Dynamic market analysisAlternative Business Structures
Range of predictions around ABS take up
Between 2006 and 2011 there was no shortage of predictions about the level of ABS take up. A range of surveys was undertaken in the last four years and the results of some of these are shown below.
These surveys are of different cohorts and are undertaken at different times. They give a very wide range of possible rates of take up of ABS – 56% to 4%. Such variability could be the result of the different cohorts being surveyed, and/or changes in intentions towards ABS over time. What it does underline is the likely take up of ABS is unknown, and will not be clear until after 2012 and later.
A 2010 survey of barristers found that: “35 per cent of barristers express interest in one or more of the proposed structures without the ability to conduct litigation. If litigation is included then this rises to 40 per cent of barristers.1“ This would translate to over 4,000 barristers. The survey also found:
- 23% of barristers say that they are interested in joining a Barrister Only Entity, 21% in an ABS and 17% in an LDP.
- “Barristers within employment law and criminal law are the most likely to join one of the new structures when compared to their colleagues in different practice areas (46 and 43 per cent respectively). Those in chancery or commercial law are the least likely with just under a quarter (24 per cent) saying they would.”
The RIR found no information about other approved persons intentions towards ABS, though IPREG and CLC are already responsible for the regulation of ABS type structures.
International experiences of ABS as at 2011
In Australia, the lifting of restrictions for ownership and introduction of ABS type businesses occurred over a period of about ten years and in 2000 Incorporated Legal Practices (ILP) were permissible in New South Wales. An ILP is a corporation which engages in legal practice and permits non-lawyer involvement in management and ownership, in a similar but not identical way to ABS.
Australia’s gradual reform in the provision of legal services took place on a State by State basis. In 2004, ILPs were permitted in Victoria with Queensland following suit in 2007. The lifting of restrictions of ownership and the flexibility that this offered for raising capital and allowing inter-professional partnerships saw the number of ILPs rising from 437 in Victoria and Queensland in 2006/7, to 977 in 2009/10.2
It appears that the popularity of ILPs in Australia stems from the ability to cross-sell other products, for example financial products, thereby boosting margins. ILPs as corporate entities have the benefit of raising capital more effectively and adopting more efficient corporate management techniques. In this respect, incorporation offers management options that are not available under a partnership structure. Appointing a CEO (either a lawyer or non-lawyer CEO) to head up the business in an ILP is designed to ensure autonomy in making business decisions.3
ILPs in the Australian market have not been retailers providing legal services. In general the Australian market has not shown an immediate tendency for large scale consolidation of small firms by large corporate firms. The trend in Australia appears to be toward some consolidation of strong reguional brands by larger firms4.
During the time of relaxation of ownership requirements and reductions in other barriers the overall number of firms in the Australian market rose. Growth in total legal firms in Victoria and Queensland rose from 7,040 to 8,430 between 2006/7 and 2009/10. This represented a rise of around 19%.
Total growth in the market was accompanied by growth in midsize ILP firms, typically with less than five employees, suggesting an expansion in small to medium size firms taking advantage of alternative ownership structures and capital sourcing. Overall, the Victorian and Queensland markets saw an aggregate growth in total legal entities at the same time as a growth in uptake of the new ILP structures . This shows that even after lifting restrictions the market in Victoria and Queensland expanded overall, indicating new entities entering the market despite some consolidation underway by larger firms.5
There has been a move to liberalise legal services among European Union (EU) member states. Through the Lawyers’ Services Directive (77/249/EEC) in conjunction with other instruments, lawyers and law firms from EU Member States can provide legal services in 30 European states. Due to the European Lawyers‟ Establishment Directive (98/5/EC), individual lawyers and law firms can establish a practice in any Member State.6
Several European jurisdictions do allow Multi-Disciplinary Partnerships (MDPs) under certain conditions. In these examples, non-lawyers may become partners of a law firm if they are members of a regulated profession whose professional code of conduct is comparable to that of the legal profession.
German MDPs bring together lawyers, notaries and auditors in one firm. However, there exist different responsibilities for lawyers, notaries, and auditors which can lead to incompatibilities and result in these practices not really being ‘one-stop-shops’ for consumers.
The only Member State which accepts external capital in law firms, to a certain extent, is Spain which has a growing and competitive body of non law firm providers of legal services.7
Volume of LDP and MDP organisations
At the end of June 2011, 393 organisations had become Legal Disciplinary Practices, 223 of which have new partners who are non lawyers. This represents less than 4% of all solicitor legal practices. Of the 170 organisation that have taken on other lawyers as partners, 140 of them are legal executives, 42 barristers, and 39 others approved persons.
For the latest figures on the number of ABS, please see the Solictors Regulation Authority website.