Can a law firm form and invest in a for-profit subsidiary that provides non-legal services to the firm's clients?
Apply this to your situation
This page answers the general question as of 1988. Ask about yours and see what the current Virginia Rules of Professional Conduct say for your facts, with citations.
Plain-English summary
A firm wished to form, and probably invest in, a for-profit non-legal services subsidiary, structured as a limited partnership (with non-attorney general partners) or a stock corporation. The subsidiary would engage in non-legal businesses, be paid by clients on various bases (including ownership interests and profit participations in clients' businesses), and offer its own employees incentive compensation. The firm would act as counsel to the subsidiary; the subsidiary would recommend the firm to its clients but not steer them, and the firm would recommend the subsidiary to clients it thought could benefit. The subsidiary would be capitalized by the firm and kept in separate offices, possibly near the firm.
The committee opined that, as posed, the general concept did not violate the Canons of Professional Responsibility. It cautioned, however, that the scenario was general, that the firm expected to make more specific determinations about the subsidiary's scope and purpose later, and that those determinations could affect the opinion. The committee referred the firm to the rules on unauthorized practice of law and to DR 3-101(A), DR 3-102(A), DR 3-104, and DR 2-103(D), which address aiding a non-lawyer in the unauthorized practice of law, dividing legal fees with a non-lawyer, the functions of non-lawyer personnel, and compensating organizations for recommending or securing employment. It said it would be concerned about steering clients to the firm and about any potential conflict between the firm's representation of a client and the subsidiary's work.
Currency note
This opinion was issued in 1988, under Virginia's former Code of Professional Responsibility (the disciplinary rules it cites), before the Virginia State Bar's adoption of the Rules of Professional Conduct effective January 1, 2000. The conduct it addresses now falls under Rule 5.4 (professional independence; fee-splitting and non-lawyer ownership) and the law-related-services framework of ABA Model Rule 5.7. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.
Common questions
Q: Can a law firm own a for-profit non-legal services subsidiary?
A: Under this 1988 opinion, the committee said the general concept did not violate the Canons, but it stressed the answer was tied to the general facts presented and could change with more specific determinations.
Q: What rules did the committee flag as constraints?
A: It pointed to the unauthorized-practice rules and DR 3-101(A), DR 3-102(A), DR 3-104, and DR 2-103(D), covering aiding UPL, fee-splitting with non-lawyers, non-lawyer personnel, and compensating others for securing employment.
Q: What were the committee's specific concerns?
A: The committee said it would be concerned about steering clients to the firm and about any potential conflict between the firm's representation of a client and the subsidiary's work.
Background and rules framework
The opinion interpreted former Virginia DR 3-101(A), DR 3-102(A), DR 3-104, and DR 2-103(D), the Code provisions on unauthorized practice, fee-splitting with non-lawyers, non-lawyer personnel, and paid recommendations. The current analogs are Rule 5.4 (professional independence of the lawyer), the counterpart of ABA Model Rule 5.4, and the law-related-services framework of ABA Model Rule 5.7.
Citations and references
Rules of Professional Conduct:
- Former Virginia DR 3-101(A) (aiding unauthorized practice)
- Former Virginia DR 3-102(A) (dividing fees with a non-lawyer)
- Former Virginia DR 3-104 (functions of non-lawyer personnel)
- Former Virginia DR 2-103(D) (compensating organizations for recommending employment)
- ABA Model Rule 5.4 (professional independence) and Model Rule 5.7 (law-related services)
See also
- ABA Formal Op. 499: Passive Investment in an ABS
- CA Op. 1995-141: Lawyers Providing Non-Legal Services
- CA Op. 1997-148: Lawyers, Non-Lawyer Living-Trust Marketers
Source
- Landing page: https://vsb.org/Site/about/rules-regulations/leo-opinions.aspx
- Original PDF: https://www.vsb.org/common/Uploaded%20files/LEOs/1083.pdf
Original opinion text
Reproduced from the official source for research purposes. The linked source is authoritative.
Committee Opinion
November 3, 1988
LEGAL ETHICS OPINION 1083
LAW FIRM – OWNERSHIP OF NONLEGAL SERVICES SUBSIDIARY.
You state that your firm wishes to form, and probably invest in, a non-legal services subsidiary. This subsidiary would be a limited partnership or a for profit, stock corporation. If a partnership, its general partner(s) would be one or more individuals who would not be attorneys. The subsidiary would engage in non-legal businesses but the firm, as owner of the subsidiary, would from time to time approve. Compensation would come from clients for the services on a variety of bases, including the receipt of ownership interests and profit participations in the clients' businesses. The subsidiary would offer its employees compensation including salary with incentive-based features, including bonuses, profit-sharing and equity option plans, stock option plans, etc. Your firm would act as counsel to the subsidiary. The subsidiary would recommend your firm to the subsidiary's clients, but would not steer the clients to your firm. The firm would recommend the services of a subsidiary to the clients it feels could benefit from its expertise. The subsidiary would initially be capitalized with funds provided, of course, by your firm. Its offices would be maintained separate and distinct from offices of the law firm, but could be located in approximate location to the firm. As posed, the Committee is of the opinion that the general concept does not violate the Canons of Professional Responsibility. However, the factual scenario posed is general in its scope. The Committee is informed that more specific determinations will be made in the future as to the exact scope and purpose of the subsidiary functions. Those determinations could affect the opinion. The Committee also refers you to the rules regarding unauthorized practice of law and Disciplinary Rules DR:3-101(A), DR:3-102(A), DR:3-104 and DR:2-103(D) which affect aiding a non-lawyer in the unauthorized practice of law, dividing legal fees with a non-lawyer, regulating functions of non-lawyer personnel, as well as compensations of personal organizations for recommending or securing employment. The Committee would be concerned about the steering of clients to the firm, and any potential conflict which might arise between the representation of a client by the law firm and the work performed by the subsidiary. Committee Opinion November 3, 1988
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