Oct. 25 (Bloomberg) -- Private equity partners, banks and hedge funds will be able to invest in Britain's 19 billion-pound ($39 billion) legal-services industry under a new law that lets U.K. lawyers sell shares for the first time.

The Legal Services Bill passed its final hurdle today in the House of Lords, Britain's upper house of Parliament, and will be signed into law by Queen Elizabeth II next week, according to the Lords' information office. The act will allow firms to list on the stock exchange, sell a stake to private investors or merge with banks and supermarkets by 2011.

The bill follows similar changes in Australia, where Melbourne's Slater & Gordon became the world's first law firm to float on the stock market in May. The personal injury firm raised A$35 million ($32 million) and acquired two law firms.

The U.K.'s move is ``undoubtedly revolutionary,'' Howard Morris, chief executive officer of London law firm Denton Wilde Sapte LLP, said in a telephone interview. ``The big question is whether law firms will raise capital to buy other firms or practices. I'm sure some will, but the question is will it work?''

While top U.K. firms like Clifford Chance LLP and Slaughter & May say they have no immediate interest in selling shares or merging with non-lawyers, smaller firms such as Denton Wilde and Travers Smith LLP are ``listening politely'' to pitches from banks, brokers and private equity partners.

Competitive Advantage

``We will watch it, and certainly we will not be a leader, but if it provided a competitive advantage we would consider it,'' said Chris Hale, London-based head of the corporate department at 250-lawyer Travers Smith.

Not all lawyers can take advantage of the changes. International firms are barred from combining with non-lawyer partners under German law and Italy bans outside investment, so European firms would have to split their U.K. offices into separate entities. Solicitors with banking or private equity clients are also concerned about conflicts of interest and relinquishing power to shareholders.

``Frankly, why would we be interested in sharing equity with outside investors?'' said David Harris, managing partner of London-based Lovells LLP.

Money Issues

Clifford Chance, the world's largest law firm with income of more than 1 billion pounds, said it doesn't need the money.

``Substantial firms like Clifford Chance will not have the interest in seeking that kind of external capital,'' London-based partner Simon Davis said.

Lawyers with more commoditized law practices like employment or personal injury are the most likely candidates for U.K. listings because investors like predictable income streams, accountants say.

``We've spoken to half a dozen firms who have expressed an interest in understanding what the implications would be and are taking steps to get their business into shape,'' said Giles Murphy, national head of assurance and business services at Smith & Williamson LLP. ``We're a few years off still.''

While law firms may be holding back, The Co-Operative Group Ltd. chain of more than 2,000 grocery stores and pharmacies has said it wants to be the first British retailer to capitalize on the changes by hiring in-house lawyers to write wills and offer property transfer services.

Britain's Auto Association, owned by private equity firm Permira Holdings Ltd. and CVC Capital Partners Ltd., have said they will form a panel of lawyers to learn from the experts and weigh their options.

``It won't be a big bang, it will be more of a slow burn with lawyers being the cautious people they are,'' Denton Wilde's Morris said. ``But it would only take one regional firm to go out and bet the farm.''

To contact the reporter on this story: Caroline Byrne in London at cbyrne12@bloomberg.com.

Last Updated: October 25, 2007 11:58 EDT