SRA: Legal Services Act will impose restrictions


Large international firms could be forced to change their corporate structures, it emerged this week, in a development that is likely to cause an outcry in the City.



The Solicitors Regulation Authority (SRA) warned that the way the Legal Services Act 2007 is worded means it will be obliged to require some firms to simplify their arrangements.



Many large practices currently operating as limited liability partnerships (LLPs) have developed multi-tiered structures for financial and regulatory reasons. An LLP firm may have a 'member' that is another LLP or corporate entity, and this entity might in turn have another corporate member.



However, the SRA claims this further tier of corporate ownership will not be possible under the new Act, even though the Ministry of Justice (MoJ) may not have intended to restrict it. An LLP will only be allowed to own one level of corporate members, which cannot in turn comprise any other corporate members. The SRA launched a consultation on the issue this week.



David McIntosh, regulatory affairs consultant at Fox and chairman of the City of London Law Society, said the change would cause an 'outcry' among some City firms. He said: 'This is almost certainly going to be an issue for some firms. They have sensibly organised themselves in a certain way for financial planning and regulatory purposes.'



SRA consultant Alison Crawley said: 'We want to make sure that the City firms and multinational firms here are aware of this and respond to the consultation. They may have to restructure by March next year.'



Nick Jarrett-Kerr, founder of law firm management consultancy Kerma Partners, added that this issue would 'come as a surprise to firms.'



An MoJ spokeswoman said that the Act does not seek to affect the way LLPs operate but may do so for a 'very limited number' of firms.



Rachel Rothwell