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For those of us who want to work in a law firm, understanding the law is only half the battle. To truly excel at what you do, you need to understand the commercial world and business side of law firms. A law firm exists to serve clients − so it’s important to understand who the clients are, where their interests lie and how you (as an aspiring solicitor) can use your expertise to help them achieve their aims. The aim of this blog post is to provide an overview of the business of law firms − their structure, hierarchies and how they generate income from clients − to provide a deeper insight into the full scope of a solicitor's role within a law firm.

Structure

If you've ever looked up a law firm, you might have noticed the abbreviation 'LLP', which often follows the name of the firm. It's easy to miss, but this key detail can tell you a lot about the overall structure and organisation of a firm (as I recently learned in my law of organisations module).

LLP − which stands for 'limited liability partnership' − tells you that the firm is not a company, but a partnership. This means that you won’t find a CEO or owner at the top of the firm hierarchy, but 'partners' who make the important managerial decisions for the firm. An LLP is a fusion of a company and a partnership. Like a company, a firm has 'limited liability', meaning it exists as its own entity on the contracts that it signs and can be sued on its own if it's in breach. However, if a firm is a partnership, it also means that each partner owns a portion of the firm.

So, what does this mean for you, the aspiring solicitor? The fun thing about LLPs compared to traditional companies is that they possess an element of flexibility. This means that the rigidity of the hierarchy, or indeed the extent of its existence, will differ from firm to firm. However, as a general rule, most firms will consist of:

1. Partners, who have a stake in the business and make important decisions about the operation of the firm.
2. Legal directors/managers, who take on a managerial role and oversee and organise their specialist department. Not all firms have this role; its purpose can sometimes be distributed throughout the firm’s different roles.
3. Associates, who sit between trainees and managerial directors or partners. This term covers a range of solicitors, from those who are newly qualified (NQ) to those with multiple years or even a decade of experience (senior). The further you progress as an associate, the more managerial the role becomes.
4. Trainees, who have the least legal experience. Their tasks can range from simple administrative jobs and due diligence for a deal, to tasks that demand more responsibility and are directly client facing, much like what an associate or partner would do.

These roles are ranked, not in order of importance, but in order of experience, power and stake in the business. However, it's worthwhile to note that, while this is dependent on the firm in question, most firms will not have a linear, rigid hierarchy. As a trainee, you’ll typically have opportunities to interact with and seek advice from those who work above you.

Income

Law firms generate income by hiring out solicitors (and other legal professionals such as paralegals) to clients. Because the product delivered by these solicitors is qualitative in nature − consisting of advice, research, or direct action to progress a case − clients are not charged for the product itself, but for the time spent providing it. These are called 'billable hours' and encompass the time spent speaking to and interacting with the client, researching for the client's case or deal and preparing documents to help advance their circumstances.

(A quick note of advice: even if, like myself, you're early in your legal journey, once you become a trainee, record your time! This is something I've had drilled into my head from the various trainees I spoke to at the LawCareersNetLIVE conference this past December. I won't forget it!)

As with any business, profit must override loss − so to turn a profit, a law firm needs to make more from its clients than it expends on its running costs!

More recently, the question of fixed fees has been raised. This presents an alternative to the traditional system of billing clients. Instead of billing them based on time spent working on their case (which is subject to change depending on how the case develops), an upfront cost assessment is provided to the client as a fixed number. This is intended to cover the work on the case from beginning to end. 

Commercial awareness

Believe me, I'm as tired of this phrase as you are. But I recently learned something that helped shift my perspective on it a little bit more. Earlier in my legal journey, I mistakenly assumed that 'commercial awareness' within law just meant keeping up to date with legal news − specifically, maintaining an awareness of the firms you wanted to apply to (looking at recent deals they were involved in, for example). I knew, vaguely, that knowledge of the commercial world and the economy was meant to fit into this, but I was never quite sure how.

However, it helped to realise that solicitors at law firms have a very specific role to play, which is heavily dependent on other industries. Law firms generate income through work with their clients so the industries their clients operate in will (naturally) affect their services and determine the nature and amount of work they'll be doing. For instance, the work of a lawyer who specialises in shipping law will likely have been affected by the recent Red Sea shipping attacks.

International affairs, the national economy, conflicts and new legislation all affect various industries that seek advice from lawyers. So, as a solicitor, the best thing you can do is read the news regularly. Read whatever interests you and keep one eye on the economy (since it sits at the heart of every industry). Where you can, apply this information to a firm you're interested in. When researching a firm, ask yourself:

• What practice areas do they specialise in?
• Who are their clients?
• How will recent events affect the industries they provide a service to?

No matter where you're at in your journey − whether you're just looking into law, writing applications or have already secured a training contract − this article has hopefully provided you with some useful context surrounding the business side of law firms. It’s important to understand how law firms make money, how they’re structured and how their work is affected by global and national events. Researching firms in this way is a great way to prepare an application form or for an interview.

Find out more about commercial awareness on LCN’s Commercial awareness hub, sponsored by Mayer Brown International LLP.