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Legal disciplinary practice

6 April 2011

Legal status

This practice note is the Law Society's view of good practice in this area. It is not legal advice. [Read more]

Practice notes are issued by the Law Society for the use and benefit of its members. They represent the Law Society's view of good practice in a particular area. They are not intended to be the only standard of good practice that solicitors can follow. You are not required to follow them, but doing so will make it easier to account to oversight bodies for your actions.

Practice notes are not legal advice, nor do they necessarily provide a defence to complaints of misconduct or of inadequate professional service. While care has been taken to ensure that they are accurate, up to date and useful, the Law Society will not accept any legal liability in relation to them.

For queries or comments on this practice note contact the Law Society's Practice Advice Service.

Professional conduct

The relevant rules and regulations relating to solicitors will be amended to facilitate the regulation of ABS and the move to a more outcome focused approach to regulation. The following rules and regulations have been revised and will be available via the SRA website from April 2011:

SRA Principles

There are ten mandatory principles which apply to all those the SRA regulates and to all aspects of practice. The principles can be found in the SRA Handbook.

The principles apply to solicitors or managers of authorised bodies who are practising from an office outside the UK. They also apply if you are a lawyer-controlled body practising from an office outside the UK.

1 Introduction

1.1 Who should read this practice note?

This practice note should be read by all those who are interested in the opportunities and rules governing legal disciplinary practices (LDPs).

1.2 What's the issue?

On 31 March 2009, provisions in the Administration of Justice Act 1985 (AJA), the Legal Services Act 2007 (LSA) and amendments to the Solicitors Code of Conduct (the Code) came into force to permit LDPs.

These changes enabled firms to appoint non-solicitor lawyers and non-lawyer managers, and provide the Solicitors Regulation Authority (SRA) and the Solicitors Disciplinary Tribunal (SDT) with new powers to impose sanctions on practices, and in relation to non-solicitor lawyer managers and employees. This practice note provides details on LDPs.

2 What is a Legal Disciplinary Practice?

An LDP is a form of recognised body providing legal services where the owners and managers are not exclusively:

  • solicitors of England and Wales
  • registered European lawyers (RELs)
  • registered Foreign Lawyers (RFLs)

LDPs should not be confused with Alternative Business Structures (ABSs).

3 Potential benefits and risks of becoming an LDP

3.1 Potential benefits

The following benefits may arise from a practice becoming an LDP:

  • equity can be raised from a broader base of potential partners, members or directors for example from:
    • barristers, if permitted by the Bar Standards Board
    • other professionals
    • 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
    • attract outside legal talent
     
  • The ability to diversify the range of legal services provided by the practice either through:
    • becoming a 'one stop shop' or
    • consolidating a specialism in a particular area of the market.
     

3.2 Potential risks

You should be aware of how the LDP structure may impact on your firm. You should consider the following questions in your assessment:

  • What impact will non-solicitor lawyer managers 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?

Elevating suitable, existing, non-solicitor employees to partner, member or director status should be a fairly straight-forward process if there is consensus about this within the firm. By contrast, merging practices or bringing in a range of non-solicitor lawyer managers from diverse backgrounds carries an elevated degree of risk that will require a far greater level of planning and risk assessment.

3.3 Existing LDPs

When ABSs are permitted, all LDPs which have non-lawyer managers will need to become ABSs and will need to comply with the rules governing them. The SRA has put in place transitional arrangements to allow these LDPs to be 'passported' to ABS status. Firms will be able to passport across from October 2011 and must do so by October 2012 if they wish to retain their non-lawyer managers. Firms which have non-solicitor lawyer managers will not have to become ABS.

4 How does a practice become an LDP?

4.1 New firms

Currently all new firms must obtain recognition from the SRA before they may start practising. The requirements for approval will depend on the structure of the practice and on the type of non-solicitor lawyer managers, if any, it intends to appoint.

From September 2012, all new firms wishing to appoint non-lawyer managers will need to apply to be licensed as an ABS under the new authorisation rules.

New firms and existing firms who wish to appoint a non-solicitor lawyer manager will continue to be able to make such an application under the current arrangements until March 2012. After this date all firms will be regulated under the new authorisation rules.

4.2 Employing new managers

Under the current system, existing firms will not need approval from the SRA to take on new managers who are non-solicitor lawyers. However the firm must ensure that the requirements of the rules are fulfilled by both:

  • the new manager, and
  • the new structure of the firm

Firms that wish to take on a non-lawyer manager must obtain approval for that individual from the SRA before he or she takes up that position.

In all cases, the SRA must be satisfied that:

  • managers of the practice are of suitable character
  • the way in which the practice is owned and managed is consistent with the fundamental requirements for being a recognised body.

5 Types of manager and appointment processes

5.1 Non-solicitor lawyer managers

Firms regulated by the SRA may have other 'authorised persons' as either:

  • partners of a general partnership,
  • members of a limited liability partnership, or
  • directors - whether or not they are also shareholders.

These persons may be:

  • barristers
  • notaries
  • licensed conveyancers
  • legal executives
  • patent and trade mark agents
  • law costs draftsmen

Collectively, individuals so designated are known as 'managers'.

5.1.1 Character and qualification requirements

Under the current system of rules, to appoint a manager who is a non-solicitor lawyer, a practice must obtain written confirmation from the relevant regulator that the lawyer:

  1. is authorised, entitled to practice, and
  2. is not subject to conditions that would preclude the person from becoming a manager.

The current management of the practice is responsible for obtaining this information and, if requested, providing it to the SRA.

5.1.2 Appointing non-solicitor lawyer managers

Under the current rules, to be consistent with the fundamental requirements for being a recognised LDP with other lawyer managers, the practice must:

  • ensure that non-solicitor lawyer managers meet the character and qualification requirements
  • ensure that non-solicitor lawyer managers are not held out to be solicitors or provide services that place them in breach of sections 20-24 of the Solicitors Act 1974
  • have at least one manager that is either a solicitor with a current practising certificate, or an REL. LLPs or partnerships should have at least one corporate manager which itself has at least one solicitor or REL.

Once the authorisation rules are in place for non-ABS firms, then non-solicitor lawyer managers will be approved under the same system as all other managers. This will mean that non-solicitor lawyer managers will need to be assessed as suitable under the SRA's suitability test. Practising solicitors will usually be deemed to be suitable by the SRA.

5.2 Non-lawyer managers

Under the current regulations, a practice may appoint managers who are not qualified as lawyers or as any other professional. Such people must:

  • contribute to the management of the practice
  • be of a 'suitable character'

They must not :

  • be merely an owner or investor
  • own or control more than a 25 per cent stake in the practice
  • be an REL
  • be a member entitled to practice, irrespective of practicing status, of any of the following:
  • a legal profession of England and Wales
  • a foreign legal profession whose members are eligible to become RFLs

From September 2011, any firm wishing to appoint a non-lawyer manager will need to apply to become an ABS.

5.2.1 Character requirements

Before a non-lawyer can become a manager in a LDP, the SRA must be satisfied as to that individual's character. To determine this, the practice must:

  • arrange and pay for the prospective candidate to undertake a Criminal Records Bureau (CRB) check.
  • provide the SRA with additional personal and professional information about the individual through form NL1 . NL1s and guidance on their completion can be found at the SRA website.

Any practice appointing a non-lawyer manager must provide the SRA with the information it requires before finalising the appointment. This applies even if the individual has previously been approved by the SRA to be a non-lawyer manager of another LDP. The SRA may investigate some matters further than others and also conduct random checks to ensure that the information provided is both sufficient and accurate.

The SRA's character assessment will not extend to assessing the suitability of an individual to be a manager in a given practice. This is an internal matter for the practice itself.

5.2.1.1 Retention of information

Under section 3.4(c)(iii) of the SRA Recognised Bodies Regulations 2009 , practices are required to retain information and documentation pertaining to the submitted form NL1 for not less than six years after the non-lawyer manager ceases to be a manager within the practice. This will continue to apply under the new Authorisation rules .

5.2.1.2 Appealing against decisions

Regulation 7, of the current regulations , allows, within time limits, for an appeal against the SRA's determination in relation to character or to the imposition of conditions on recognition. An appeal can be made to the High Court. There will be new appeal arrangements for ABS.

5.2.2 Fundamental requirements

Under the current arrangements, no more than 25 per cent of the ownership by numbers, proportion of ownership or voting rights, can be made up of non-lawyers. Only approved individual non-lawyers may be managers. Rule 14 of the Code and Recognised Bodies Regulation 3.1 set out the provisions for the permitted extent of non-lawyer:

  • management
  • ownership, and
  • control.

A body corporate can be a manager of a partnership or LLP, if the body corporate is a legally qualified body - which in turn must be either:

  • a recognised body, or
  • an authorised non-SRA firm, or
  • a European corporate practice.

A body corporate cannot be a director of a recognised body which is a company.

A lawyer, English or foreign, cannot be a non-lawyer manager if they have an entitlement to practise. For example: a solicitor of England and Wales , even if non-practising, is barred from the post.

Legal training or professional accreditation alone does not exclude a potential non-lawyer manager. For example, a non-practising barrister who has been called to the Bar under the new arrangements but has not completed pupillage, would be eligible to be a non-lawyer manager. Equally, a foreign lawyer who is a member of a profession which is not eligible for RFL status could become a non-lawyer manager, despite practising as a lawyer in another jurisdiction.

Under the new arrangements, those firms with non-lawyer managers will need to become ABS and comply with the fundamental requirements relating to them. There will be no limit on the percentage of non-lawyer managers within a firm. Firms with only lawyer managers (including non-solicitor lawyer managers) will be non-ABS. Regulation of these firms will initially be under the Recognised Body Regulations but will eventually fall under the Authorisation Rules, in line with ABS.

5.2.3 Roles and responsibilities of the non-lawyer manager

LDPs may only provide the type of services which can be provided by solicitors, notaries and foreign lawyers. In future non-ABS will be under the same restriction but ABS may not be.

For example, currently an accountant within an LDP may not provide company audit services to clients of the practice, because this is outside the scope of a solicitor's practice. However, the accountant may provide the firm's clients with tax advice, general accounting services, management advice, or investment advice within the limits of the Solicitors' Financial Services (Scope) Rules 2001 , because all these are within the scope of a solicitor's practice. In the future, if the accountant was a manager, the LDP would need to become an ABS. An ABS may not face such stringent provisions in relation to the services they may provide.

Currently, the provisions in Rule 12.06, and the general law both prohibit non-lawyer managers of LDPs from:

  1. being held out in any way as a lawyer.
  2. undertaking certain reserved legal work including:
    • advocacy in open court or in an immigration tribunal
    • the conduct of litigation or immigration tribunal proceedings
    • notarising documents
    • administering oaths
     

However, non-lawyer managers may undertake other reserved or unreserved legal work under adequate supervision, including:

  • giving legal advice
  • advocacy in chambers
  • preparing legal documents

The firm must ensure that the manager is competent to provide such services, and is given appropriate supervision, especially for reserved work.

This will remain the same under the new arrangements.

6 Becoming recognised as an LDP

The SRA website provides full details on the current application process including application forms required for the type of LDP envisaged.

7 Costs and renewal

For details of current fees for LDP and non-lawyer manager recognition see the SRA website . Practices looking to appoint non-lawyer managers must also pay for the cost of a Criminal Records Check .

8 Further considerations

8.1 Changes to ownership structure following recognised status

Under the current arrangements, firms must notify the SRA within 7 days of any change of manager of an LDP. If the change results in non-lawyers being more than 25 per cent of the managers or having more than a 25 per cent stake in the recognised body, the firm has 28 days to correct the situation. For example, if a firm with three lawyer managers appoints a non-lawyer manager, and one of the lawyers dies, then the firm has only 28 days in which to appoint another lawyer manager, or remove the non-lawyer from the firm's equity. Similar provisions will be in place for ABS and non-ABS under the new arrangements.

8.2 International operations

Practices with offices in overseas jurisdictions should consider the potential impact that LDP or ABS status may have on non-UK operations.

Some jurisdictions do not permit non-lawyer owners or managers of the type permitted by the SRA's rules. Some jurisdictions' local regulations may also not recognise as lawyers some people who are not solicitors and barristers, even though they may be considered as such under the LSA.

You should therefore make a careful analysis of any local regulations which may affect your firm. The Law Society's International Department can offer background information on many foreign jurisdictions. See the International Practice section of the department website or contact the department directly on +44 (0)20 7242 1222.

9 Further information

9.1 Statutory Provisions

9.2 More information and products

9.2.1 Law Society International department

Information on foreign jurisdictions is available via the department website , or you can contact the department directly on +44 (0)20 7242 1222.

9.2.2 Practice Advice Service

The Law Society provides support to solicitors on a wide range of areas of legal practice. The service is staffed by solicitors and can be contacted on 020 7320 5675 from 09:00 to 17:00 on weekdays.

Vist the Practice Advice Service website.

9.2.3 Law Society Consulting

If you require further support, Law Society Consulting can help. We offer expert and confidential support and guidance, including face-to-face consultancy on risk and compliance. Please contact us on 020 7316 5655, or email consulting@lawsociety.org.uk.

Find out more about our consultancy services

9.2.4 Law Society publications

9.2.5 Events and training

9.3 Amendments

This note has been amended from the previous version dated 27 August 2009 to reflect changes relating to the introduction of Alternative Business Structures.

10 Terminology

Must - a specific requirement in the Solicitor's Code of Conduct or legislation. You must comply, unless there are specific exemptions or defences provided for in the code of conduct or relevant legislation.

Should - good practice for most situations in the Law Society's view. If you do not follow this, you must be able to justify to oversight bodies why this is appropriate, either for your practice, or in the particular retainer.

May - a non-exhaustive list of options for meeting your obligations. Which option you choose is determined by the risk profile of the individual practice, client or retainer. You must be able to justify why this was an appropriate option to oversight bodies.

A glossary of other terms used throughout this practice note is available on the SRA website

 
 
 

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