The idea of a firm of solicitors becoming a limited company would have been laughed at until relatively recently. A few firms have converted but the real driver has crept in only very recently – the change in the rules on the ownership of firms.

The draft Legal Services Bill, which has come as a result of the work of Sir David Clementi, provides for outside investment in law firms. For most of time this has been forbidden, only qualified solicitors being allowed to own firms. It was believed that a solicitor had to be personally and financially accountable to his or her clients, but it has finally been seen that in this carefully regulated profession the ownership of a firm is no longer a key element in this.

Firms that become companies achieve a number of advantages. I offer a few of them here but would welcome further input from readers on this big subject.

1) For many partners, capital is a burden. They struggle to raise it when they first become partners, they watch their own and fellow partners’ capital accounts anxiously while in partnership, and they face difficult and personal negotiations over the repayment of this capital when they want to leave or retire. That the senior post they hold in the firm is tied in with a requirement to invest significant sums of capital is illogical. Separating the two would open up many alternative possibilities.
2) The value of capital reflects only past performance. If a partner reaches retirement after working hard to build up a firm he may get the underlying capital value of his share returned. In fact, on a freely-traded basis someone might value those shares much higher on the expectation of rising profits. Is it really right that that partner cannot reap that reward?
3) If shares could be freely bought and sold, senior people in a firm would have far more flexibility. They could acquire more shares whenever they felt they represented a good investment opportunity, they could sell them if ever they wished to, and on retirement they could even decide to keep shares and enjoy the income (depending on the terms of a shareholders' agreement).
4) Directorships would be awarded strictly on merit. A previous partner might in fact choose not to seek a seat on the board, preferring to concentrate on client work and leaving the running of the business to others, content to be only holding shares. Conversely, an individual with real talent might well be appointed to the board on merit. A lack of personal funds to invest would not hinder this.
5) Equity capital could be raised for investment in the market. Currently, unless partners are willing to take on debt, they can only invest from their own resources, inevitably limited. Under new rules they would be free to bring in outside investors, including those that can bring real benefits to the business besides money. They could form strategic alliances, exchange shareholdings, or even sell out.
6) Mergers and acquisitions would be far more straightforward as the value of the firm's shares would be a truer inidication of its real value in the market. A survey found that 75% of partners, questioned a year after they had merged their firm with another, wished they had not done so. In a corporate structure they would be far freer to simply sell up and move on if they found themselves in such a situation.
7) A bright young solicitor currently cannot start or build his or her own business without facing enormous hurdles. Under the new rules, there would be nothing to stop him or her from going into the market with a business plan and raising the necessary investment, from venture capital sources, business angels or whoever.
8) New law firm structures can emerge. Multi-disciplinary practices can be formed and companies that have particular expertise in certain areas could buy or start a legal practice to add to the service they offer.
9) Finally, and this may lead to some huge changes among the large firms, businesses could float or be taken over. A partner currently enjoying an income approaching seven figures in a magic circle firm is likely to find this hugely attractive. Until now his investment has been locked in but it could change overnight into a saleable asset worth very many millions.

We should consider such opportunities very seriously. Partnership has served the profession well enough for many years but the flexibility that would come from these changes could open up a whole new world of opportunity.