Sahar Khan (Commercium Colloquium's Secretary), GDL 2012/3
In the recent chaos of application deadlines, careers workshops and assessment days, you may have found yourself buried under the research of not only firms, but also trending issues and reforms in the legal sector. The ABS is one such matter.
So you’ve heard of it, you say? No surprise there. Understanding the ABS is not only essential for the budding solicitor, but armed with this knowledge you could gain a few brownie points with the interview panel too. Commercial awareness is not just about knowing what your dream firm is up to, but really getting to grips with the problems which any business, and indeed law firm, faces in today’s climate.
This post will provide a digestible introduction and breakdown to the topic of ABSs, taking you through the ins and outs on a basic level. So, to begin...
What is an ABS?
Good question...
According to the Law Society, an ABS is “a regulated organisation which provides legal services and has some form of non-lawyer involvement.” This involvement can either be at the management level e.g. as a partner, director or member; or as an owner e.g. an investor or shareholder.
A firm can be labelled an ABS if the manager is a non-lawyer, or has an ownership-type interest in the firm. An outside body can also direct the firm and again, hold an ownership-type interest in the firm. Control by a minimum 10% of non-lawyers is the requirement to qualify as being an ABS. A ‘non-lawyer’ is a person who cannot carry out legal activities (under the Legal Services Act 2007).
The 6th of October 2011 saw the implementation of these changes, allowing non-lawyers to invest in law firms, and furthermore, own them. The limit of the number of non-lawyers managing a firm has also been removed. In the future, legal disciplinary practices (LDPs) with non-lawyer managers will be regulated as ABSs. The LDPs with lawyer managers only may remain the same.
SOME BENEFITS OF BECOMING AN A.B.S.
1. The increase in potential partners, members or directors, means that equity can be raised from a broader spectrum of peoples, such as non-solicitor employees and other professionals.
2. The ABS notion attracts much legal talent from outside the firm. Non-solicitor employees can be rewarded with partner, member or director status, providing a direct stake in the firm. The scope for high-performing non-solicitor employees, as a result, is very promising.
3. By being an ABS, a firm may be able to provide a greater number of services to the public than they would have through an ordinary law firm.
4. Becoming an ABS would also diversify the range of legal services capable of being provided, either as a “one-stop shop” or by “consolidating a specialism in a particular area of the market” [Law Society].
5. Equity can also be raised from outside the legal sector, allowing firms to attract new investment from markets normally outside of their practise areas. The idea that a firm could so easily host different markets is both attractive and profitable, without the need for non-lawyer involvement at the management level.
POTENTIAL RISKS IN BECOMING AN A.B.S.
1. Non-lawyers will have an impact on the culture of the firm, changing perhaps its image or philosophy.
2. The firm’s new business plan may involve risky outcomes in the future, or gambles.
3. There is room for error. Non-lawyers may not always understand the culture and obligations of solicitors and existing partners.
4. Would becoming an ABS change the firm’s perceived risk profile? According the Law Society, “the SRA does not believe that ABS are inherently more risky but changes to your firm may still alter the perceived risk. This may alter the way a firm is regulated by the SRA under its new system of risk based regulation and the ability of, and terms on which, a firm can obtain professional indemnity insurance.”
5. Not necessarily every firm will want to deal with overseas markets, and indeed many foreign jurisdictions are not yet welcoming the ABS.
Understandably, inviting a new owner to a firm would be a complex matter. What is the level of control they will hold? What is the purpose of the new market investment? Will the owner interfere with the firm acting in the best interests of the clients? There are pros and cons to becoming an ABS, which must be understood by any law student considering this topic, and once you have done so, it is wise to be able to apply the theory to your prospective firm. Interviews will often end in asking whether you have any questions – use this to your advantage! Show that you know what the organisation is dealing with, contemplate their potential competition, and seize the opportunity to flaunt why they should hire your well-informed self! Times are changing, and it is only natural for law firms to want to be able to get ahead, with fresh talent and sharp business minded employees.
So, I hope that this basic introduction equips you with the necessary knowledge to empathise with law firms in the current market, and understand their needs and concerns. My advice from here would be to keep up to date with the latest news on mergers and to keep an eye on the opening of new departments in any firms that interest you; you never know which field may suddenly become an option in your career ahead.
In the recent chaos of application deadlines, careers workshops and assessment days, you may have found yourself buried under the research of not only firms, but also trending issues and reforms in the legal sector. The ABS is one such matter.
So you’ve heard of it, you say? No surprise there. Understanding the ABS is not only essential for the budding solicitor, but armed with this knowledge you could gain a few brownie points with the interview panel too. Commercial awareness is not just about knowing what your dream firm is up to, but really getting to grips with the problems which any business, and indeed law firm, faces in today’s climate.
This post will provide a digestible introduction and breakdown to the topic of ABSs, taking you through the ins and outs on a basic level. So, to begin...
What is an ABS?
Good question...
According to the Law Society, an ABS is “a regulated organisation which provides legal services and has some form of non-lawyer involvement.” This involvement can either be at the management level e.g. as a partner, director or member; or as an owner e.g. an investor or shareholder.
A firm can be labelled an ABS if the manager is a non-lawyer, or has an ownership-type interest in the firm. An outside body can also direct the firm and again, hold an ownership-type interest in the firm. Control by a minimum 10% of non-lawyers is the requirement to qualify as being an ABS. A ‘non-lawyer’ is a person who cannot carry out legal activities (under the Legal Services Act 2007).
The 6th of October 2011 saw the implementation of these changes, allowing non-lawyers to invest in law firms, and furthermore, own them. The limit of the number of non-lawyers managing a firm has also been removed. In the future, legal disciplinary practices (LDPs) with non-lawyer managers will be regulated as ABSs. The LDPs with lawyer managers only may remain the same.
SOME BENEFITS OF BECOMING AN A.B.S.
1. The increase in potential partners, members or directors, means that equity can be raised from a broader spectrum of peoples, such as non-solicitor employees and other professionals.
2. The ABS notion attracts much legal talent from outside the firm. Non-solicitor employees can be rewarded with partner, member or director status, providing a direct stake in the firm. The scope for high-performing non-solicitor employees, as a result, is very promising.
3. By being an ABS, a firm may be able to provide a greater number of services to the public than they would have through an ordinary law firm.
4. Becoming an ABS would also diversify the range of legal services capable of being provided, either as a “one-stop shop” or by “consolidating a specialism in a particular area of the market” [Law Society].
5. Equity can also be raised from outside the legal sector, allowing firms to attract new investment from markets normally outside of their practise areas. The idea that a firm could so easily host different markets is both attractive and profitable, without the need for non-lawyer involvement at the management level.
POTENTIAL RISKS IN BECOMING AN A.B.S.
1. Non-lawyers will have an impact on the culture of the firm, changing perhaps its image or philosophy.
2. The firm’s new business plan may involve risky outcomes in the future, or gambles.
3. There is room for error. Non-lawyers may not always understand the culture and obligations of solicitors and existing partners.
4. Would becoming an ABS change the firm’s perceived risk profile? According the Law Society, “the SRA does not believe that ABS are inherently more risky but changes to your firm may still alter the perceived risk. This may alter the way a firm is regulated by the SRA under its new system of risk based regulation and the ability of, and terms on which, a firm can obtain professional indemnity insurance.”
5. Not necessarily every firm will want to deal with overseas markets, and indeed many foreign jurisdictions are not yet welcoming the ABS.
Understandably, inviting a new owner to a firm would be a complex matter. What is the level of control they will hold? What is the purpose of the new market investment? Will the owner interfere with the firm acting in the best interests of the clients? There are pros and cons to becoming an ABS, which must be understood by any law student considering this topic, and once you have done so, it is wise to be able to apply the theory to your prospective firm. Interviews will often end in asking whether you have any questions – use this to your advantage! Show that you know what the organisation is dealing with, contemplate their potential competition, and seize the opportunity to flaunt why they should hire your well-informed self! Times are changing, and it is only natural for law firms to want to be able to get ahead, with fresh talent and sharp business minded employees.
So, I hope that this basic introduction equips you with the necessary knowledge to empathise with law firms in the current market, and understand their needs and concerns. My advice from here would be to keep up to date with the latest news on mergers and to keep an eye on the opening of new departments in any firms that interest you; you never know which field may suddenly become an option in your career ahead.
