How does the law prohibit a profit sharing plan at law firms? It's illegal to pay non lawyers bonuses?
It's a bit more nuanced.
>(3) a lawyer or law firm may include nonlawyer employees in a compensation or retirement plan, even though the plan is based in whole or in part on a profit-sharing arrangement; and
This bit seems like a loophole:
> (3) a lawyer or law firm may include nonlawyer employees in a compensation … plan, even though the plan is based in whole … on a profit-sharing arrangement
Does anyone know the motivations and publicly stated reasons for this absurd restriction?
I'm sure they some other veneer for it.
Essentially, think of anyone who argues for certification.
If a lawyer was part of a company that wasn't a law firm, that would be fine. Actually, this happens pretty frequently--many sports agents happen to be lawyers, because sports agents are responsible for contract negotiations and legal skills are valuable in that situation--though they do not necessarily represent their clients as lawyers and hence the sports agencies they own and operate aren't treated as law firms.
For example, Drew Rosenhaus is a lawyer and a prominent sports agent, and his firm is neither a partnership nor a law firm. Rosenhaus is famous for a number of things, such as being the real-life inspiration for the title character in the film Jerry Maguire and holding a press conference with his famously difficult client Terrell Owens during one of the many controversial incidents he got himself into and responding to every question from the reporters with the phrase, "next question". He was also the agent of Chad Johnson, who famously legally changed his name to Chad Ochocinco for four years to get around league rules preventing him from putting that inaccurate Spanish translation of his jersey number on his jersey in place of his surname.
> Does anyone know the motivations and publicly stated reasons for this absurd restriction?
Total speculation, but maybe it's to keep the profession controlled by its practitioners and not financiers? The exclusion of paralegals, etc. could just be a side effect of keeping investors out.
I do see some benefits for that kind of restriction. If your profession is bound by a code of ethics, it would help with compliance if all the top leadership were bound by it too. If they're just owners from outside the profession, there will always be pressure to compromise ethics to benefit the owner.
Accounting firms used to have the same rule (though they've relaxed it a bit to allow non-CPAs to own less than 40% or 50% as the accounting firms got more and more into "consulting"). The rationale is explained well here[1]. Large law firms are making a similar, though slower, transition to expanding their consulting services. Particularly with respect to data privacy and cybersecurity. I would expect the rules to relax over time.
The U.K. recently permitted non-lawyers to invest in law firms but it doesn't seem many investors have jumped in head-first. Law firms and accounting firms don't have much by way of "assets" so they can be quite risky. I briefly worked at Deloitte with a former Arthur Anderson partner. He was quick to warn all of the young staff about what a terrible investment his equity had been. One rogue partner can sink the entire ship and leave the rest without much ability to recoup the money they put in.
Just seems like an excuse to maintain a racket to me.