Setting up in Practice

Introduction

Setting up in practice, whether on your own or in partnership or conjunction with others is a serious step to take and should never be undertaken lightly. It is not something which you can, or should, do without a great deal of thought and forward planning and you should be especially aware of the fact that, as with marriage, it is not always as easy to undo as it was to do.

Aside from the various regulatory requirements which we will look at below, there are a number of basic questions that you must ask yourself before you begin. If you cannot give yourself good answers to them, then you should think seriously about abandoning your plans before they get any further. Those questions include:

• Do I have the necessary skills to do the work I intend to do?
• If I am going into business with others, do I know them well enough and can I trust them?
• Where will my clients come from and what will I do to attract them?
• Why will clients chose me as opposed to other local solicitors?
• How will I finance the set up costs?
• Will I have sufficient clients in the early days of my practice to pay myself and my overheads? If not, how am I going to fund them?
• Will I get professional indemnity insurance and can I afford it?
• If the practice is not a success, will I be able to afford professional indemnity run-off cover and other closing-down costs?
• Where will I locate my premises and why?

The importance of planning

A good starting place is often to undertake a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis both of your plans and the firm as you see it developing. Be realistic in doing this and don’t assume that anyone owes you a living. Whether or not you intend to look for a bank loan to fund the set up costs, prepare a realistic business plan. Consider precisely:

• what your business will be (not just solicitor – think about the type of solicitor you want to be and the nature of the clients you hope to attract),
• what your market will be,
• research the genuine potential for business,
• what will you do to market the business and how you will do the work at the same time,
• work out matters such as your overheads, staffing requirements, premises and equipment requirements,
• plan how the firm will be managed if there is to be more than just you involved,
• undertake proper financial planning including profit and loss forecasts, projected cash flows and a forecast balance sheet,
• include your exit strategy – it could be more expensive than you anticipate.

The structure of your practice

The next matter to which you will need to give some consideration is the structure of your practice.

There are currently a number of vehicles through which a solicitor can practice, some of which have arisen recently with the passing of the Legal Services Act 2007. Whilst more detail can be found in the Practice Structures section elsewhere on this web site, the issues you should be considering here are:

Do I want to practice as a sole practitioner?

If so bear in mind that you will need to apply in advance for SRA authorisation, that you may have problems getting onto the panels of many lenders, that professional indemnity insurance may be a problem for you in the future and that should you wish to retire from practice you will need either to find a successor practice or pay professional indemnity run-off cover.

Do I want to practice with others?

If so there are a number of points you should consider, including:

• Do I know/trust the people I am going into business with? Many solicitors get duped into joining firms where they are there simply to take blame for the criminal activities of their partners or co-directors.
• Is there an agreement as to who will do what within the practice as well as how much each will take out – consider administrative responsibilities as well as fee-earning.
• Is it going to be a partnership, an LLP or a company?
• Am I going to have a right to see the accounts and participate in management decisions – remember that if, for example, you are held out as a partner then you will be equally as responsible for debts and regulatory breaches as the other partners irrespective of whether or not you have access to the accounts or management information or have any say in the running of the practice

Do I want to set up as a Legal Disciplinary Practice (LDP)?

Under the provisions brought in as a result of the Legal Services Act, solicitors can now go into partnership with other lawyers and, in certain limited circumstances, non-lawyer managers.

Do I want to set up as an Alternative Business Structure (ABS)?

An ABS allows external investment in, and ownership of, a solicitors’ practice and also permits (subject to certain safeguards) non-lawyers to share in the control of the business.

You will find more information about all of these aspects elsewhere on this web site. Alternatively, call the Lawyers Defence Group and we will assist you in going through the necessary preliminary steps.

Some regulatory requirements

Assuming that you have done all of the preparatory work in terms of planning your practice, you now need to turn your attentions to ensuring that you have complied with the various regulatory requirements. Many of these will be dealt with in more depth elsewhere on this web site. Please note that this is not necessarily a comprehensive list as there may be other requirements with which you must comply depending upon the nature of the work which you intend to undertake.

Am I qualified?

This may seem an obvious question, but it is not necessarily as obvious as you may think. You may indeed have a practising certificate (in fact, if you do not then you cannot practise as a solicitor at all – whether in your firm or elsewhere – see section dealing with practising certificates elsewhere on this web site), but unless you are “qualified to supervise” as required by rule 12 of the SRA Practice Framework Rules 2011 then you may not be able to practise on your own or, indeed, as a lawyer manager of a recognised body where at least one other person is not so qualified.

To be qualified to supervise, you or one of the other managers must have:

• completed the training specified from time to time by the SRA for this purpose;
• been entitled to practise as a lawyer for at least 36 months within the last ten years; and must be able to demonstrate this if asked by the SRA

For more information see rule 12 and the guidance notes thereto or contact the Lawyers Defence Group for more information.

Do I need indemnity insurance?

The simple answer is yes – unless you are a Registered European Lawyer and are able to apply for a written exemption. The SRA Indemnity Insurance Rules require that you or your recognised body have in place qualifying insurance before your business starts up. This must be obtained from a qualifying insurer. Note that although it used to be possible to be insured through the Assigned Risks Pool that now, new businesses are no longer entitled to take that route (see Solicitors’ Professional Indemnity Insurance elsewhere on this web site).

Do not assume that you will automatically get professional indemnity insurance – many insurers are being selective as to whom they will insure – and that you are fully aware of the likely cost of that insurance. It may be substantially more expensive than you think.

What can I call my practice?

The rules on the naming of practices are substantially more flexible than they use to be prior to the introduction of Outcomes Focused Regulation. Any name that you choose must, however, comply with the provisions set out in Chapter 8 of the SRA Code of Conduct, in particular outcomes O(8.1) and O(8.5) which state:

“O(8.1) – your publicity in relation to your firm or in-house practice or for any other business is accurate and not misleading, and is not likely to diminish the trust the public places in you and in the provision of legal services;”

and

“O(8.5) – your letterhead, website and e-mails show the words “authorised and regulated by the Solicitors Regulation Authority” and either the firm’s registered name and number if it is an LLP or company or, if the firm is a partnership or sole practitioner, the name under which it is licensed/authorised by the SRA and the number allocated to it by the SRA.”

In this regard, you should also be aware of indicative behaviours IB(8.10) and IB(8.11) which state:

“IB(8.10) – using a name or description of your firm or in-house practice that includes the word “solicitor(s)” if none of the managers are solicitors;”

and

“IB(8.11) – advertising your firm or in-house practice in a way that suggests that services provided by another business are provided by your firm or in-house practice;”

You must register the name under which you practice with the SRA and, if you intend to practice as an LLP or limited company, it must be registered at Companies House.

Do I have to comply with the SRA Accounts Rules?

The answer to this question is, in most cases, yes if you or the firm intend to hold or receive client money or you intend to operate a client account. That being so, you will need to familiarise yourself with the SRA Accounts Rules and you must deliver an annual accountant’s report.

What other issues should I be aware of?

Among the other matters to which you should give consideration are:

• complying with money laundering regulations and legislation
• ensuring that you comply with data protection legislation – and register with the Data Protection Commissioner where necessary
• have a written complaints procedure and an anti-discrimination policy which comply with the relevant parts of the Code
• obtain Financial Services Authority authorisation if you intend to carry on mainstream financial services – i.e. services which fall outside of those authorised in the SRA Financial Services (Scope) Rules and the SRA Financial Services (Conduct of Business) Rules.
• the need to put in place appropriate systems and policies for the supervision of staff and client matters

Contact the Lawyers Defence Group

Whatever the issue in relation to setting up in practice, the Lawyers Defence Group can assist you.

For further information, or to contact the Lawyers Defence Group about a problem which you have:

• phone on 0333 888 4070
• email on help [Email address: help #AT# lawyersdefencegroup.org.uk - replace #AT# with @ ]
• request a callback using the form in the right hand menu and someone will call you back at a pre-arranged time
• write to Lawyers Defence Group, Richard Nelson LLP, Priory Court, 1 Derby Road, Nottingham, NG9 2TA