Alternative business structures

A growing number of small and mid-sized law firms are looking at raising external capital, but many need to address failings in basic business planning first, new research has found. It also identified £20m as the turnover point when a law firm turns into a real business.

Some law firms are considering conversion to an alternative business structure (ABS) out of “panic or paranoia” without first getting their own houses in order, experts warned yesterday. Lawyers need first to build sustainable businesses, they said.

Creating a multi-disciplinary practice, spinning off new services and accessing external investment to finance growth are the main goals of commercial law firms considering converting to alternative business structures, a new survey has found.

Around 25-30 would-be alternative business structures have formally completed their applications and are now being considered for licences – with decisions on a few “quite imminent” – the Solicitors Regulation Authority has revealed.

Seven alternative business structures in more than five months does not seem to be a great achievement on the part of the Solicitors Regulation Authority, and increasingly Legal Futures has been hearing complaints about delay and a lack of transparency in the process.

Mid-market private equity business August Equity has become the latest to outline its intention to invest in the legal market, Legal Futures can reveal. It typically invests between £10m and £30m in equity.

The impending ban on referral fees in personal injury could result in a “steep increase” in the number of financial failures amongst small law firms – but may not actually discourage spurious claims – the Solicitors Regulation Authority has warned.

Staffordshire law firm Knights has struck a deal to accept investment from the private equity company owned by former Dragon’s Den star James Caan in a bid to attract work away from the City.

Insurance companies could buy law firms and use them as conduits to sell their products to consumers if the Solicitors Regulation Authority changes the rules on referring clients to financial advisers, it has been warned.

The Solicitors Regulation Authority has rejected calls for it to have greater powers to fine ABSs than traditional law firms. It has also dismissed suggestions by the Law Society that it should not have substantial fining powers at all.