Traditional partnership – a dying law firm structure?
The Solicitors Regulation Authority (SRA) annual report published recently on its regulatory work includes an indication that the traditional law firm model of partnership, under the Partnership Act 1890, where the individual partners have joint and several liability in a personal context has dramatically dropped as the choice of business model for law firms. From 2,419 such partnerships in 2013/14, 23% of all law firms in England and Wales, the number has plummeted to 1,352 in 2020/21, just 14%. The figures are based upon a snapshot taken on 31 October 2021.
Just over 50% of all law firms are now incorporated; that is 5,093 firms or 52%. This means LLP and limited company models prevail.
Perhaps most surprisingly given our day-to-day work with LLPs is that just 15% of law firms adopt the LLP model. Our workload covers all structures but LLPs in particular regularly instruct us to a disproportionate level. If you are an LLP Member reading this at least you know we deal with LLPs day in, day out.
For the first time Alternative Business Structures (ABSs) now make up than 10% of all practices. There were 1,040 as of the date of the data snapshot, which means that 10.5% of law firms have a non-lawyer owner (non-solicitor), legal executive or barrister. Given that this is the most recent business model to have been authorised and we have only just passed the 10-year anniversary of this model being facilitated by the legal regulators including the SRA it demonstrates a growing trend of external investors interested in law.
Note of course that ABS is not another structure, it is an ownership model. ABSs can be licensed to. law firms structured as partnerships, LLPs and limited companies.
We have advised everybody from Angel investors to private equity ,to husband and wives wanting to take advantage of the ABS option, or indeed firms contemplating the various benefits of becoming a limited company, LLP or seeking external investment. f you would like advice on this structure we are happy to work in conjunction with your accountants and indeed those that we regularly work with who are specialists in the area.
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