Legal Practices and Public Ownership

We have previously discussed on this blog (here and here) the phenomenon whereby law firms could undertake transactions such as public offering of securities and buyouts. The current issue of The Economist carries a column on this topic. Here is an extract:

“Investing in law firms is more than just a pipe dream. A change in British law, introduced last year, enables law firms to use business structures other than private partnerships, and allows for external investment and initial public offerings (IPOs). Law firms will have to wait for a new regulator, the Legal Services Board, but everything is due to be in place by 2011.

Listing could have a dramatic effect on law firms’ behaviour. Slater & Gordon, an Australian law firm that went public in May 2007, used the proceeds to go on an acquisition spree, swallowing up six smaller rivals within a year. The firm’s share price has risen 50% since the IPO. Companies could also use the money from a flotation to expand abroad more rapidly, or to poach talented lawyers from rivals.”

As far as India is concerned, the necessary legal structures are not in place to enable Indian professional services firms (such as lawyers, chartered accountants, company secretaries and the like) to undertake such transactions. As The Economist states, the existence of a public market for securities of professional services firms presupposes the availability of corporate structures other than partnerships.

However, in India, these professional services firms are restricted to the use of the traditional general partnership firms. Even the intermediate step of converting to limited liability partnerships (LLPs) is not yet an available option. Although most other leading jurisdictions such as the US, UK and Singapore as well as emerging economies such as China permit the use of LLPs (or similar vehicles) for professional services firms, their Indian counterparts are left with the traditional general partnership vehicle only. There have already been two Bills that have been drafted for LLPs in India (see previous discussion on the blog – here and here), but it does not appear that legislative change is set to occur immediately. This is not a desirable position – while the professional practice reforms at an international level are witnessing a debate on possible corporate structures for such firms, the debate in India still lags far behind on the question as to whether LLPs should be allowed instead of the current general partnerships.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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