What is an Alternative Business Structure (ABS)?
An ABS is a law firm that is licensed to carry out one or more of the specific reserved legal activities under the Legal Services Act 2007. An ABS’s key point of difference is that its owners and/or managers are not all lawyers, although an ABS must provide a legal service.
Why would I set up as/convert to an ABS?
There is a growing appetite for non-lawyers to be involved in the running of firms, not only to assist in the day-to-day operations including (but not limited to) finance and HR, but also to provide oversight, direction and leadership from an external perspective, as well as creating investment opportunities and the ability to benefit from vertical integration.
An ABS structure is a necessity when a law firm has a non-lawyer(s) in its ownership and management structure. This includes a non-lawyer(s) being appointed as a company director and shareholder, or a partner in a partnership, or a member in a limited liability partnership.
What are the advantages of an ABS?
The main potential advantages include:
- Strengthening the firm’s management with a broader range of talent
- Bringing in equity investment from a bigger pool of potential partners
- Providing the opportunity for diversification through non-legal services
- Enabling family share ownership (for example, as part of a tax-planning strategy)
What are the potential risks of an ABS?The main potential risks include:
- The impact non-lawyer managers or owners could have on the culture and obligations of the firm
- Increased costs - an ABS currently requires at least £3 million cover in the event of a claim, whereas a partnership or recognise sole practice that is not an ABS requires only £2 million of cover
- Many foreign jurisdictions may not accept an ABS
- Outside investment comes with risk, especially if the investor can easily sell their interest or withdraw their investment
- New start-up ABSs that lack a ‘solicitor manager’ can have difficulty recruiting a solicitor to meet this requirement i.e., a manager being a member of an LLP, a director of a company, a partner in a partnership
- The application process is a distraction from running a firm and generating fees, so some firms involve a professional adviser from the outset to minimise the time lost
How does a firm set up/convert to an ABS?
Whether you are a new law firm or an existing practice looking to convert to an ABS, the process is broadly the same. An application needs to be made to the SRA via, however, planning ahead for this process is sensible, as aside from first carefully considering whether an ABS is right for your firm, a number of documents need to be submitted with the application.
Supporting your firm through the ABS Application process
We have supported a number of firms with their application to become licensed as an ABS and we currently act for seven separate ABSs on an ongoing basis.
We will help you to understand the process involved in the ABS application, and whether you should decide to proceed. We’ll manage the process from end-to-end, ensuring a smooth and seamless application.
We will provide fixed fees for each stage of the application process in advance which will be dependent on the level and scope of our required input:
- Initial assessment meeting to consider the application process; to understand what is involved and to assist with the decision whether to apply
- Provision of the SRA application forms for both the practice and the individuals, with guidance on how to complete the forms
- Creation of the chosen structure vehicle
- Review of the SRA forms prior to submission to the SRA
- Preparation, or review, of integrated financial forecasts prior to submission to the SRA
- Review and sense check of business and continuity plans and risk analysis and assessments prior to submission to the SRA
- Introductions to other advisers that will be required in the setting up of a new law firm, including legal sector specialist Professional Indemnity Insurance brokers, regulatory advisors, sector specific software providers, marketers and funders
How long does the process take?
The whole process on average takes around six months, however, it could be longer or shorter depending on the complexities involved and SRA suitability decision.
Our fees to support your ABS Application
£780+VAT* and disbursements for initial assessment and planning meeting.
The above is the fixed fee payable in advance cost option. Additional fees to be agreed following the initial meeting in advance of services provided. All services will be provided remotely via video conferencing; however, options are available for face to face if required.
*£780+VAT applies to existing law firms looking to convert to ABS. £1,630+VAT for entirely new law firm ABS applications to include law firm start-up checklist.
Administration Fees
The SRA’s administration fee for processing applications for a recognised body or recognised sole practice is £200.
The fee for a licenced body administration is £2,000 plus £150 for any individual or entity that needs approval.
Exceptions
An ABS structure is available only for English and Welsh law firms. There are plans for Scottish ABSs (that will be called Licensed Legal Services Provers or LPs), but there is no timescale yet for this to happen.
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