How commercial law firms work as businesses | Law on The Gateway

How commercial law firms work as businesses

An introduction to how they operate and how they make their money

Commercial law firms are first and foremost businesses. If you want to join one, you need to understand why the business world needs them, what they sell to their clients, how they operate, and how they make their money.

So here's our introduction to the business side of commercial law.

Why does the commercial world need law firms?

Whenever a commercial deal is agreed, those involved want the transaction they're entering into to be legally valid and its terms enforceable, which means the assistance of lawyers is essential. Lawyers play a key role in drafting and negotiating transaction documents and managing deals, using both their legal knowledge and their market awareness.

Where deals are being made, disputes inevitably arise, and commercial lawyers can help to resolve these, or to settle them in court or through other processes.

Commercial lawyers also give an ongoing legal perspective to clients on how they can achieve their commercial objectives.

What kind of organisations are commercial law firms?

The classic large commercial law firm is a City-headquartered business with a network of offices abroad.

The Square Mile also houses the London branches of a number of foreign law firms, particularly American ones, which in many cases are bigger than the headquarters of smaller UK firms.

Some leading commercial law firms are national firms with a number of offices around the country as well as a presence in the City.

There are also small "boutique" commercial firms that provide specialised legal services in just a few areas of law.

How are commercial law firms structured as businesses and who owns them?

Law firms are not companies, and instead are usually organised as partnerships, either a traditional one, or as a limited liability partnership (LLP), a partnership/company hybrid.

Some partnerships operate in a very collegiate fashion with decisions discussed and made collectively by all partners. Others operate more like companies, appointing a committee of partners to manage the firm.

Each partner owns a portion of the business in return for making a significant financial investment in it when they are invited to join the partnership.

Who are a commercial law firm's clients?

The vast majority of a commercial law firm's clients are businesses. Many will be corporate organisations, from huge multinational publicly-listed ones, to national chains and small start-ups.

Investment banks and other financial services organisations, such as insurance companies and investment funds, are the other key clients of large commercial law firms.

Some commercial law firms act for governments, particularly when they're borrowing or lending money. Some act for individuals in the business world in relation to tax planning or financial crime.

Finally, most commercial law firms do some legal work for free for charities, community organisations and individuals - known as pro bono work - as part of their commitment to corporate and social responsibility.

How do commercial law firms make money?

Lawyers record each hour they spend on a particular piece of work for a client. The partner in charge of that piece of work will then construct a bill from these records, charging a different amount for each lawyer's time depending on their experience.

However, it's increasingly common for clients to ask for a fee cap to be agreed before work on a project starts.

Where do a commercial law firm's profits go?

The firm's profits are divided up among the partners, though some junior partners (know as "salaried partners") made be paid a fixed wage only.

Firms do so in different ways, some equally, some by level of seniority, some according to which partner brought in and/or managed a particular piece of work.

Why do commercial law firms have offices abroad?

Much of the work that large commercial law firms do has an international dimension.

Their corporate clients often have subsidiaries, customers or other interests abroad. In addition, many of the City deals they work on involve foreign clients because London, along with New York, is one of the most important providers of financial services in the world and caters to businesses from all corners of it.

For these reasons, it makes sense for large commercial law firms to have teams of lawyers in the other jurisdictions involved in their deals.

How is a commercial law firm's business affected by economic cycles?

When an economy is booming, there'll be lots of dealmaking and so great demand for the assistance of commercial lawyers.

But in difficult economic times, the number of deals taking place will reduce, meaning less work in this area. However, commercial law firms will usually find their clients need more assistance with restructuring transactions, insolvency processes, and disputes.

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