How Legal Innovation is Being Funded in Canada
Alternative Business Structures (ABS) are starting to be explored by law societies throughout Canada. Currently, some countries have already implemented the concept, where non-legal entities and individuals can invest money into a law firm and become the majority owner.

The reasoning behind ABS is to provide law firms with alternative sources of raising capital without having to increase legal fees and rely entirely upon those revenues for the firm's capital resources. In other countries where ABS has been implemented, private investors, groups, and non-legal firms can purchase an interest in the law firm either through the sale of shares or by investing directly into the firm and becoming a majority owner.

However, the idea has been slow to catch on here in Canada for a variety of reasons. First, while the Law Society of Upper Canada initially led the way with suggesting the idea to law societies and law firms, it has been slow to develop. Another variation of ABS being examined is instead of allowing non-lawyers to become majority owners, law firms could allow them to have a minor ownership interest. This has led to stagnation in the development of ABS here in Canada.

Secondly, many of the recent tech legal startups already have the capital funding they need. They are taking advantage of clusters and incubators that bring together lawyers, law firms, engineers, and technologists. The startups have everything they need to develop their products and services, without having to look at buying an interest in a law firm.

In addition, these startups will eventually hire their own in-house legal teams to address potential legal concerns in most cases, rather than relying upon an outside law firm. Furthermore, the next generation of lawyers being hired by startups are being tasked to add value to the organization by developing innovative ways to enhance the legal services they perform, as well as offer solutions that will benefit the entire company.

While ABS might seem it has taken a back seat in regards to law firms, it is important to point out legal innovation, itself, has not been put on hold. Tech legal startup firms are developing a wide array of innovative products, services, and solutions that extend well beyond Provincial legal boundaries. In fact, these businesses are actually thinking on a national and global basis.

Even though ABS could become a viable solution for law firms sometime in the future, it is not the only means of raising capital, especially if you look at the models being used by the startups. For instance, legal tech startups take advantage of the access they have in the clusters and the free resources at their disposal, including legal advice. Then, in order to deliver their product or service to market, they turn to family, friends, private investors, and government programs to raise the capital they need.

For the startups, ABS is not even considered a factor. What this means for law firms, who are looking to raise capital resources, is they might have to build upon the concepts being used by startups. Rather than seek out an investor to purchase an interest in the law firm, one viable option would be to invest into one of the new tech legal startups and potentially become an owner in that venture. Once the startup delivers it's products or services and begings to earn profits, those profits would translate into additional capital resources for the law firm.

Another reason ABS is not taking off in Canada is actually the result of the benefits businesses and corporations can gain by utilizing the products and services being developed by the legal tech startups. Some of these applications streamline specific legal processes, freeing up in-house counsel to concentrate on higher demanding work.

In certain cases, like for small and medium sized operations, the applications make it possible to function without in-house counsel and eliminate the need to retain an outside law firm, for basic legal concerns while performing the work an actual lawyer would. However, it is important to stress while these apps are beneficial, business owners may still want to seek actual legal advice from a qualified lawyer in the event they still have questions or concerns.

Legal innovation in Canada is being funded from a variety of sources, especially in the legal tech startup segment. Going forward, established law firms are going to have to learn how to adapt to the changing landscapes if they want to survive, by implementing ABS or other alternative investment strategies.

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Posted by: DSR
Thursday, December 1, 2016
Tag: Legal
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