Background Information for Foreign Regulators About the US System for Regulating Legal Services and Law Firms

This article originally appeared in The Bar Examiner print edition, Summer 2024 (Vol. 93, No. 2), pp. 23-28. By Laurel S. TerryLawyers in US firms have sometimes struggled to locate information foreign regulators request about US legal services regulation. Information from primary sources can be particularly difficult to obtain on issues that might seem self-evident to a US lawyer or regulator. For example, because jurisdictions’ highest courts and admission authorities license individual lawyers, but not law firms as a whole, regulators’ websites typically do not explicitly state that US law firms are not required to be licensed to provide legal services.

US secondary source material, like primary authority, often fails to address points that would be helpful for a foreign regulator to know. The lack of explicit discussion can occur because US readers are the primary audience for such material. Moreover, due to the jurisdiction-­specific nature of much of US legal services regulation, it can be difficult to provide a relatively brief but comprehensive overview of US regulation since many general statements require qualification(s). The goal (and challenge) of this article is to provide foreign regulators with an overview of key aspects of US legal services regulation in a manner that combines brevity, comprehensiveness, and accuracy.

With this goal in mind, the 14 numbered paragraphs below contain the points that I believe a foreign regulator needs to be familiar with to understand the US system of legal services regulation and the regulatory treatment of US law firms.1 Items 1–4 state general principles; items 5–9 address regulation of individual lawyers; and items 10–14 address law firm structure and regulation. To help ensure accuracy, each paragraph is followed by a caveat.    

General Principles

1. The United States Constitution, which was ratified in 1788, created a federal system in which certain powers are given to the federal (national) government and certain powers are reserved to the states; in the past, the line between federal and state authority has not always been clear, nor is it currently. Nevertheless, in general, legal services regulation in the United States is handled by the states.

• Caveat: Federal regulation of lawyers and legal services exists, but state regulation is primary with respect to issues of admission, conduct rules, and discipline. For examples of federal regulation, see John Leubsdorf, “Legal Ethics Falls Apart,” 57(3) Buffalo Law Review 959–1055 (2009), available at ssrn.com/sol3/papers.cfm?abstract_id=1320302.

2. In contrast to the situation in many countries, where the primary source of legal services regulation comes from the legislative branch of government, in the United States, the state-based system of regulation is the responsibility of the judicial branch of state government, rather than the legislative branch of government or a bar association. Jurisdiction judicial regulation of legal services is typically handled by the jurisdiction’s highest court. Jurisdiction-­based judicial regulation includes lawyer admissions, lawyer professional conduct rules, and lawyer discipline issues—i.e., the beginning, middle, and end stages of the lawyer’s work cycle.

• Caveat: Jurisdictions vary with respect to whether and how their legislatures regulate the practice of law. For example, in California, the legislature has much more legal services legislation compared to other jurisdictions. But even where there is legislation, the jurisdiction’s highest court’s authority over the practice of law generally remains overarching.

3. Although “state bar associations” exist in all US jurisdictions, there is great variability in their structure, and their regulatory power is different than what is found in bar associations in many foreign countries. Every US jurisdiction has a state bar association, as well as local and affinity bar associations. US jurisdictions are divided into mandatory bar jurisdictions (sometimes called “unified bars”) and voluntary bar jurisdictions. In the former, a lawyer is required to be a member in good standing of the state bar association as a condition of licensure. In some, but not all, mandatory bar jurisdictions (e.g., Georgia), the jurisdiction’s highest court has delegated some regulatory functions to the state bar association. Jurisdictions that have a mandatory bar may also have a statewide voluntary bar. (The American Bar Association [ABA] is a national voluntary bar association that does not have regulatory authority.) Because there are many variations within the United States, and because bar associations may serve as the frontline regulator in some foreign countries, it is important to realize that when US and foreign speakers refer to “bar association regulation of lawyers,” they often have in mind quite different regulatory structures.

• Caveat: In some jurisdictions, such as California, legislation established the mandatory state bar. It is possible for a state bar association to combine both regulatory and trade group functions. There continue to be debates and litigation, as well as US Supreme Court cases, about where to draw the line between those functions.

4. Because each US jurisdiction has a distinct set of enforceable rules for legal services regulation, it is difficult for commentators to accurately describe legal services regulation in the United States with any brevity. As a result, US commentators often refer to two nonenforceable documents as a shorthand way to summarize the regulatory rules one is likely to encounter in the 50-plus US jurisdictions: the ABA Model Rules of Professional Conduct and the American Law Institute’s Restatement of the Law Governing Lawyers. (The ABA has produced additional model rules and policies, many of which are also widely cited, including model rules that address admission and discipline issues.)

• Caveat: All jurisdictions’ highest courts have adopted rules of professional conduct based on the ABA’s Model Rules of Professional Conduct, but some of the jurisdictional variations are significant. It is worth noting that the ABA Center for Professional Responsibility provides rule comparison charts for each ABA Model Rule summarizing the ways in which each jurisdiction’s rule aligns with, or differs from, the corresponding ABA Model Rule. See americanbar.org/groups/professional_responsibility/policy/rule_charts/.

Regulation of Individual Lawyers

5. To provide “legal services” in a US jurisdiction, a lawyer must be licensed by that jurisdiction or be “otherwise authorized.” Examples of the latter include situations in which a court authorizes participation in a lawsuit by a lawyer licensed elsewhere (pro hac vice), situations in which the jurisdiction allows a lawyer licensed in another jurisdiction to provide temporary services without being licensed, and situations in which the jurisdiction allows in-house counsel to provide legal services there without a license from that jurisdiction.

• Caveat: As noted in paragraph 7, infra, the issue of what constitutes “legal services” can be a difficult issue. Thus, while it is clear that if a lawyer is providing legal services in a jurisdiction, then that lawyer must be licensed or otherwise authorized, it may not be clear exactly when a lawyer will be viewed as providing legal services.

6. In most US jurisdictions, a lawyer is still the only type of provider authorized to deliver legal services, but some—especially recently—have expanded their licensed professionals to include other categories, such as licensed paralegals.

• Caveat: This paragraph refers to “most jurisdictions.” Traditionally, a lawyer was the only kind of provider that was licensed to offer legal services. In the past 20 years, however, several jurisdictions have begun either licensing or authorizing other providers to deliver legal services direct to consumers. Their titles and the scope of services they may provide vary. For example, these providers include paralegals (California), licensed paralegal practitioners (LPPs, Utah), and legal paraprofessionals (LPPs, Arizona). “Regulatory sandboxes” and “alternative business structures” are another way that some jurisdictions have begun to work toward similar aims. Utah has created a “regulatory sandbox,” Arizona has licensed alternative businesses, and other jurisdictions are considering changes. See IAALS, “Regulatory Models,” available at perma.cc/J86K-DSX3. (Many proponents hope these changes will help address the access-to-legal-services gap.) 

7. If a lawyer is providing legal services in a US jurisdiction without having a law license from that jurisdiction or being otherwise authorized, the lawyer is engaged in the unauthorized practice of law (UPL). Each jurisdiction establishes its own UPL definition and penalties. Although definitions vary, UPL rules typically cover litigation, transactional work, and regulatory work. This means that the United States has stricter UPL rules than countries who limit their reserved activities to litigation or narrow categories of transactional work.

• Caveat: Jurisdictions vary with respect to where their UPL/practice of law definitions can be found. In some jurisdictions, the UPL/practice of law definitions reside in the jurisdiction’s highest court’s rules; in others, the UPL definitions are in legislation or in case law. The penalties for UPL violations also vary. In some jurisdictions, UPL violates criminal law; in others, UPL is a civil law matter. It is also worth noting that because of multiple studies showing large gaps in access to legal services, many jurisdictions have been asked to relax their definition of UPL and create UPL exceptions that address those gaps. Some of the requested exceptions would allow outside investment in law firms. See paragraph 6’s caveat, supra, regarding regulatory sandboxes and alternative business structures.

8. In general, jurisdiction lawyer licensing rules have both “input” and “output” requirements, as well as character and fitness requirements. The “input” requirements typically are satisfied if the applicant received a JD degree from a US law school accredited by the Council of the ABA Section of Legal Education and Admissions to the Bar. The “output” requirement typically is satisfied if the applicant passes that jurisdiction’s bar exam. Most currently use NCBE’s Uniform Bar Exam (UBE), but each jurisdiction designates the required passing score. These lawyer licensing requirements typically are found in the bar admission (lawyer licensing) rules adopted by a jurisdiction’s highest court.

• Caveat: Variations among jurisdictions’ “input” and “output” requirements can be significant, and these variations seem to be increasing. Several jurisdictions have additional or alternative methods to satisfy these requirements. For example, California allows attendance at state-accredited law schools and law office study to satisfy its “input” requirements. With respect to “output” requirements, Wisconsin has a diploma privilege that allows graduates of Wisconsin law schools to be admitted there without taking its bar exam. NCBE’s Comprehensive Guide to Bar Admission Requirements, available at ncbex.org/comp-guide/, provides a useful summary of jurisdiction admission requirements.

9. A lawyer licensed in the United States is allowed to have a law license from more than one US jurisdiction (or country), but a law license from one US jurisdiction is not automatically transferable to, or recognized by, another US jurisdiction. Thus, a licensed lawyer must apply and be admitted to each additional jurisdiction. It is common for jurisdiction regulators to request a Certificate of Good Standing from all jurisdictions in which the lawyer-­applicant is licensed. Note that this mobility issue is often discussed using the acronym of MJP, or multijurisdictional practice.

• Caveat: US jurisdictions vary significantly with respect to their “recognition” rules for already-licensed lawyers. For example, some jurisdictions have admission on motion rules that impose very few, if any, additional requirements. Other jurisdictions may require lawyer-applicants to pass a special attorneys’ bar exam or the regular bar exam. Some jurisdictions may be satisfied with lawyer-applicants’ legal education credentials, but others have stricter educational requirements. NCBE’s Comprehensive Guide to Bar Admission Requirements, available at ncbex.org/comp-guide/, provides a useful summary of these requirements. A second point is that US lawyers may be subject to multiple sets of conduct rules. If a jurisdiction follows ABA Model Rule 8.5(a): Disciplinary Authority, then a lawyer will be subject to the rules of professional conduct in all the jurisdiction(s) in which the lawyer is licensed as well as the rules of each jurisdiction in which the lawyer provides or offers to provide legal services, even if the lawyer is not licensed there. Situations may arise where a lawyer is subject to conflicting rules. Many of jurisdictions’ highest courts have adopted “choice of law” provisions modeled on ABA Model Rule 8.5(b) to help lawyers determine which rules of conduct to follow.

Law Firm Organization and Regulation

10. State law, rather than federal law, establishes and governs the business structures that are available to entities, including law firms. As a result, there is no single business entity form that all US law firms must use. Thus, lawyers who want to practice together in a law firm have choices about which state law(s) to use to organize their law firm and which state-based entity structure to use when establishing that law firm. There are commonalities among US jurisdictions with respect to the entity structures available, but there are also differences, especially if the entity structure limits liability in some fashion. Regardless of the entity structure selected, most jurisdictions prohibit lawyers from sharing legal fees with a nonlawyer or sharing an ownership interest with a nonlawyer if the activities of the entity consist of the practice of law. See each jurisdiction’s counterpart to ABA Model Rule of Professional Conduct 5.4.

• Caveat: Arizona and Utah have recently relaxed or eliminated their rules that prohibit lawyer–nonlawyer fee sharing or co-ownership. Prior to these changes, the District of Columbia (DC) was the only US jurisdiction that allowed lawyers and nonlawyers to share legal fees and law firm ownership. Because of the imputation rules, however, DC firms with joint lawyer–nonlawyer ownership generally did not open branch offices outside DC. Note that although a law firm’s rights and obligations will generally be a matter of state law, regardless of the entity structure selected, the law firm will need to file a federal tax return and will be subject to selected federal laws.

11. Although US jurisdictions regulate legal services by licensing individual lawyers, no US jurisdiction requires all law firms to register with its highest court (or its designee) or have a law license in order to provide legal services in the jurisdiction. As noted in the accompanying article, some foreign countries require all law firms to be licensed in order to provide legal services and their regulators may expect the same in the United States.2

• Caveat: Two US jurisdictions do have rules that allow them to discipline a law firm, as well as an individual lawyer: New York and New Jersey. Neither, however, has an admission process for law firms or requires law firms to obtain a license in order to provide legal services. Moreover, as is explained in greater detail infra in paragraph 12, there are some states that require law firms to register if the law firm elects to use an entity organization form that limits liability.

12. Some US jurisdictions require registration if the law firm elects to use an entity structure that limits liability to clients. If a law firm organizes itself as a general partnership, it typically is not required to register with the relevant legal services regulator. For a general partnership example in Pennsylvania, see “General Partnerships, Limited Partnerships, Limited Liability Partnerships, and Limited Liability Limited Partnerships,” available at perma.cc/9VSF-AZ7B. Some jurisdictions have created entity structures that are available to law firms and other types of businesses that require registration with an entity other than the legal services regulator. For example, if a law firm chooses to become an Ohio Limited Liability Company (LLC), that law firm LLC has to file the appropriate paperwork with the Ohio Secretary of State and can obtain a Certificate of Good Standing, but that law firm LLC is not required to register with the Supreme Court of Ohio or its delegees. On the other hand, as noted in the accompanying article, some jurisdictions require registration with its highest court or its designee if a law firm elects to organize itself using a limited liability entity structure provided by that jurisdiction’s law. See, e.g., International Bar Association, The IBA Global Cross Border Legal Services in Northern America Report 2019 (2019), available at perma.cc/U7UG-U2S4 at 67–340. (In note 12 of the accompanying article in this issue, the entries for California, Illinois, Indiana, North Carolina, Rhode Island, Virginia, and Wisconsin note that registration with, or authorization from, the jurisdiction’s court, state bar, or state bar examiner is required.)

• Caveat: Each US jurisdiction has created a business entity structure that allows the owners’ liability to be limited, but there are significant variations among these state laws and their interpretations. For example, some jurisdictions have a separate law that governs LLCs of professionals such as lawyers, whereas other jurisdictions do not. Most of these limited liability laws do not require lawyers or law firms to register with a jurisdiction’s highest court, state bar, or other legal services regulator. But even in those jurisdictions that require law firms with limited liability to register with a legal services regulator, there are significant variations. State laws vary with respect to the names of the entities for which registration is required, whether permission to proceed must be granted, and whether a certificate is available, among other issues. For example, California allows a law firm to apply to the State Bar of California (the regulatory body designated by the Supreme Court of California) for a Certificate of Registration as a Limited Liability Partnership (LLP). The Supreme Court of California’s rules refer to this as a “law corporation” and delegate to the State Bar of California the responsibility for handling registration of these law corporations. See State Bar of California, Rules of the State Bar, Title 3, Division 2, Chapter 3, Law Corporations, available at perma.cc/CJZ4-3ZTP; and State Bar of California, “Limited Liability Partnerships,” available at perma.cc/RUT4-ZRQ7.

13. If a law firm elects to organize itself using a particular business association-­corporate form of a single jurisdiction, such as Delaware, that law firm is allowed to have offices throughout the United States provided the lawyers who deliver legal services in each office are properly licensed in that jurisdiction (or are otherwise authorized). This point is a corollary to the principle that jurisdiction legal services regulators admit and license individual lawyers, not law firms.

• Caveat: It is worth noting that what one thinks of as a single “law firm” may, in fact, be composed of several different legal entities, which are organized in different US jurisdictions (or countries). As the American Lawyer’s annual Global Issue shows, several US-origin law firms have selected the Swiss verein as their entity structure.3 Difficult issues, such as conflicts of interest imputation, can arise if a law firm is comprised of different legal entities.

14. Although US law firms are generally not required to be licensed by jurisdictions’ highest courts or “admitted to practice” in a jurisdiction to have an office there, law firms have the power to contract with legal services clients and are subject to state contract law, tort law, and agency law principles that likely will make the law firm responsible for the actions of its lawyers. The American Law Institute’s Restatement of the Law Governing Lawyers provides a useful summary of the contract, tort, and agency law principles a jurisdiction is likely to apply to a law firm.

• Caveat: In litigation settings, individual lawyers, rather than law firms, typically file a “Notice of Appearance” with the trial court indicating that the lawyer is representing a party in the lawsuit. Despite these documents, contract, tort, and agency law typically will make the law firm responsible to the client for the litigation-related actions of the law firm partner or employee, as well as the individual lawyer.

Contact us to request a pdf file of the original article as it appeared in the print edition.