Setting up an ABS
From the Law Society Bookshop
- What is an alternative business structure (ABS)?
- Who will regulate ABSs?
- When can a firm apply to become an ABS?
- What is the application process?
- ABSs and in-house lawyers
- Further help
What is an ABS?
An ABS is a regulated organisation which provides legal services and has some form of non-lawyer involvement. This involvement can either be at the management level eg as a partner, director or member; or as an owner eg an investor or shareholder.
Who will regulate ABSs?
The Law Society has applied to become a licensing authority and the LSB has approved the application. The Law Society expects to begin licensing in early 2012. The Council for Licensed Conveyancers has also applied to become a licensing authority and the LSB has approved the application.
When can a firm apply to become an ABS?
The SRA are likely to begin licensing ABS in early 2012. They have issued guidance on applying to become an ABS
What is the application process?
The SRA is still developing their application form, so the information they will require has not been confirmed. However the SRA is likely to consider the areas described below.
Non-lawyer owners
Non-lawyer owners with a 10 per cent interest in (or significant influence over) an ABS will need to demonstrate their suitability. The SRA has published its proposed suitability test. Many requirements reflect those placed upon solicitors entering the profession. However, there are additional requirements relating to financial status and corporate behaviour.
Non-lawyer managers and non-solicitor managers
Solicitors will normally be deemed to be fit to manage a firm, however, other managers will need to demonstrate their suitability. The SRA has proposed to apply the same test to managers as to owners.
Compliance officers
The Legal Services Act 2007 requires that an ABS appoint a head of legal practice and a head of financial affairs and administration.
The SRA have re-termed these roles as a compliance officer for legal practice (COLP) and a compliance officer for financial and administration (COFA). Eventually all law firms will be required to have a COLP and COFA.
There has been a lack of clarity over the role of COLP. However, in essence their role is to oversee compliance with the SRA's regulatory requirements (other than those relating to accounts rules) and to record non-compliance and report material that is non-compliant.
The COFA will oversee compliance with the SRA's accounts rules. Both officers will need to demonstrate their suitability. It is likely that an applicant will also need to demonstrate that they have systems and processes in place to allow their compliance officers to fulfil their rules.
Conditions
All licences will be granted with general conditions attached to them. These have been set out in the proposed authorisation rules. One condition requires that the firms have in place suitable arrangements to ensure compliance with the SRA's regulatory arrangements. It is likely that firms will be required to demonstrate that they have suitable arrangements in place.
Proposed authorisation rules
New Handbook
All ABS (and non- ABS ) will be regulated under the new Handbook. It is likely that applicants will be required to demonstrate how they meet the requirements in the new Handbook.
While these are not substantially different to the current requirements placed on firms, much greater emphasis is placed on sound business management. This is demonstrated by the addition of two new principles regarding the running of a firm.
Thus applicants should expect greater scrutiny regarding the soundness of their business plan and their proposed governance structure.
Principles of running a firm
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ABS and in-house lawyers
Currently in-house lawyers are constrained in the advice they can provide to those outside of their employer's business. Becoming an ABS could allow an in-house team to offer their services more widely, to clients outside their employer's business.
Read more
Further help
Guidance on what firms may do in terms of setting up an ABS at the current time has been issued by the SRA. The SRA are also happy to provide further guidance.