Lawyers, lawful exclusion of equity partners in the firm

Protecting the independence of lawyers and compliance with professional and deontological obligations. Objectives brought to the forefront by the Court of Justice of the European Union in its ruling filed on 19 December in case C-295/23. For the Euro-judges, the independence and integrity of the profession of lawyer are overriding reasons of general interest and, therefore, Member States may prevent purely financial investors, who do not wish to pursue a professional activity, from becoming members of a law firm.

The EU Court was asked to intervene by the Bavarian Bar Association in a dispute between a German-based company of lawyers, registered in the commercial register, and the Munich Bar Association. The company had changed its articles of association and transferred 51 of its 100 share shares to a company under Austrian law, which was not authorised to provide legal consultancy services. Consequently, the Bar Association had ordered the company to be deleted from the register of lawyers because only lawyers could be members of a company of lawyers. The measure had been challenged before the Disciplinary Board, which asked the EU Court of Justice to clarify the scope of Article 15(2) of Directive 2006/123 on services in the internal market, according to which Member States are to verify whether their legal system 'makes access to a service activity or the exercise thereof conditional on compliance with non-discriminatory requirements' including requirements relating to the holding of capital in acompany. An issue that concerns many Member States, six of which intervened in the proceedings before the Court, which did not share the opposite view of the Advocate General.

The application of limits to the holding of shares in a company established in another Member State - the Court states - falls within the scope of Directive 2006/123, as stated in recital 33 in its preamble. The Member States, in line with the directive, may set limits on the holding of shares by commercial companies provided that they do not include discriminatory criteria on the basis of nationality or the location of a company's registered office. Moreover, the limits, in order to be compatible with EU law, must be justified by an overriding reason of general interest and must be proportionate and must not exceed what is necessary to achieve a certain objective, with the possibility of less restrictive measures being considered.

Ensuring the independence and integrity of the legal profession," the Court writes, "as well as the principle of transparency and respect for the obligation of professional secrecy are among the overriding reasons in the public interest. On the other hand, it has already been held in the past that the proper exercise of the law profession is an overriding reason justifying restrictions. The prohibition of the acquisition of shares by purely financial investors is thus also justified because 'economic considerations oriented towards the short-term profit of the purely financial investor could prevail over considerations guided exclusively by the defence of the interest of the clients of the law firm'. The risk of aconflict between professional or deontological rules that are not harmonised should also not be excluded, with the consequence that in compliance with the principle of non-discrimination and proportionality, Member States may exclude the participation of purely financial investors in law firms.