Cover: Do the Owners of Small Law Firms Benefit from Limited Liability?

Do the Owners of Small Law Firms Benefit from Limited Liability?

Published Sep 17, 2007

by John A. Romley, Eric Talley, Bogdan Savych

Download eBook for Free

FormatFile SizeNotes
PDF file 0.2 MB

Use Adobe Acrobat Reader version 10 or higher for the best experience.

Beginning in the 1990s, states permitted law firms to organize as Limited Liability Partnerships and Limited Liability Companies. These organizational forms preserve many of the attractive features of a partnership while shielding each of a firm’s owners from liability for the malpractice of other owners. Some observers have asserted that this liability shield should be especially helpful to small law firms. If so, the authors would expect small partnerships to reorganize under the new forms and grow. This paper examines how the availability of these new organizational forms affected the organization of law firms during the period 1993-1999. It also explores how growth (measured in terms of number of lawyers) has varied between firms that reorganized into one of the new firms and those that did not. They find that smaller firms were much less likely to reorganize compared to larger firms, but small partnerships that reorganized grew faster than those that did not. Limited liability appears to be modestly beneficial to the owners of small law firms.

The research described in this report was completed under the auspices of the Kauffman-RAND Institute for Entrepreneurship Public Policy and was funded by the Ewing Marion Kauffman Foundation.

This report is part of the RAND working paper series. RAND working papers are intended to share researchers' latest findings and to solicit informal peer review. They have been approved for circulation by RAND but may not have been formally edited or peer reviewed.

This document and trademark(s) contained herein are protected by law. This representation of RAND intellectual property is provided for noncommercial use only. Unauthorized posting of this publication online is prohibited; linking directly to this product page is encouraged. Permission is required from RAND to reproduce, or reuse in another form, any of its research documents for commercial purposes. For information on reprint and reuse permissions, please visit www.rand.org/pubs/permissions.

RAND is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.