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ABS Structures - What are they and why do they matter to me?

It has been 10 years since the Legal Services Act 2007 came into force, permitting law firms to become Alternative Business Structures ("ABS"). When applying for a training contract, and as a trainee, it will serve you well to know what an ABS is and have an understanding of how the legal landscape has been changing as a result of their introduction.

So what actually is an ABS?

Historically, law firms could only be owned and invested in by lawyers. This was to preserve the independent and unbiased practice of the law. As there could be no external investment in the profession, firms were limited to the funds that lawyers themselves could afford to invest. It also meant that only lawyers could run law firms. This restricted the ability of the legal profession to progress and evolve, leading to widespread criticism that it was out of touch with modern business.

However, since 2012, the introduction of the ABS has allowed investment in law firms from outside of the legal profession, management of law firms by persons who are not legally trained, as well as the possibility of multi-disciplinary practice. This means firms can benefit from managers from any field with a wider range of commercial acumen, have access to a larger pool of investment from external sources and offer a wider range of client services.

An ABS can be set up as a new firm, or an existing firm can be converted to become an ABS. In a nutshell, an ABS must have a lawyer-manager, there must be an approved Head of Legal Practice and Head of Finance and Administration, non-lawyer manager(s) must be "fit and proper", and at least part of its business must be consist of the carrying out reserved legal activities.

So which law firms are ABSs, and how can I identify them?

As at today's date, the Solicitor Regulation Authority ("SRA") has registered 792 ABS licensed bodies. The SRA maintains a register of all licensed ABS's on its website. The register includes Ashfords LLP, which was granted a licence in 2016.

Initially, there was scepticism regarding the type of service that ABS law firms would provide. However the anticipated offering of bulk, low-quality legal services has for the large part not materialised.

Here are some of the distinct types of ABS law firms that have emerged:

  • Accountancy Firms - for example, PWC, KPMG and EY, who now offer legal services to complement their accountancy offering.
  • Existing suppliers of consumer services branching into legal service - "Tesco Law" - for example, Co-op Legal Services and WHSmith offer legal services for low-value matters. Co-op offers fixed-fee advice and WHSmith offers DIY legal paperwork kits.
  • Personal Injury - for example, Direct Line and National Accident Helpline. As the PI claims market is squeezed, firms are looking to alter their business structure in order to make themselves more profitable. This may involve combining claims management and litigation into one entity, but also the investment in new technology to achieve greater efficiency.
  • Law Firm IPOs - from traditional firms such as Gateley, Gordon Dadds and Rosenblatts, to "dispersed" law firms such as Keystone Law, floating on the AIM can raise huge amounts of capital. Whilst there can be a conflict between keeping shareholders happy at the same time as providing client service, a listed law firm has a more transparent structure as well as allowing any employee to invest and feel more engaged with the firm.

These are only a few of the ways that ABS structures can be used to offer different kinds of legal services. The uptake of the ABS by the legal profession has been off to a slow start and so it still it yet to be seen what the true impact of their introduction (if any) will be. However, from the perspective of a young lawyer, no doubt the profession will continue to change around us as our careers progress, offering previously unforeseen opportunities as the traditional career model of a lawyer increasingly becomes a shadow of the past.

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