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Private Law Firms – An Overview

published February 11, 2013

By CEO and Founder - BCG Attorney Search left
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( 103 votes, average: 4.8 out of 5)
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The phrase "private practice" is generally understood to apply to those lawyers who undertake legal representation for a variety of clients. Clients may have a continuing relationship with the law office, or they may call on a private practice firm but once with reference to a particular matter. This discussion applies primarily to the true private practice law offices which survive on the basis of fees charged to clients. The great majority of lawyers are in this private practice group.

The structure and organization of a private firm is determined by its size, specialty, and the personalities of the principal lawyers. There is a wide range from very casual to very formal organization.

Lawyers in private practice are divided into three general categories (1) those practicing alone, (2) those sharing a suite of offices but maintain separate practices, and (3) those in true group practice. The legal form of a law office-- sole proprietorship, partnership, or professional corporation--is not necessarily the same as its organizational form. For example, a sole proprietor who employs other lawyers at salary is in true group practice, while some law offices which file partnership tax returns are organized as space-sharers. True organizational forms of law offices, irrespective of the type of tax return filed, will be discussed.

Advantages and Disadvantages of Solo Practice

The main advantages of solo practice are freedom and independence, limited only by economic needs and responsibilities assumed to clients and the courts. Disadvantages are numerous. Generally the sole practitioner enjoys much lower income than in alternative forms of practice or employment. (This finding has been consistently verified in all state and national studies.) The sole practitioner also finds it difficult to specialize and thereby realize true efficiency. There are, however, a few lawyers who specialize in sole practice.

Sole practitioners are generally unable to afford the latest development in mechanization and complain of inadequate space, library, and facilities. They are frequently unable to attract or hold those clients whose work often requires larger time commitments or diverse legal skills.

The specter of illness or disability haunts the sole practitioner. Vacations are frequently out of the question. Upon death, there is usually little of value to leave behind.

The large number of new law graduates and the concomitant competition for jobs has led some young lawyers, and some older ones, to enter into a slightly different kind of solo practice - being a part-time lawyer for several employers. These "lawyers for hire" may have a specialty, such as research and writing briefs, which they offer on an hourly basis to several law firms. They move from assignment to assignment as needed by those firms with whom they have an agreement to perform work. In some cases there may be a contract to provide a certain number of minimum hours, and in other cases there may be no such guarantee.

Two Sides of Office-Sharing

Although there is slightly less freedom to be found in sharing office space than in practicing alone, personal freedom and independence, limited only by economic needs and responsibilities to office mates, clients, and the courts, still constitute prime advantages of this organizational mode.

Other advantages include assistance of other lawyers in emergencies or during vacations or illness, access to better equipment (especially easily shared equipment such as copiers and library), improved clerical support, an opportunity for specialization, and other lawyers with whom to share a professional relationship.

Disadvantages can be found in the tendency of each lawyer to hoard his clients while passing less desirable work on to others. There is thus little opportunity for specialization or its resultant economies. Then too, clerical support is usually generalized so that there are often no file clerks, messengers, word processing operators, or trained paralegal assistants.
Perhaps the most pronounced disadvantage is that clients are generally aware of the arrangement. Good clients are often as difficult to bring into a space-sharing arrangement as into a one-lawyer office. Hence, most economic surveys have shown space-sharers and sole practitioners to be on a par as to average earnings.

As with the case of solo practice, an office-sharing arrangement generally has no value at retirement or death. There may be serious conflict situations for lawyers who share space, particularly in smaller communities. Lawyers who share a common reception area may have a conflicting interest if they represent opposing clients in a legal matter. In an informal opinion dated November 9, 1978, the Advisory Committee of the Missouri Bar Association found no conflict where two sole practitioners jointly owned the building in which they practiced and segregated their individual offices, with the exception of a reception room. In an older opinion, the American Bar Association Committee on Ethics and Professional Responsibility expressed a more restrictive view, holding in Informal Opinion that space-sharers have such a close relationship that they are like partners. As a result, if one space-sharer is disqualified from representing a client due to a conflict, so is the other space-sharer. Lawyers who are thinking of entering into space-sharing arrangements should consult their state and local bar associations for guidelines.

Group Practice

There is considerable security in group practice. There is the knowledge that in case of illness or absence another capable person will take over and there will be a firm to which to return.

Another advantage is the higher income stemming from group practice and the fact that one's practice interest may have some value at retirement, disability, or death. The value of a group practice is generally measured in terms of what the contribution of the person who retires, is disabled or dies means to those left behind. Generally law practices are not salable. When we speak of the value of a practice it is usually in terms of retirement payouts, payments from the firm to the estate of the departed lawyer, or the willingness of the firm to continue to pay a disabled lawyer.

Many group practitioners enjoy the opportunity to gain that greater depth of knowledge and proficiency which comes with specialization. Further, there is increased personal training and development which can be found only where there is a group of lawyers who share common objectives.

The ability to delegate more routine matters to less experienced assistants frees time to participate in professional and community affairs while others "watch the store," and rounds out the advantages of this form of practice.

On the negative side, there is the need to accept discipline in personal matters, office routine, and work habits. Sometimes this means the need to compromise one's opinions and to accept the decisions of others. There is frequently the loss of the right to accept any assignment at any fee or, should one so choose, without a fee.

Solo Practice

Some one-lawyer offices develop an organization of lay assistants and law clerks. For example, one rural lawyer trained an experienced legal secretary in real estate conveyancing and another in probating. A third secretary acted as receptionist and stenographer. Each of the paralegal employees handled her own typing on power equipment for her respective area of work.

In understanding such a sitation, we note that each of the people on any level may coordinate with others at the same level; however, they cannot command each other, since the relationship indicates equality of rank.

Even the sole practitioner with a single secretary should take the time to discuss the scope of secretarial authority. Failure to do so can lead to embarrassing consequences.

Note this example: one young secretary, working for a divorce lawyer, once told us in all innocence and candor that she regularly provided information about the progress or status of cases to clients, and that she never checked back with the boss for approval. Her total work experience at that time was three months. She felt compassion for the young men and women who were the lawyer's clients.

Who was at fault? The lawyer, we thought. We alerted him to his problem and encouraged him to sit down with his secretary to draw up a list of responsibilities and authority.

Other than in employee-employer relationships, the sole practitioner requires no other organizational formalities, since he or she wears all of the hats of office manager, working lawyer, salesperson, owner and sometimes bookkeeper.

Cost of Starting a Practice

The start-up and first-year operating costs of a sole practitioner's general practice law office are estimated to be at least $47,000 in 1986. In 1969, the cost of opening and operating a one-lawyer office was about $14,500.

These figures are based on rental of a three-room office (lawyer and secretary work rooms and reception area), purchase of inexpensive new furniture, use of standard office machines such as dictation and transcription machines, a copier, a simple word processor or memory typewriter, a calculator and a clock radio, certain law books, publications and miscellaneous office supplies. A significant factor in starting a law office is the cost of law books and publications. The approximate purchase price of a minimal law library will be over $6,000. A more complete law library could cost over $25,000 in most states. Library costs can be significantly reduced if the lawyer has convenient access to a public law library or has a sharing arrangement with other lawyers.

One can, of course, start an office with less. The cost of supplies and equipment can be reduced through the acquisition of used furniture and office machines. Initially, many new law offices do not require the services of a full-time secretary. The lawyer may employ a secretary part-time or share a secretary with other lawyers. Many library materials can be bought used, or financed over several years. This is not considered in our cost estimates.

The financing of capital equipment (such as library materials) and office machines (such as typewriters and copiers) can significantly reduce initial outlays. For example, the IBM QuietWriter can be leased for approximately $50 per month over three years, and purchase credits are accumulated with each lease payment. The major law book vendors also offer extended purchasing plans. It is also possible to reduce the pressure on cash outlays by renting office furniture, although renting is ultimately more expensive than outright purchase.

Many of the items to be purchased can vary considerably in cost. The location, quality and vendors of the items to be bought are factors which have a significant impact on the actual cost.

To begin a new office without clients or cash flow, the initial start-up funds available should include operating expenses for the first three months. These expenses would include the secretary's salary, office rental, copy machine rental, liability insurance and telephone charges. Expenses for these items over three months would typically be approximately $4,800. Thus, the total start-up cost for a one-lawyer office amounts to a minimum of just over $20,000.

Office-Sharing Practices

Lawyers are an inventive group, and the diversity of arrangements for sharing space is great. At one end of the spectrum these arrangements closely resemble sole practice. At the other end, they are near partnerships.

Shared Office Suites: In some cities there are office suites that provide services such as telephone-answering and receptionists, and library and conference facilities, to lawyers who rent furnished offices in the suites. If a sole practitioner has full or part-time secretarial help, a space for the secretary may also be rented. In this kind of arrangement, one monthly payment may cover everything but personalized items such as letterhead and consumable supplies and telephone. Some suites even provide word processing support on a "per page" or "time" billing basis. Many young lawyers who have chosen solo practice for themselves find that the furnished office suite provides the conveniences and appearance of a larger firm while still enabling them to retain their independence.

Suite Owners and Referral Work: The "Suite Owner" arrangement generally evolves from a sole practitioner who needs help from other lawyers, but who decides neither to enlarge his or her payroll nor to enter into a partnership. Typically, this means making office space available for a young lawyer, who, in turn, does some work for the proprietor in exchange for the space, some compensation, secretarial services, use of library, and so forth.

For young lawyers who want to make it on their own, this arrangement has great advantages, as it frees them of the burden of meeting most overhead expenses.

The proprietor does increase his overhead, but not nearly so much as if he were to pay a full salary. Of course, he does not obtain the same return. It is to be expected that the young lawyer will place his own clients ahead of those of his landlord. As the young practitioner becomes busier with his own work, some work of the older lawyer is likely to remain undone. Eventually, if the young lawyer is a success in his or her own right, he or she will have to move to make room for another newcomer to the law, or space will have to be added and the arrangement changed or modified.

Experience indicates that this arrangement is rarely satisfactory in the long run, since the landlord-lawyer has a succession of untrained young attorneys, who have little incentive to provide first-quality work for the landlord's clients.

In some cases, lawyers' suites which started out in this way grow and grow, and arrangements are modified to true "space-sharing" and even to "pseudo firms." In many cases, however, this road to growth is rocky, and its economic rewards are generally less than alternatives that encourage a greater community of interests.

True Space-Sharers

The "firm" envelope may bear the return address: Law Offices, 14th Floor, The Witherspoon Building and the entry to the suite may indicate that a law partnership is in residence, or perhaps there is simply a roster of attorneys' names.

Office-sharing law firms are more common in some communities than in others. Boston, particularly, is noted for its large number of such arrangements. One Boston "firm" of this type contains3 not only sole proprietors but also small partnerships, and the group shares the cost of two associate lawyers. The group owns joint library facilities, copying equipment, and the switchboard, which individual practitioners could not afford. It has a joint checking account into which all participating entities make a monthly deposit for rent, telephone, library, copy machines, insurance, taxes, and charges allocable to common employees. Rent is paid in proportion to space occupied by each entity and its clerical personnel. Each of the space-sharing units hires and fires its own help.

Work is referred among members of the suite at the will of the lawyer who has the client. The billing lawyer determines the value contributed by other lawyers who worked with him and makes a distribution of the resulting fees.

The members of the suite have a written agreement which covers their ownership in the library, copying equipment, and the like. As new lawyers are added, they subscribe to the agreement.

Space-Sharing as a Trial Marriage: With the growing trend and pressures towards group practice, some small firms and individuals, who are interested in joining together have found an interim space-sharing arrangement to be advantageous.

The prospective partners can establish a joint residence in office space, laid out in advance to suit them, if and when they finally decide to merge their interests into one entity. They can bring with them their files and their employees and can establish a common decor. During an interim period, and without making any announcements as to a merger or a new firm, the prospective partners can attempt to work together on cases, develop lines of specialization, and, above all, gain a sufficient familiarity with each other's working habits and personalities to decide if a "true marriage" will be of value and benefit to each of them.

Alternative Summary

Harrison is the founder of BCG Attorney Search and several companies in the legal employment space that collectively gets thousands of attorneys jobs each year. Harrison’s writings about attorney careers and placement attract millions of reads each year. Harrison is widely considered the most successful recruiter in the United States and personally places multiple attorneys most weeks. His articles on legal search and placement are read by attorneys, law students and others millions of times per year.

More about Harrison

About LawCrossing

LawCrossing has received tens of thousands of attorneys jobs and has been the leading legal job board in the United States for almost two decades. LawCrossing helps attorneys dramatically improve their careers by locating every legal job opening in the market. Unlike other job sites, LawCrossing consolidates every job in the legal market and posts jobs regardless of whether or not an employer is paying. LawCrossing takes your legal career seriously and understands the legal profession. For more information, please visit www.LawCrossing.com.

published February 11, 2013

By CEO and Founder - BCG Attorney Search left
( 103 votes, average: 4.8 out of 5)
What do you think about this article? Rate it using the stars above and let us know what you think in the comments below.