The Law Society Council will vote on Thursday on reforms to revolutionise the way in which law firms are funded
They would allow law firms to sell off small stakes of equity to outside investors and raise debt much more easily. A full council will vote on the findings of the Regulation Review Working Party, which was set up in 1999 to review Rule 7 on fee-sharing between lawyers and non-lawyers, which prevents outside investors taking a stake in law firms. Should it vote for reform, firms would be able to sell equity stakes to major financial institutions and raise debt more cheaply and creatively as repayments could be linked to law firm profitability. Chair of the Working Party Committee Ed Nally said: "Firms are prevented from factoring debt or allowing a financial institution to take a stake in them that is rewarded through profit share. The question is whether we should allow law firms to be more imaginative in fundraising." The Law Society has been lobbied by City and provincial firms to have the rule reconsidered. Nally, who is in favour of reform, told The Lawyer: "What we're wrestling with at the moment is whether to do it by capping the amount of debt or limiting the percentage of shares that can be sold." It is likely that minority share sales will be permitted. A simple majority is needed to pass the reforms in principle, then more detailed proposals will be drawn up.