Alternative business structures (ABSs) – broadly, entities which are not wholly owned by lawyers, providing legal services to individuals and businesses – were created by the Legal Services Act 2007. After more than four years’ preparation, the first ABSs were licensed by the Council for Licensed Conveyancers and commenced business on 6 October 2011.

On 3 January 2012, the Solicitors Regulation Authority (SRA) received 10 applications for businesses wishing to register as ABSs. The total number of applications is now believed to exceed 65. While the identity of the applicants remains confidential, public pronouncements by some of them suggest that ABS applicants include organisations such as the Automobile Association and Co-operative Legal Services, as well as established law firms such as Irwin Mitchell. Later in 2012, firms which have already registered as Legal Disciplinary Practices (LDPs) because they have a non-lawyer owner-manager will have to reregister as ABSs. 

From our work with clients, we recognise that the first wave of ABS applications being considered by the SRA is unique in the history of the legal profession in England and Wales in that almost all the applicants intend to use non-lawyer equity to build substantial businesses which include the provision of legal services. Strong financial backing, a corporate culture, sophisticated and scalable IT systems and powerful brands are typical features of these organisations. 

Not quite there yet...

Although it has had almost five years to prepare for these first applicants, the task facing the SRA should not be underestimated. As a new regulator administering a new regime (although much has been borrowed from the Financial Services Authority), it is operating substantially without precedent and is having to decide on difficult issues on a case-by-case basis. There are questions as to whether it has been adequately resourced for this purpose. The costs of regulation will of course be borne by the legal profession; annual registration fees for ABSs have not yet been set.

The process operated by the SRA has three distinct phases:

1. All applicants complete a relatively short initial application form.

2. This form is reviewed by the SRA. A bespoke second-stage application package is then prepared by the SRA and sent to the applicant. The terms of this bespoke package reflect the nature of the proposed business, the identity of the owners and other factors.

3. Once all the information has been compiled by the applicant and the response to the SRA completed, the SRA then has six months to consider the complete application before making a decision. If the SRA requires further information, the decision date may be pushed back a further three months.

While the SRA is happy to indicate that it will grant the first of its ABS licences before the end of February 2012, it is entirely possible that some of the January applicants will not be licensed to operate as ABSs until October 2012. 

This is a year on from the anticipated date of 6 October 2011. However, the issue here is not merely one of delay.

Throughout the closing months of 2010 and during the first half of 2011, potential applicants confidently expected that the SRA would be ‘open for business’ to receive and approve applications, licensing the first wave of ABSs to commence business on 6 October 2011. That would have represented a form of level playing field in that all the early movers would have begun to compete on the same day. Under the licensing arrangements which are currently unfolding, there is no certainty that all the organisations making applications on 3 January 2012 will be licensed to operate as ABSs from the same future date.

With large sums of money riding on this, and substantial commercial advantage available to first movers, there is now growing concern that what looked like administrative delays in 2011 will have serious commercial consequences for ABSs and their backers in 2012.

If you’d like to hear more about how Baker Tilly works with businesses considering whether to invest in or register as an ABS, please speak with your usual Baker Tilly contact or call/email George Bull or Rowan Williams.