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26 November 2012
In a recent decision (2C_237/2011) the Federal Court had the opportunity to decide whether non-incorporated law firms (ie, partnerships) are permitted to adopt the legal form of a company limited by shares. The court held that it is the organisational structure of a law firm which is decisive, not its legal form. A law firm constituted as a company limited by shares is admissible, provided that it is fully controlled by its attorneys, thereby granting it institutional independence.
So far, law firms incorporated as companies limited by shares or as limited liability companies have been accepted pursuant to lower instance case law, despite lacking legal basis.
Article 8 of the Law on the Free Movement of Attorneys stipulates individual requirements for attorneys that wish to be registered in the Lawyers' Register. According to Article 8(1)(d), attorneys must be capable of independently practising their profession and can be employed only by individuals who are themselves registered.
In contrast, Articles 12(b) and (c) stipulate a mandate-related professional rule, according to which attorneys must practise their profession independently, in their own name and under their own responsibility.
Pursuant to Article 13, attorneys and their associates must observe the obligation of professional confidentiality.
The attorneys of a Swiss law firm applied for a declaratory judgment that they remained registered in the Lawyers' Register despite their law firm being transformed into a company limited by shares. The local bar council rejected the matter, ruling that Article 8(1)(d) precludes such a change of legal form, thus precluding the attorneys from registering. The appellate court upheld the bar council's decision, whereupon the attorneys appealed to the Federal Court, asserting a violation of economic freedom (Article 27 of the Constitution).
Contrary to the mandate-related independence stipulated in Articles 12(b) and (c), the Federal Court considered the independence stipulated in Article 8(1)(d) to be of a structural or institutional nature, thereby excluding from practising law only those attorneys whose independence is a priori missing for structural reasons.
According to the Federal Court, structural independence must be interpreted narrowly, since the law governs lawyers' independence on two different levels. Pursuant to established case law, the wording of Article 8(1)(d) is overly broad and does not properly reflect the purpose of the provision.
The Federal Court held that the purpose of Article 8(1)(d) is to exclude the employment of attorneys by non-registered persons or entities, to the extent that such employment entails the danger of undue influence of the attorney by third parties. The employment of an attorney by a non-registered person or entity merely leads to a rebuttable presumption of a lack of independence.
According to the Federal Court, the essential question is not whether a provision enables law firms to adopt the legal form of a corporate body (eg, a company limited by shares), but whether any provision precludes them from doing so. The formal argument that a corporate body cannot be registered in the Lawyers' Register does not imply insufficient independence, according to the Federal Court. The court found that by adopting Article 8(1)(d), the legislative body did not intend to preclude law firms from incorporating as corporate bodies. Articles 12(b), (c) and 13 provide no diverging requirements where attorneys are employed by law firms constituted as corporate bodies instead of partnerships. A contractual relationship need not exist between the employed attorney and the client; neither must the employed attorney be personally liable; nor does it appear that professional confidentiality is in danger.
The Federal Court concluded that if the independence stipulated in Article 8(1)(d) is not affected when being employed by registered attorneys, the same shall apply when being employed by a law firm which is constituted as a corporate body, provided that the corporate body is entirely and exclusively controlled by its duly registered attorneys. According to the court, a law firm's organisational structure is decisive – not its legal form.
The requirement that a law firm must be entirely controlled by its attorneys appears to be crucial. In the present case, the articles of association and a shareholders' agreement ensured that the firm was fully and exclusively controlled by its attorneys.
By permitting law firms to be constituted as corporate bodies, the Federal Court has adopted a pragmatic approach and confirmed the practice of lower instance courts dating back to 2006, thus enhancing legal certainty and harmonising case law with that of neighbouring jurisdictions.
For further information on this topic please contact Markus Dörig or Alexandra Bösch at BADERTSCHER Rechtsanwälte AG by telephone (+41 44 266 20 66), fax (+41 1 266 20 70) or email (email@example.com and firstname.lastname@example.org).
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