Alternative business structures (ABS) have become increasingly popular in recent years and at DWF we have recently seen a lot of activity in the market with clients taking advantage of this new status. In the majority of cases, professional services firms are becoming an ABS to diversify their business and we have seen a number of firms taking the opportunity to review their portfolios and business structures to consider how they are best able to take advantage of this new opportunity.
Despite a low initial uptake in the number of firms applying for ABS licenses, recent notable applications have been made by a number of big names, outside the legal sector such as KPMG, PWC, BT and the Co-operative Bank. The driving force behind these applications appears to be the opportunity to diversify and offer their own legal services to customers and although the impact of this on the legal market has not yet been fully revealed, it is likely that, as the market picks up, other non-legal professional services firms will follow suit. This is anticipated on the basis that a number of professional services firms have reported that their new status provides opportunities for growth. Having an ABS licence does not change the day to day operation of their business but it helps it to operate as a modern legal services business, provides the potential for future growth opportunities and opens the door to offering a wider range of services to clients.
From our experience of recent applications by law firms, one of the key influencing factors is that having an ABS status enables firms to raise equity from a broader base of potential partners, members or directors outside the legal sector, without the need to involve them at a management level. We have acted for law firms, new private equity backed law firm vehicles and non-legal private equity backed businesses which are capitalising on the potential to attract new investment from different markets which in turn provides greater opportunities for diversification.
Most notably, from the perspective of law firms, is Kennedys’ recent application for an ABS licence. One of the attractions for Kennedys of having an ABS structure appears to have been the opportunity to diversify their management and employment capabilities and as a result, to attract and retain high-performing employees who do not have a legal background. As a fairly recent development, the full impact of law firms applying for ABS status has not yet been revealed but it is clear that if other firms follow in the footsteps of Kennedys and Irwin Mitchell, this could have an impact on how ‘ordinary’ law firms operate to compete at the same level. The issue will however always remain as to the best way in which to retain high performing talent in a competitive market.
For further information or advice on Alternative Business Structures, please contact Frank Shephard.This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.