Law firms have just been handed a tool from the corporate playbook that marketing consultants predict will greatly enhance their ability to expand and tout their services.
Firms now have the go-ahead to form and own other law firms as subsidiaries, under an opinion issued jointly as Opinion 704 of the New Jersey Supreme Court Advisory Committee on Professional Ethics and Opinion 37 of the Committee on Attorney Advertising.
"Such an arrangement does not violate the general prohibition on the corporate practice of law," whose "central goal ... is to keep the rendition of legal services from being under the control and direction of nonlawyers," say the committees in their opinion, published Monday.
Moreover, Rule of Professional Conduct 5.4(a), which prohibits fee sharing with nonlawyers, does not bar a firm from turning over its net profits to a parent company also made up of lawyers, states the opinion.
The subsidiary firms, which could be organized as limited liability companies or professional corporations, would operate under separate names that would have to include the name of one or more of the lawyers working there.
To avoid misleading clients and the public, the relationship between the firms would have to be disclosed on initial contact between the subsidiary and a new client. The relationship would also have to be disclosed in the subsidiary's advertising and marketing. Specifically, the phrase "a subsidiary of X law firm" would have to appear beneath or next to the subsidiary's name.
The opinion responded to an inquiry from an unnamed firm that wants to form a subsidiary for a specialized practice area and plans to employ one or more existing shareholders in the subsidiary to direct its operations. The subsidiary might share office space with the parent, but it would keep its own books, records and files and maintain its own bank accounts and trust accounts.
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