How are small law firms set up?

May 11, 2009 6:55 PM

How are small law firms structured? Do new partners have to invest capital to join. Or does a few years of grunt work, lead to being made partners?

I want to do general practice in a small to mid size town in North Carolina. I do not want to open my own firm, I would like to "learn the ropes" legal and business-wise from an experienced attorney, who does general practice. I will be applying to law school in fall 2010.

Please spare me, "if you don't do big law, you won't ever pay off debt...etc."

posted by bilbo baggins to law & government (11 comments total)

To be clearer, I am curious of how the business side of the firm operates.
posted by bilbo baggins at 6:57 PM on May 11

It varies by firm, and perhaps you could more precisely define "small" so that people will know in advanced whether their anecdotes will be useful to you.
posted by Inspector.Gadget at 6:58 PM on May 11

By small town to midsize town, I mean less than 200,000 people

By small firm I mean, 1 to 5 attorneys.
posted by bilbo baggins at 7:02 PM on May 11

Is your plan to work for a small firm, then eventually move into a partnership in that firm or a different firm?

For "general practice" work, you don't necessarily invest capital as in dollar-amounts; your capital leading to becoming a partner is bringing in or maintaining clients who provide a steady stream of income. They are your book of business, and every attorney protects theirs with their life.
posted by jabberjaw at 7:08 PM on May 11

It really varies. Some firms have buy-in, some firms don't. Sometimes a solo practitioner in his early sixties will take on an associate, work with him for a few years, and then sell his practice to the associate when he's ready to retire. Other times a small group of partners will take on associates, and those selected for partnership are must buy into the firm. Other times partners aren't required to put up any money at all.

A suggestion for you: if you're interested in small-firm practice, as you seem to be, try to get something set up before you go to law school. Breaking in to the small firm market is incredibly difficult, as unlike big and even mid-sized firms, small firms and solo practitioners really can't afford to take a risk on an associate. Players like DLA Piper and Kirkland & Ellis actually count on attrition rates approaching 25% in each hiring class. But they're billing so much that they can afford this kind of burn rate. Small firms, especially those with less than 25-ish lawyers, generally have a much harder time absorbing losses in this way, so if someone doesn't work out, it can really hurt them. This makes them far less willing to take on inexperienced attorneys, who represent a far larger amount of uncertainty than someone who has worked for a year or five. You'll find that a lot of small firms are populated by people who started out at big firms and lateraled or hung their own shingles after gaining some experience. So if you want to go straight into the small firm world, it really helps to have something arranged before you start.
posted by valkyryn at 7:09 PM on May 11

I'm a solo, so I run things how I want to run them and have never considered how I'd go about adding a new partner. There are probably as many ways to run small law firms as there are small law firms, so it may be difficult to generalize.
I do have a couple of recommendations, though.
1) Join Solosez, the ABA mailing list for solo practitioners. It's a great source of information, and this is the kind of question you can ask there. It also will put you in contact with potential future partners (it's mostly solos, but a reasonable number of small firms).
2) While you're in law school, schedule informational interviews with lawyers at small firms of the type you'd like to work with. Go and ask them how one goes about doing the kind of work they do. Lawyers love to talk, especially about themselves, and love to tell people what to do. A contact I made in an informational interview led to a summer job (I volunteered my time for free; she insisted on paying me) and a great mentor relationship and a source of business referral. My cousin worked for a solo during law school and became his partner when she graduated from law school.
posted by katemonster at 7:13 PM on May 11

If by "structuring" you really mean, "how are the $$$ divided up?" then the answer is that there are as many ways of structuring a law firm as there are lawyers. In my experience, however, they all tend to be some variation of "eat what you kill, after paying overhead." I've seen everything from each attorney pays a fixed dollar amount of overhead each month to rolling 12 month average calculations of profits.

Most small firms that take on an associate probably intend to bring that person on as a partner after a few years of finding out whether he/she is productive financially and whether the personality fit works. IMHO, most lawyers are horrible business owners (I'd also lump in restaurant owners and doctors in this category). There's generally a lack of planning for the future and therefore the "buy in" process for new partners generally has no rhyme or reason other than "this is how we did it when Bob joined the firm."

Like Inspector.Gadget, you're going to have to be a bit more specific about what part of the business of law you're interested in (i.e., ways to become a partner, legal structure, how to find a firm to join, etc..). A good resource to start is the ABA Law Practice Management Section and the "Solosez" group on the ABA web site. The Solosez group is a very large and particularly rambunctious group of solo- and small-firm practice lawyers; they're quite friendly and very active with the emails. Anyone can join and you don't need to be an ABA member.
posted by webhund at 7:21 PM on May 11

I worked for a small firm (7 attorneys). Our group was a bit unique, though, as only five of the attorneys were "partners" in the firm. The other two, though they shared the firm name and letterhead and all that, merely rented space from the firm - they were not partners.

One of these attorneys was my boss. I worked for him only (I wasn't expected to help cover the phones when the receptionist was sick/out). The firm's bookkeeper did his billing and balanced his checkbooks and all that.

Last year in November, after the death of the oldest partner, the four remaining partner attorneys decided they wanted to move into a smaller office, and told the two renting attorneys they were out of luck and would need to find a new space. So my boss and the other renting attorney went to a different firm and set up a similar situation - share the firm name and letterhead, but they're not partners.

This firm we're associated with now is much more "segregated" than the previous firm we were with. We maintain our own office supplies and copier. While we share their general phone number, we have our own fax number. They have a bookkeeper, but I'm in charge of billing and bookkeeping for my boss.

(We still keep in touch with the other firm; sometimes they get our mail and we have to go over and get it.)
posted by Lucinda at 7:35 PM on May 11

In the small firms where I live, it is vanishingly rare for a new attorney to be admitted as a partner. I work around a lot of small firm attorneys and I can't think of any attorneys who joined the small firm as an associate and were later elevated to partner. To become a partner, attorneys generally leave a job, join up with another lawyer, and form a partnership.

In fact, most of the small law firms where I live are not actually partnerships, but associations of attorneys. Two or more attorneys will rent an office together, and share expenses, but will technically remain solo practitioners. There are reasons for this --- avoiding liability for the other lawyer's professional malpractice is one reason, and another reason is the desire to avoid being conflicted out from representing a party potentially adverse to someone that the other attorney represents (which sounds like it would never come up but actually happens all the time). Lots of firms that, on the surface, may look like partnerships are actually associations.

I have employed associate attorneys in my firm, and someone would have to be an absolute superstar for me to consider making them a partner. When you own and run a firm, elevating someone to partnership status makes no sense, unless you conclude they are so valuable that your desire not to lose them outweighs your desire to maintain exclusive control over your firm.
posted by jayder at 8:13 PM on May 11

When you own and run a firm, elevating someone to partnership status makes no sense, unless you conclude they are so valuable that your desire not to lose them outweighs your desire to maintain exclusive control over your firm.

As the owner of a boutique firm, I completely agree with jaydar, but his point touches on a key factor that I would emphasize if the firm in question enjoys repeat business from its clients: The real value of such a firm is its book of business. And clients--think of them as a flock of golden-egg-laying geese--are always free to take that business elsewhere, for example to the young superstar in jayder's example were that associate to start his own firm. Forget a law firm's tangible assets, e.g. office lease, technology equipment, furniture, (older partners might even include reference books--as absurd as that sounds today). Buying into a law firm is not like buying into a pizzeria. The lawyer who earns the trust of the clients—and who could get a sizable portion of these clients to follow her elsewhere-- wields tremendous power.
posted by applemeat at 7:28 AM on May 12

My experience is the same as jayder's--I live in a small town serviced by only small firms, and I have never seen an associate become a partner. All of the firms were formed by lawyers deciding to go in together, and many of them are not legally partnerships. I am in a partnership with one other attorney, and from our perspective there is absolutely no incentive to bring in another partner. All it would add is headaches. My advice would be to work as an associate for a couple of years in a small firm, then go out on your own or with someone else.
posted by HotToddy at 8:30 AM on May 12