Setting up a Law Firm
In order to get authorised by the SRA, you will need to meet certain criteria.
Work through our 8 top tips for setting up a law firm before you commit yourself to this new venture
In order to obtain SRA’s authorisation, you will need to meet certain criteria.
Work through our 8 top tips for setting up a law firm before you commit yourself to this new venture.
It’s worth considering the alternatives to setting up a law firm first. That being said, what are the alternatives? The SRA’s Standards and Regulations 2019 have been in force from 25 November 2019. They make it easier for lawyers to provide legal services outside of a law firm. So for instance, instead of setting up a new law firm and operating as one, you can do a certain amount of legal work independently. In theory, this should be a cheaper and easier route. Though, there are some significant limitations you need to consider before taking up work as an independent solicitor.
First of all, you cannot refer to yourself as a firm of solicitors. There are also significant restrictions on holding client money. If you want to do ‘reserved work’, you must trade and bill in your own name. This includes litigation, probate and conveyancing. The next thing is, you cannot employ or work with anyone else, even a secretary it seems. Most freelance solicitors however, will still need professional indemnity insurance. The usual risk and compliance systems will also need to be in place. Consequently, savings on cost and bureaucracy may not be worth it for some.
For other solicitors, e.g. sole practitioners doing unreserved work, working independently before proceeding with a law firm or ABS application might be worthwhile considering. Moreover, the new rules also permit solicitors working in-house in an organisation to sell ‘unreserved’ legal services to the public. This for example, includes most aspects of will writing, employment law and general legal advice. For certain types of work and organisations with an existing network of leads, this could be a great option. However, if you want to provide reserved legal work with others, or want the credibility associated with calling yourself a law firm, then setting up a new law firm or ABS could be right for you. You can learn about the SRA’s new rules on their website. We work with Lexcel Consultants that help law firms set up and get authorised by the SRA, read more about starting a law firm.
Make sure you have a lawyer with at least 3 years experience, or ideally 5 years. We will explain why…
Part of the SRA authorisation process when setting up a new law firm is to check that you will have a lawyer qualified in England & Wales with at least 3 years experience involved in the business. In fact, your professional indemnity insurers may want to see someone with close to 5 years experience.
In the past that individual was required to complete at least 12 hours of management training. However, from November 2019, the requirement has been scrapped. If you don’t have the required experience, yet doing unreserved work, you may wish to consider the freelance option above.
Alternatively, you could ask the SRA to consider a waiver of this rule as part of the authorisation process. This is something they were prepared to do in the past, where an individual could demonstrate alternative significant experience. You therefore may give this option a try if you have experience in managing and supervising work. However, now that the rationale for this provision has been reviewed and restated, it is possible that we will see a slightly tougher stance from the SRA. They may or may not waive the rule when authorising new law firms / ABS. Download our FREE Guide to Start A Law Firm.
It is important to determine your new law firm’s structure at the outset as this establishes a level of understanding with the SRA.
The SRA’s FA1 form for law firm’s authorisation asks you to confirm the structure of your law firm. Specifically, whether you are setting up: a ‘recognised body’, a ‘licensed body’ or a ‘recognised sole practice’. So you will need to decide this before getting too far into the SRA’s law firm authorisation process.
A recognised body law firm simply refers to a more traditional solicitors practice. In this type of practice, all of the partners, directors and owners in the firm are legally qualified.
On the other hand, a licensed body refers to an ABS. In ABS a ‘non-lawyer’ must hold at least some degree of ownership share. Alternatively, they must be a partner or a director in the law firm. Hence, if you intend to have a non-lawyer, an investment or control in the law firm, you will need to apply to become an ABS.
In fact, even more traditional firms and sole practitioner solicitors are opting to purposely create some form of non-lawyer ownership in the business. This it to keep the option open for future investment. Or so that a family member can be part of the business. An ABS is no longer a new and experimental option when setting up a law firm. It is actually becoming the default and with good reason.
The SRA assesses the business in much the same way as a traditional law firm. The upside, however, is that the options available to you for structuring and funding an ABS are virtually endless.
If you do want to be an ABS then the firm could be 100% owned by non-lawyers provided that you have at least one lawyer of England & Wales at the partner / director level in the business. That is a fundamental requirement for allowing non-lawyer ownership of the business. Before you can determine what SRA form you need to fill in for the authorisation, you need to know your firm’s structure.
In terms of the legal structure for your law firm, increasingly we find our clients are opting to be limited companies. Particularly those which wish to practise as an ABS.
Limited Liability Partnerships (LLP) are also an option. Consider it if you are going to have at least two members and don’t need to separate out your ownership structure from your management / director level structure.
Traditional partnerships and sole traders with no limited liability for the principals of the business are a less common choice now. However, ultimately, it is up to you what structure you wish to operate.
The important thing is that if you are going to incorporate your new law firm, you need to do so before you can fill in the SRA forms. This is because you will need the full details of incorporation for the paperwork.
Secure a professional indemnity insurance quote ASAP. All law firms must have a minimum of £2 million (£3 million for incorporated bodies) professional indemnity insurance. Please note that only certain insurers are allowed to offer cover. These are insurers who have agreed to abide the SRA’s strict ‘minimum terms’ for ensuring maximum consumer protection.
The SRA will not even look at your new law firm / ABS application, unless you have a quote for professional indemnity insurance to submit for authorisation.
Another reason to get a quote secured early in the process is to be sure that you can get insured. Also at a price that works for your model. Without this you can’t proceed.
So you will want some comfort before investing too much time and money in the process. If any of the key personnel in your new law firm have significant disciplinary findings in their history, then this can have an impact upon whether you can get a quote at all.
In most cases, securing insurance is not a problem. It is more a question of checking that there are no nasty surprises on the price. But don’t leave it until too late, as occasionally it can be a real stumbling block! Law Society research suggests that on average, law firms spend 5% of their turnover on professional indemnity insurance. We tend to see that most of our clients spend less than this in a year one as a percentage of estimated turnover. But this very much depends upon the type of work being undertaken.
To obtain a quote, you will likely need to fill in an insurance proposal form. The following will need to be attached to it:
Securing a quote will probably take a week or two. We therefore tend to ensure that our client submits the insurance proposal as soon as possible, while we continue to work on the SRA authorisation forms. Should you need a helping hand, we have a couple of templates and broker contacts we can share. Looking to get an insurance quote? Read more about professional indemnity insurance for new law firms or Just get in touch.
Work out who will need SRA approval as an individual Part of the SRA authorisation process for a new law firm or ABS is considering whether to approve the individuals involved in the firm for that purpose. This is in addition to looking at the entity itself.
In smaller firms, solicitors in good regulatory standing, will be exempt from the need to get approval to be a law firm principal, owner, Compliance Officer for Legal Practice (COLP) or Compliance Officer for Finance and Administration (COFA). It is these exemptions that the SRA refer to when they talk about Rule 13.2 of the SRA Authorisation Rules and Rule 13.3 of the SRA Authorisation Rules.
However, in an ABS, non-lawyer principals will need specific SRA approval and there are no such exemptions. These principals could be the Directors and owners holding a ‘material interest’ (e.g. 10% or more of voting rights or ownership share) in either the law firm or a parent company of the law firm.
The authorisation process involves the completion of form FA2 and a vetting exercise by the SRA to satisfy itself that the relevant individuals are fit and proper persons to hold their role. Anyone completing an FA2 who is not yet on the SRA’s mySRA system, will need to register as a new user to obtain a mySRA ID for the application forms.
Secure a practising address. A common problem we are asked to resolve when working with clients who are setting up new law firms, centres around an SRA requirement that the ‘practising address’ of these firm should be published. This is the address where you routinely do work for the firm. Some sole practitioners want to work at home initially.
This, however, involves their home address being put into the public domain. If you aren’t comfortable with that, you can choose to ask SRA to be exempted.
Alternatively, you could secure an office space. Ideally, you should be looking for your own office with a lockable door to secure client confidentiality. A similar consideration applies when an existing business wishes to add a law firm to its group by setting up an ABS.
If you’re going to be doing any work from home (or shared premises), you will need to reassure the SRA that you will be able to maintain confidentiality in an informal (potentially shared) space.
Additionally, secure a website for your law firm. Securing a website with emails and marketing your law practice online is now standard practice. As a new firm, you’ll need to establish yourself in order to provide services. That’s where marketing and an SRA-compliant website can help your new law firm. We have invested in systems to help you with everything, from purchasing your domain name, setting up your emails to lead generation. Read more about marketing a new law firm.
Identify any ‘separate businesses‘. The SRA used to prohibit law firm owners from being connected to other businesses which get involved in legal services or quasi-legal services which were not themselves a law firm.
There is no longer such a strict prohibition. However, the SRA will want to be satisfied that the fact of any other business to whom clients will be referred (or with whom branding or office space, or staff will be shared), does not impact upon client interests.
For example, if your clients are to be referred to a connected business, is there transparency about the relationship? Also, is it clear that they will no longer receive the same protection as they would as a client of a solicitor’s firm (i.e. access to a Legal Ombudsman, minimum terms insurance cover, a compensation fund etc).
Finalise SRA authorisation forms and check the declarations very carefully. All new law firms will need to compete form FA1 for the entity.
In addition, they might need at least one FA2 to approve certain individuals for owning or managing the firm, or for being the COLP of COFA.
If another entity, such as another business, will be a corporate director or shareholder in the business, then you will need to complete form FA3.
You should complete form FA8 if your firm will be conducting financial services work. This is a much broader category of firms than many would think!
Moreover, form FA10 will be needed if your firm will be conducting work covered by the Anti-Money Laundering Regulations. We always tend to supply a covering letter which addresses any likely queries arising from a review of the forms.
The SRA also likes to see a structure chart and constitutional documents. These could be the articles and memorandum of association in a company.
The SRA no longer require sight of your full business plan (though insurers still want to see this), or a full set of risk and compliance policies and procedures as standard. Though, we recommend that you have them ready, in case the SRA required them for any reason. Should you need one, you can obtain a template risk and compliance handbook from us.
Once you have all of your paperwork together, be sure to triple check each of the declarations. The SRA takes a very tough line on omissions and false statements in the applications.
If something material changes after your submission, you need to tell the SRA about this immediately. If the SRA has concerns upon reviewing the application, it will raise these with you. It is then important to reassure the SRA as needed in your reply.
You can learn more about the process for securing SRA authorisation on our main ABS and law firm applications page.
For a no-obligation, free initial discussion to see how we can assist you in starting your law practice, please call our Regulatory Compliance Advisor Brian on 07927 796320 or email us on customerservice@intellistart.co.uk
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