore, in this way a law firm makes money and by specializing in these developing areas of law, a law firm can grow further. It is important to diversify the practice areas and increase portfolios to earn more revenue. But, at the same time, the quality of service should not be compromised at any cost.