An Overview of Alternative Business Structures in England and Wales Professor Mari Sako Mari.sako@sbs.ox.ac.uk Georgetown Law Conference 24 April 2015

!   ABSs: population characteristics !   How many are there? !   Where are they located? !   How big and significant are they in relation to the wider market? !   What types of legal services are they offering?

!   Typology of motivation to establish ABSs

!   Financing ABSs

!   Concluding remarks

Agenda

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Deregulation of the UK Legal Services Market

2007

Legal Services Act Introduced Legal Disciplinary

Practices (LDPs) and Alternative Business Structures (ABSs)

April 2015 Solicitors Regulation

Authority (SRA) has licensed 375 ABSs

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!   2007: Legal Services Act allows non-lawyers to own and invest in law firms

!   31 March 2009: Provisions in the Administration of Justice Act 1985, the Legal Services Act 2007, and amendments to the Solicitors’ Code of Conduct came into force to permit Legal Disciplinary Practices (LDPs) (with owners and managers who are not exclusively solicitors or lawyers)

!   31 March 2009: Firm-based regulation comes into effect

!   October 2011: the Council for Licensed Conveyancers (CLC) licenses the first ABS, Premier Property Lawyers, the conveyancing arm of property business, Myhomemove

!   January 2012: Solicitors Regulation Authority (SRA) started accepting applications from prospective Alternative Business Structures (ABS)

!   March 2012:SRA licenses the first three Alternative Business Structures (ABS), Co-operative Legal Services, John Welch and Stammers, and Lawbridge Solicitors Ltd.

!   August 2014: Institute of Chartered Accountants in England and Wales (ICAWE) becomes an approved regulator of ABSs for probate services

!   April 2015: 375 ABSs licensed by SRA

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Timeline for Alternative Business Structures

Main objectives of introducing ABSs

!   To improve consumer choice and value

!   To remove existing restrictions on ownership of law firms

!   To attract external investment to enhance innovation, for improved efficiency and lower costs

!   To allow for increased flexibility through offering integrated legal and other professional services

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ABSs approved over time: 375 in total

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Source: Calculations based on published data by SRA, www.sra.org.uk accessed on 17 April 2015.

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180

2012 2013 2014 2015

Number licensed

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ABS is a nationwide phenomenon

Source: Calculations based on published data by SRA, www.sra.org.uk accessed on 17 April 2015. Map generated using MapsData.

Corporate forms adopted by ABSs are varied Unquoted limited company is the dominant form

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PLC Limited Co. LLP Not registered

Source: Calculations based on published data by SRA, www.sra.org.uk accessed on 17 April 2015.

ABSs licensed with different corporate forms

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0

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120

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180

2012 2013 2014 2015

Not registered LLP Limited Co. PLC

Source: Calculations based on published data by SRA, www.sra.org.uk accessed on 17 April 2015.

The SIZE and SIGNIFICANCE question

!   How significant is the ABS phenomenon in the legal services market in England & Wales? !   375 out of 10316 solicitor firms are ABS

!   Compared to the wider market, ABSs are larger in size

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Source: SRA (May 2014) Findings from surveys with ABSs and applicants that withdrew from the licensing process, Figures 2.1 & 2.4

Number of solicitors in England and Wales

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Source: www.sra.org.uk

Solicitor firms in England & Wales: 10316

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Source: www.sra.org.uk

Comparing ABSs to the population of solicitor firms

ABS only: 375 All Solicitor Firms 10316

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Incorporated company LLP Partnership Sole practitioner Other PLC Limited Co. LLP Not registered

The SIZE and SIGNIFICANCE question

!   How significant is the ABS phenomenon in the legal services market in England & Wales? !   A drop in the ocean: 375 out of 10316 solicitor firms are ABS

!   Of the 3567 incorporated firms, 230 are ABSs

!   Of the 1560 LLPs, 114 are ABSs

!   Of the 5143 entities which are sole practitioners or unlimited partnerships, 31 ABSs are in this category.

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Reserved legal services provided by ABSs

!   Except for a few, most ABSs are licensed by SRA to provide services in all of the areas below

!   Exercising rights of audience (i.e. to appear and conduct proceedings in court)

!   The conduct of litigation !   Reserved instrument activities (e.g. conveyancing) !   Probate activities !   The administration of oaths

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Types of legal work provided by ABSs in November 2013

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Source: SRA (May 2014) Findings from surveys with ABSs and applicants that withdrew from the licensing process, Figure 2.5

!   Law firms and sole practitioners !   ‘High street’ solicitors seeking scale and brand visibility in residential

conveyancing, divorce, injury claims, will writing, etc. !   Example: QualitySolicitors as internet-based alliance of independent law firms

some of which are ABSs !   ‘One stop shop’ with legal and other services

!   Legal services to complement Insurance claims handling, motor claims, etc. !   Examples: Cogent Law LLP (tied up with the Automobile Association), Parabis

Law LLP, Coris Group, Quindell Legal Services Ltd. !   PLCs adding complementary professional services

!   Diversification by moving in-house legal teams externally !   Example:: BT Law

!   Accounting and audit firms !   Tax law advice, banking & finance, corporate restructuring, human capital !   Examples: PwC Legal LLP (Jan 2014), KPMG LLP (Oct 2014), Ernst & Young

LLP (EY Legal) (Nov 2014) !   Technology and business model disruptors

!   Online documentation services, data analytics, new technology and software business, fixed fee, etc.

!   Examples: LegalZoom, Riverview Law, Richmond Chambers

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Categorizing motivation to establish ABSs

Financing ABSs: a private equity perspective

!   Focus on high street firms in personal injury, residential conveyancing, wills and probate !   High volume, low complexity work for consumers !   Much scope and demand for driving operational efficiency !   Driving growth via consolidation of fragmented markets

!   Key examples !   Oct 2011: Palamon Capital Partners acquires a stake in QualitySolicitors !   Feb 2012: Duke Street Capital invests in Parabis, with a further injection of

£13m in Dec 2014 !   Nov 2012: LDC takes a stake in Keoghs LLP in Bolton !   2012: Hamilton Bradshaw (owned by James Caan of Dragon’s Den) invests

in Knights Solicitors LLP !   Sept 2013: JZ International acquires a stake in Winn Solicitors

!   Not a ‘big bang for lawyers’

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A Global Perspective?

!   Global law firms (magic circle firms) are distant from the ABS picture !   ‘I suspect that the larger firms in the CLLS will not be taking up these

opportunities. For international law firms, the task of setting up an ABS would be virtually impossible; dealing with the regulatory requirements of many overseas bar associations, which are opposed to such changes, would make it structurally very difficult to fit our international partners within an ABS, and so would be restrictive.’ (Chris Perrin, Clifford Chance)

!   ABSs with Australian and US connections

!   Slater & Gordon UK ! LegalZoom UK !   Virgo Consultancy Services Ltd. set up by Cahill Gordon & Reindel LLP

!   Just a difference in market segment, or the start of a revolutionary disruption?

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!   Alternative Business Structures are still a drop in the ocean, but enabled some irreversible changes in legal practice

!   ABSs are motivated by multiple factors

!   External investment in ABSs is one of several triggers transforming the legal services market

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Summary: Authorized revolution