ABSs to pay less to practise than law firms

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By Legal Futures

21 March 2011


Practising fees: ABSs will not have to contribute to Law Society costs

Alternative business structures (ABSs) will pay less to practise than traditional law firms, under proposals released by the Solicitors Regulation Authority (SRA).

A consultation on the fees structure for ABSs recommends that they should not have to contribute to the Law Society’s representative activities, as law firms do.

Under section 51 of the Legal Services Act 2007, the Law Society is able to fund certain of its representative activities out of practising fees raised from the profession. These so-called permitted purposes include the society’s law reform and lobbying work, human rights campaigning, and international activity.

In 2010/11, this amounted to £11.1m, or 9% of the £121.7m raised through practising fees. It funds the rest of its work through other income, mainly from commercial activities. In addition, of the £68.8m spent on group and central costs across the SRA, Legal Complaints Service and Law Society in 2010/11, £20m was allocated to the Law Society’s permitted purposes.

The consultation says: “We believe that the correct starting place is that ABS should not contribute, through the firm fee, to [section 51] costs. They are not represented by the Law Society and have no power to influence such costs.” However, ABSs will contribute to the extent that they employ solicitors and fund their individual practising fees.

Changes introduced by the SRA last year means that instead of collecting all practising fee income from charges made in respect of individual solicitors, only around 40% of the costs of regulation are recovered from such fees, while 60% are recovered through the new fee charged to private practice firms.

More generally the consultation proposes applying to ABS firms’ fees the same principles the SRA uses when calculating the fees that law firms pay. For multi-disciplinary practices, the consultation says the fees should be based on turnover arising from “regulated activities”, which the SRA defines as any reserved legal activity, any other legal activity, and any other activity in respect of which the ABS is licensed.

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