Starting a new law firm - what do I need to consider? Part IV - Application process with the SRA

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As specialist advisors to the legal sector, we have helped many firms to start practising. In the last three editions, I covered the top considerations that individuals should take into account in starting a new law firm; the importance of planning; the business structure of the firm; and tax considerations. In this edition, I look into the application/recognition process with the SRA.

The SRA often receive much criticism from the solicitors, but I must start by saying that they have much improved their whole process for applying for recognition. In the past, they have taken some three to four months from the point that they receive all of the application information to approve new law firms, and even then only by constant chasing. For new Alternative Business Structures (ABSs), the timescales were over six months.

In our most recent applications for new law firms, they are taking as little as four to six weeks for recognised bodies and around three months for ABSs. Of late we have been receiving very few queries, if any at all, from the SRA. That may be due to our experience of what they are looking for in the applications rather than them not having such a keen eye for the detail.

The timescales and some of the application requirements may have been slimmed down, but it is still an onerous process, with much form filling.

Application forms

SRA form FA1 needs to be completed. The form is 13 pages long, but can be completed as an editable PDF. That means that you can save it, complete it in stages, and change entries. The form contains standard information requests, but also looks at the role holders such as:

• Compliance officers
• Managers (directors in a company/partners in a partnership/members in an LLP)
• Owners
• Authorised signatories
• AML reporting officers; etc.

In order for the SRA to assess the viability of the new firm, the form also asks questions on:

• Sources of funding
• Interest rates
• Types of work to be undertaken
• Any linked businesses

Individual forms also need to be completed, forms FA2, which are 14 pages long and focus on the roles of those individuals; their background information; professional status; experience; reasons that they are appropriate; employment history; and business interests. Essentially, these forms are used to assess the suitability of the candidates to take on their proposed roles.

There are exemptions for certain individuals to complete form FA2 if they are ‘deemed approved’. Essentially, that is a practising solicitor. Even where the individual is deemed approved as an owner/manager, they will still need to complete the forms if they are to be the COLP/COFA unless the firm will have fee income under £600k.

If another entity will be a manager or owner, then the 8page form FA3 also needs to be completed, which also assesses suitability.

Depending on what services you intend your Firm to carry out you may also need to complete FA 8 (Financial Services Notification) and FA 10 (Anti-Money Laundering Notification).

Accompanying materials

The SRA will expect to see governing documents (such as shareholders agreements) that support the entries made on the forms above. Our experience is that it can also be very useful to provide them with:

• Business plans
• Forecasts
• Risk assessments/business continuity plans

The SRA will use all of the above to focus on risks to the new firm. A common area of risk is business continuity, particularly for smaller firms. Applications should therefore consider this in advance and set out the contingency planning in the event of impacts on key individuals/premises/IT etc.

More than this however, these documents are useful management tools and so having clear plans and forecasts from the very infancy of your firm help you to focus on the most important tasks.

ABSs

If you are applying to be a licenced body (ABS) rather than a recognised body (non-ABS), then the same form FA1 is used, but there are additional questions on:

• Material external interests
• Associated relationships
• Voting powers
• Influence of non authorised persons

The SRA will also require forms FA2 on all non-deemed approved individuals, and the accompanying materials as set out above. The SRA tend to ask far more information on ABS applications, particularly on risks associated with separate business links.

All forms can be submitted electronically. We advise that covering emails are used to explain the purpose of the application and also to add anything that isn’t covered by the forms that you feel will benefit your application. You should then have a positive response from the SRA and in the meantime you can concentrate on getting your new business ready to be a success from the start, by following the guidance set out in the previous articles in this series.

In the four articles in this series on starting a new law firm, I have provided very much a high level overview. Starting any new business, let alone a regulated law firm, can be a complex area and advice should be sought from a legal sector specialist accountant on which route is best for you.

Andy Poole is the Legal Sector Partner at Armstrong Watson, specialising exclusively in advising law firms. Co-author of the Law Society toolkit on Financial Stability in Law Firms, Andy heads the legal sector team at Armstrong Watson, which has 17 offices and over 400 people. The legal sector team advises law firms throughout the UK on strategic, structural and other business improvement issues as well as providing efficient accounting, tax and SRA accounts rules services.  Further information can be found at: www.armstrongwatson.co.uk/legalsector

This article is a general guide to the issues that we see in practice. It is not a substitute for professional advice which takes account of your personal circumstances. No responsibility can be accepted for any loss occasioned by any person acting or refraining from action on the basis of this article.

The Law Society works in partnership with Armstrong Watson for the provision of accountancy services to law firms.