Why are law firms partnerships?

Jan 04, 2023

Written By Tom Hale

The legal system is a complex and intricate structure to understand. Within this complex organisation are many other complex organisations, one of which is the law firm itself. When considering the structure of a law firm, one question that probably comes to mind is, why are law firms partnerships?

What is a partnership?

A partnership is the manner in which a law firm is run. It is effectively a system in which the costs and other liabilities are shared amongst the “partners”.

The partners are like a group of bosses rather than one single boss. Some partners may have more investments in the firm and thus more of a role in its running, whereas some may have slightly less.

Limited Partnership

More often than not law firms are founded now as limited partnerships. In this system the limited partners do not have management authority and are not linked to any debt that is accumulated. In addition, these partners can leave without the partnership being dissolved.

What are the benefits?

So, now we know the basics of what a law firm partnership is, it is time to answer the question of why law firms choose this structure.

There are many benefits to a law firm partnership, most of these are things you could apply to any number of different partner-based relationships both inside and outside the law.

Here are some of the immediate benefits:

- Skills and knowledge sharing

- Strength in numbers

- Increased safety during economic turndowns

- A larger pool of resources

- A greater breadth of knowledge across different disciplines

This is why a law firm partnership is effective. It is a system that allows for benefits that protect and strengthen all individuals involved.

Why are law firms partnerships?

So then, why are law firms partnerships? Well in the most basic sense it is the very same reason any partnership exists. When knowledge is shared it becomes strengthened, two people are stronger than one. A group, working in unison towards a common goal. When we work together, we achieve greater things.

Many law firms are partnerships because they are stronger this way, bolstered in their pool of resources, breadth of knowledge, and increased safety.

Are all law firms partnerships?

It’s important to remember that there is no one right way for a law firm to be structured, and not all law firms follow the partnership model. For example, some newer firms are choosing to operate under Alternative Business Structure (ABS).

ABS allows non-lawyers to participate in a firm’s ownership and governance, allowing firms to employ individuals with a range of skills, and give different employees different levels of shares. This means you don't have to be a partner or even a lawyer to hold a stake in the firm, making things more equitable.

Law Firm Structure