Interpretation of the Company's System

As is known to all, according to the current Law on Lawyers, there are only three forms of organization in China's law firms, including state-owned law firm, partnership law firm, and individual law firm. There is no corporate system. So, what does the corporatization of law firm or even corporate system of law firm mean? Some people think that the corporatization of law firm is to operate the law firm as a company instead of a partnership; Some people think that the corporatization of law firm is to adopt a point-counting system to allocate or abandon the commission system; Others believe that the corporatization of law firm is to adopt capital cooperation rather than personal cooperation; Even some people think that the corporatization of law firm itself is a pseudo-proposition that is not worth discussion, and so on. This is a question that needs to be clarified. 

If we disregard the state-owned law firm and individual law firm with a small proportion, we must face the difference between partnership system and corporatization (corporate system) in case of discussing this problem. Isn't partnership a form of business? Why do we have to emphasize corporatization or even corporate system? In general, the difference between partnership and company is mainly reflected in the closeness of cooperation between the joint ventures (a partnership is loose, while a company is relatively close), and the foundation of establishment (a partnership is based on partnership agreement, while a company is based on the articles of incorporation), and composition of capital and personal capitalization (a partnership mainly refers to personal cooperation, while a company contains personal cooperation and capital cooperation), governance structure (partners in a partnership can directly participate in management, while a company's shareholders need to set up a Board of Directors to hire managers to manage), operation mode (a partnership mainly relies on the division of labor of the partners to operate, while a company mainly relies on the market-oriented operation of the organizational system), distribution model (a partnership is more flexible in distribution according to the characteristics of the partners, while a company is to distribute in the principles according to the equity ratio), responsibilities assuming (a partnership bears unlimited liability, while a company bears limited liability), tax burden structure (double taxation is not imposed on a partnership, while double taxation may be imposed on a company), withdrawal difficulty (a partnership has a withdrawal procedure that is relatively simple, while a company has a more complicated withdrawal procedure) and development method (a partnership is generally small in size and slow in growth, while a company may be large in size and rapid in growth). It is not difficult to find out that these differences mainly refer to the those between statutory partnership system and corporate system. Therefore, if a law firm is able to be subject to the corporate system, there will be indeed many fundamental differences with the law firm under partnership system. However, if a law firm is still a partnership in legal form, but only a corporatization is proposed, differences in many aspects (including foundation of establishment, composition of capital cooperation, responsibilities assuming, tax burden structure, withdrawal method, etc.) will cease to exist. At this time, what is the significance of proposing the corporatization of law firm? I think that it is more about the five aspects of firmness, governance structure, operation mode, distribution mode, development mode of the firm, especially that the partnership in a law firm is generally reflected in loose relationship, commission-based distribution, relatively junior management, and it is even more important to emphasize the concepts and tendencies of integration, enterprization, systemization, etc. that a company pays more attention to. 

It can be seen that the corporatization of law firm and the corporate system of law firm are still two concepts that are not completely consistent. The corporatization of law firm is the primary stage of the corporate system of law firm. At present, most of the practice of the lawyer industry is only and can only be (from a legal perspective) staying at the corporatization of law firm level, even if there is any exploration on a corporate system of law firm, it can only be expressed as the contractual autonomy within the law firm and the partner. Moreover, the corporatization of law firm does not negate the partnership system as a whole. Instead, some elements that a company pays more attention to, such as integration, enterprization, and systemization are incorporated into the legal form of the partnership, to restructure the simulated company from the management, operation, distribution and development. Wherein, the most typical one may be the corporatization model - law firm operation management system relying on the point-counting system of distribution. This model is in sharp contrast to the common system design and operation management model with the commission system as the core in the traditional law firm. Accordingly, the “point-counting system” and “commission system” seem to have become synonymous for the corporatization and non-corporatization of law firms. In fact, this understanding is inaccurate and incomprehensive. 

Nevertheless, we still believe that the corporate system of law firm will eventually be legally implemented. After insisting on 12 years of corporatization management, DOCVIT took the lead in the industry to try the corporate system, and provided creative solutions to the unification of the capital cooperation and the personal cooperation in the law firm by combining the voting by pure equity by the decision-making side, the double voting by the number of equity holders, the voting by the number of equity holders, the distribution of rights at the distribution side and the point-counting system distribution while introducing the concept of equity (temporarily called "equity") and distinguishing the equity partners and non-equity partners, taking a big step in practices of the corporate system of law firm. We hope that this kind of exploration will contribute to the practical implementation of the corporate system of law firm, that more lawyers will join the team and that the judicial administrations and lawyers associations at all levels will pay attention to the innovation of this lawyer industry mechanism and give strong support through the establishment of pilots and other means. We look forward to developing the corporate system of law firm into the law, reality and orientation. Hence, some contents of the corporate system of law firm will be appropriately covered in the next contents of this article.