EU Court: law firms can reject financial investors

A Member State may legally prohibit pure financial investors from holding capital in law firms, according to a recent ruling. This restriction on freedom of establishment and free movement of capital is justified by the objective of ensuring lawyers can practice independently while adhering to their professional and ethical obligations.

The case centers on German law firm Halmer Rechtsanwaltsgesellschaft, which filed a lawsuit with the Bavarian Bar Court against a Munich Bar Association decision from November 9, 2021. The Bar Association had revoked the firm’s legal practice license after an Austrian limited liability company acquired shares in it for purely financial purposes. Under the relevant German regulations at the time, only lawyers and members of certain liberal professions could become shareholders in law firms.

The Bavarian Bar Court sought the European Court of Justice’s opinion on whether this regulation complies with EU law. The Court ruled that EU law – specifically the free movement of capital and the Services Directive governing freedom of establishment – does not preclude national legislation that prohibits the transfer of law firm shares to pure financial investors and provides for the revocation of the firm’s legal practice license in case of violation.

This restriction on freedom of establishment and capital movement is justified by compelling reasons of public interest. The Court acknowledged that a Member State can legitimately assume that lawyers would be unable to practice their profession independently and in compliance with professional and ethical obligations if they belonged to a firm whose shareholders include individuals acting solely as financial investors, without practicing law or a comparable regulated profession. The Court determined that such a restriction does not exceed what is necessary to achieve the intended objective.