By: Esteban Múnera
Before ever sitting down and studying for the LSAT, I was warned that the legal market was shrinking. Not really knowing what this entailed, I proceeded to my logical reasoning and logic game assignments. Now, as a 3L at Boston College Law School, I am coming to terms with this ominous warning.
The 2017 Report on the State of the Legal Industry, “The Georgetown Report,” as it is commonly referred to, confirms that corporate legal buyers are directing more work away from large law firms, electing to take it in-house or to legal service providers. The Report provides a broad range of data analytics that confirm the weaknesses in the traditional partnership model, the allure of alternatives legal sources, and an alarming market dynamic. In short, the Report concludes that the traditional law firm franchise has “eroded.” I will not dispute this analysis. Instead, I aim to reinforce the notion that given this predicament, all lawyers must think entrepreneurially.
Both within law school and in private practice, the focus for “start-up” attorneys is on local markets. This is a no-brainer given the large concentration of human capital in neighboring areas such as Silicon Valley and Cambridge. However, this myopic approach fails to address the needs of international start-ups. What if corporate counsel were equally dedicated in nurturing young, international start-ups that may be the next Google or Facebook?
In general, the legal industry is not only ripe for entrepreneurial attorneys but will actually depend upon them for survival. Accordingly, more U.S. law firms need to think and act entrepreneurially by pivoting towards an untapped international resource.
Coming to America
Countless technology and other companies were founded in the United States by entrepreneurs with strong ties to foreign countries and regions such as Russia, India, Israel, China and Latin America. For tech companies, many times the decision to incorporate in the United States, and specifically in Delaware, is driven by the preference of U.S.-based venture capital firms and other investors to invest in companies incorporated in Delaware.
After reviewing tax and other considerations, founders may decide to incorporate the company or the parent entity in the United States, while some or all of the founders, employees or services still operate in a foreign country. According to the U.S. tax code, a corporation is “domestic” if it is “created or organized in the United States or under the law of the United States or of any state.” Therefore in the U.S., a corporation’s residency is determined by a company’s place of legal incorporation, not by the location of its headquarters, employees or activities.
Foreign operations incorporated in the U.S. present legal issues for companies of all sizes. First, the new company must comply with the laws of its place of incorporation and where it conducts business in the United States. While this may seem obvious, some founders and foreign counsel may not be fully aware of local requirements and legal differences between the specific foreign country and the state where compliance is required. Furthermore, arrangements regarding foreign employees may still be subject to compliance with certain U.S. laws.
If this seems like a lot to handle for a still wet-behind-the-ears startup, it’s because it is.
Disruptive Emergence of New Tech
Off the success of its online payments upstart, Stripe, Irish brothers John and Patrick Collison set out to take the complexity out of incorporating in the U.S., and thereby “render geography irrelevant in the process.” The proposed solution is called, Stripe Atlas, a one-stop-shop startup service toolkit. Patrick Collison says he was inspired to give non-US entrepreneurs an equal chance and compete on the same playing field as companies based in Silicon Valley. Atlas’ suite of services offers entrepreneurs the ability to incorporate their business in Delaware, establish a U.S. bank account, and receive a tax identification number. In addition, they will get access to legal advice from international law firm Orrick, $150,000 in computing services from Amazon Web Services, and tax advice from PwC. The entire process will take less than a week.
Entrepreneurs pride themselves on solutions, or, in this case, technological work-arounds. Now law firms, like Orrick, lawyers must act entrepreneurially and recognize disruptive innovations. Stripe Atlas’ service (and its presumably its forthcoming competitors) allows a whole new population of consumers at the bottom of a market access to a product or service that was historically only accessible to consumers with a lot of money or skill. As the Collison brothers recognized, “corporate jurisdictions and headquarters are becoming more fluid in the era of the Internet,” and as such, “physical geography matters less.” Through services like Stripe Atlas, law firms may now easily counsel international entrepreneurs to get their startups off the ground.
It is safe to say that all attorneys want to avoid The Georgetown Report’s apocalyptic prophecy of the legal industry. Consequently, major changes are needed.
In the short term, there is a dire need to lessen the learning curve faced by young corporate attorneys by teaching about entrepreneurship in law school. As the legal industry recovers from the recent recession, it is in a fundamentally different place than it was ten years ago. Yet, despite this radically shifting market place, legal education has remained fundamentally unchanged.
In the long run, the goal is to close the access to legal representation gap. Through innovations like Stripe Atlas, the legal profession will slowly chip away at his its delivery problem and continue to develop sustainable models for delivering legal services. As a result, legal entrepreneurs will be able to provide a more efficient and holistic service to both their domestic and international clients.
The time has come for legal services to be affordable, accessible, and adopted widely. The market for law and technology has been described as an “unpopulated multi-billion dollar industry.” The question for today’s law students and professional is whether they will be left behind as others fill the gap, or whether they will seize the opportunity for innovation and entrepreneurship, pioneer new legal services delivery models, and help find a solution.