Alternative Business Structures

  • April 01, 2019
  • Divid J. Bilinsky

A necessary exercise when contemplating change is evaluating the potential risks and benefits. The Law Society of England and Wales summarized the potential benefits and risks of becoming an ABS:

The Law Society of England and Wales

The benefits of becoming an ABS include:

  • equity can be raised from a broader base of potential partners, members or directors, for example from other professionals or non-solicitor employees
  • Non-solicitor employees may be rewarded by partner, member or director status, with a direct stake in the firm, thus enabling a practice to both retain high-performing non-solicitor employees, and attract outside legal talent
  • The ability to diversify the range of services provided by the practice either through becoming a “one-stop shop,” or consolidating a specialism in a particular area of the market.
  • Equity can be raised from outside the legal sector without the need for non-lawyer involvement at the management level. This has the potential to allow firms to attract new investment from different markets.
  • You may provide a wider range of services to clients through an ABS than you can through an ordinary law firm.

The potential risks: You should be aware of how the ABS structure may affect your firm. You should consider the following questions in your assessment:

  • What impact will non-lawyer managers or owners have on the culture of the firm?
  • How will the changes affect the firm’s business plan and what benefits are they likely to achieve?
  • How far will non-lawyers understand the culture and obligations of solicitors?
  • Will becoming an ABS change the firm’s perceived risk profile? The SRA does not believe that ABS are inherently more risky but changes to your firm may still alter the perceived risk. This may alter the way a firm is regulated by the SRA under its new system of risk-based regulation and the ability of, and terms on which, a firm can obtain professional indemnity insurance.
  • An ABS will always require at least £3 million cover in the event of a claim. A partnership or recognised sole practice that is not an ABS requires only £2 million of cover.
  • Do you want to provide services through an office overseas? Many foreign jurisdictions may not accept ABS.

There are important access to justice and service delivery benefits arising from ABS:

The Solicitors Regulation Authority stated: “Although around a quarter of all legal services providers have introduced a new or improved service in the last two years, ABS and alternative providers are still more likely to be innovative than traditional law firms. Emerging practices include increased use of fixed costs, unbundling and technological innovations in service delivery.”

The SRA continued: “Law is interacting with business and technology more than ever, and is redefining what it means to practise law. Technology presents lawyers with the opportunity to use effective new business models to deliver services, and monitor business and financial performance.

In 2014, regulated lawyers stated in a survey that smarter use of technology is the most important factor to help grow their business. Most business changes, either implemented or planned by these lawyers, happened by means of investment in processes and technology.”

Per: The Changing Legal Services Market

© 2019 David J. Bilinsky