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With many barristers now having portfolio careers – whether that is out of a necessity to maintain a consistent level of income or out of a desire for diverse working – setting up entities or alternative business structures (ABS) could be a practical and alluring option. As the framework is already there, this may be one of the Bar’s best kept secrets. It begs the question, as the working world charges towards innovation, will the Bar follow?
The Legal Services Act 2007 (LSA 2007) introduced a new business model for barristers to provide legal services through entities and ABS. The Bar Standards Board (BSB) authorises two types of entities:
The BSB has been permitted to authorise authorised bodies since 2015 and licensed bodies/ABS since 2017.
The instinct for barristers establishing an entity is to assume that it automatically needs to be a regulated entity; however, that is only the case if there is an intention to deliver reserved legal activities. If not, then significant cost savings can be made.
If you are looking to deliver reserved legal activities, the assumption may be that the perks of an entity are limited liability and tax efficiency, but these have little persuasion in practice due to recent changes to taxation and the effect of professional indemnity insurance on liability. The most tangible and long-lasting benefits are the opportunities for legacy and business succession.
Given the self-employed status of a barrister, their practice is inevitably seen as ‘finite’, with the clear end being retirement. This has the unintended consequence of a short-term, self-protecting, strategic approach to business. Recently, a barrister client described themselves as being ‘like a footballer’ with a successful but time-limited career; despite the fact that a barrister is not restricted by the same physical constraints.
Barristers frequently have high intellect, business acumen and sufficient reputation to create genuine legacies. Without an entity, these legacies are reduced to reputation and mention in legal tomes. Creating an entity gives genuine substance to legacy in the form of business succession. Further, it is a way to create a saleable asset to support family and/or retirement.
Another positive is the option to collaborate with other professionals. This can present opportunities for specialism or the development of cross referral work through complimentary practice areas.
There are six possible regulators for barristers, as set out in Sch 4 of the LSA 2007. The BSB and Solicitors Regulation Authority (SRA) are the most common choices (the other four regulators may be more appropriate if you or your business partners are undertaking specialist work).
It is important to choose the right regulator, and this is likely to depend upon the type of services being delivered. It is worth noting that if there is an intention to, at the outset or as part of strategic growth, partner with other professionals and form a multidisciplinary partnership (MDP) then the BSB would not be the right regulator. The SRA, who is prepared to regulate MDPs, would be more suitable. Note, though, that if regulated by the SRA, the entity would be a licensed body and the SRA has significantly larger fining powers in relation to these types of entities.
The BSB made it clear in its Entity Regulation Policy Statement that it prefers to concentrate on entities that do not hold client money and whose activities are similar to the traditional activities of the Bar. Although it is still possible to be regulated by the BSB and handle client money by using a BSB approved Third Party Managed Account, the SRA has more experience of regulating such entities.
While the BSB is prepared to regulate entities conducting litigation, conducting litigation and handling client money are associated with factors which the BSB does not have any appetite for, including high-volume, standardised legal advice or transactional services. Also, if the work would involve recommending insurance products, then this is more complicated under BSB regulation. Unlike the SRA, the BSB does not benefit from the exemption within the Financial Services and Market Act 2000, which allows SRA regulated entities to undertake insurance mediation.
If the entity is regulated by the BSB and its operation is similar to that of a traditional barristers’ practice, then the Bar Mutual Indemnity Fund (BMIF) is likely to be cheaper than the open market. Ultimately, you will need to ensure that your insurance meets the BSB’s Minimum Terms of Entity Cover.
If you decide to become regulated by the SRA and/or your entity is too unusual or complex for BMIF, you will need to obtain insurance via the open market. In these circumstances, the SRA requires you to take out qualifying insurance with a participating insurer.
As well as the cost of insurance, there is the cost of the application process and renewal costs.
The BSB fees for authorised and licensed bodies consist of an application fee; an authorisation fee; and, an annual renewal fee. These amounts vary depending on the number of authorised individuals that are providing legal services through the entity. For an authorised body, authorisation will cost between £590-£4,250, plus a renewal fee of between £365-£2,900. For a licensed Body, authorisation will cost between £2,650-£6,450, plus a renewal fee of between £1,725-£4,195. Additionally, litigation authorisation is £90.
Under the SRA, the application fee for a licensed body is £2,000 and £150 for each new person who needs SRA approval under r13.1 of the SRA Authorisation of Firms Rules. Licensed bodies must also pay a periodical fee on authorisation, which is calculated based on the estimated turnover, paying one twelfth of that amount for each month between the date of authorisation and the end of the practising year. If you intend to hold/receive client money or have offices outside of England and Wales, there are further additional charges to pay.
The BSB states that its application process takes up to six months; however, the Authorisation Team Service Update states it is currently six to nine months. The SRA has a much quicker turnaround time, deciding within 90 days unless there are suitability issues, in which case its decision could take up to 180 days.
The SRA has much more experience in the regulation of entities as they currently regulate 1,313 licensed bodies (in addition to traditional law firms); whereas, at the time of writing, the BSB only regulates 13 licensed bodies and 129 authorised bodies.
There are different application requirements, although there is some cross over, such as the requirement for: a business plan; financial plan; compliance plan (or document setting out how the regulatory obligations of the entity will be met); and a risk management plan with detailed processes and procedures.
Prior to authorisation there must be confirmation that PII can be obtained. Therefore, it is recommended that an application to the BMIF and/or a PII broker is made first. The BMIF or broker will highlight any gaps in an application, which can then be swiftly resolved.
The BSB, Fees and charges for BSB entities
The SRA, Apply for authorisation of a new firm
The BSB, How to apply and the BSB entity application process
The BSB, Authorisations Team Service Update
The SRA, Apply for authorisation of a new firm
The SRA, Search for a licensed body (ABS)
Michaela Hardwick was a solicitor at a top 30 UK law firm for 12 years, before launching Beyond Compliance in 2012; she now specialises in regulatory compliance for barristers and solicitors. Michaela also acts as the Regulatory Compliance Officer and Pupillage Co-ordinator for Clerksroom.
With many barristers now having portfolio careers – whether that is out of a necessity to maintain a consistent level of income or out of a desire for diverse working – setting up entities or alternative business structures (ABS) could be a practical and alluring option. As the framework is already there, this may be one of the Bar’s best kept secrets. It begs the question, as the working world charges towards innovation, will the Bar follow?
The Legal Services Act 2007 (LSA 2007) introduced a new business model for barristers to provide legal services through entities and ABS. The Bar Standards Board (BSB) authorises two types of entities:
The BSB has been permitted to authorise authorised bodies since 2015 and licensed bodies/ABS since 2017.
The instinct for barristers establishing an entity is to assume that it automatically needs to be a regulated entity; however, that is only the case if there is an intention to deliver reserved legal activities. If not, then significant cost savings can be made.
If you are looking to deliver reserved legal activities, the assumption may be that the perks of an entity are limited liability and tax efficiency, but these have little persuasion in practice due to recent changes to taxation and the effect of professional indemnity insurance on liability. The most tangible and long-lasting benefits are the opportunities for legacy and business succession.
Given the self-employed status of a barrister, their practice is inevitably seen as ‘finite’, with the clear end being retirement. This has the unintended consequence of a short-term, self-protecting, strategic approach to business. Recently, a barrister client described themselves as being ‘like a footballer’ with a successful but time-limited career; despite the fact that a barrister is not restricted by the same physical constraints.
Barristers frequently have high intellect, business acumen and sufficient reputation to create genuine legacies. Without an entity, these legacies are reduced to reputation and mention in legal tomes. Creating an entity gives genuine substance to legacy in the form of business succession. Further, it is a way to create a saleable asset to support family and/or retirement.
Another positive is the option to collaborate with other professionals. This can present opportunities for specialism or the development of cross referral work through complimentary practice areas.
There are six possible regulators for barristers, as set out in Sch 4 of the LSA 2007. The BSB and Solicitors Regulation Authority (SRA) are the most common choices (the other four regulators may be more appropriate if you or your business partners are undertaking specialist work).
It is important to choose the right regulator, and this is likely to depend upon the type of services being delivered. It is worth noting that if there is an intention to, at the outset or as part of strategic growth, partner with other professionals and form a multidisciplinary partnership (MDP) then the BSB would not be the right regulator. The SRA, who is prepared to regulate MDPs, would be more suitable. Note, though, that if regulated by the SRA, the entity would be a licensed body and the SRA has significantly larger fining powers in relation to these types of entities.
The BSB made it clear in its Entity Regulation Policy Statement that it prefers to concentrate on entities that do not hold client money and whose activities are similar to the traditional activities of the Bar. Although it is still possible to be regulated by the BSB and handle client money by using a BSB approved Third Party Managed Account, the SRA has more experience of regulating such entities.
While the BSB is prepared to regulate entities conducting litigation, conducting litigation and handling client money are associated with factors which the BSB does not have any appetite for, including high-volume, standardised legal advice or transactional services. Also, if the work would involve recommending insurance products, then this is more complicated under BSB regulation. Unlike the SRA, the BSB does not benefit from the exemption within the Financial Services and Market Act 2000, which allows SRA regulated entities to undertake insurance mediation.
If the entity is regulated by the BSB and its operation is similar to that of a traditional barristers’ practice, then the Bar Mutual Indemnity Fund (BMIF) is likely to be cheaper than the open market. Ultimately, you will need to ensure that your insurance meets the BSB’s Minimum Terms of Entity Cover.
If you decide to become regulated by the SRA and/or your entity is too unusual or complex for BMIF, you will need to obtain insurance via the open market. In these circumstances, the SRA requires you to take out qualifying insurance with a participating insurer.
As well as the cost of insurance, there is the cost of the application process and renewal costs.
The BSB fees for authorised and licensed bodies consist of an application fee; an authorisation fee; and, an annual renewal fee. These amounts vary depending on the number of authorised individuals that are providing legal services through the entity. For an authorised body, authorisation will cost between £590-£4,250, plus a renewal fee of between £365-£2,900. For a licensed Body, authorisation will cost between £2,650-£6,450, plus a renewal fee of between £1,725-£4,195. Additionally, litigation authorisation is £90.
Under the SRA, the application fee for a licensed body is £2,000 and £150 for each new person who needs SRA approval under r13.1 of the SRA Authorisation of Firms Rules. Licensed bodies must also pay a periodical fee on authorisation, which is calculated based on the estimated turnover, paying one twelfth of that amount for each month between the date of authorisation and the end of the practising year. If you intend to hold/receive client money or have offices outside of England and Wales, there are further additional charges to pay.
The BSB states that its application process takes up to six months; however, the Authorisation Team Service Update states it is currently six to nine months. The SRA has a much quicker turnaround time, deciding within 90 days unless there are suitability issues, in which case its decision could take up to 180 days.
The SRA has much more experience in the regulation of entities as they currently regulate 1,313 licensed bodies (in addition to traditional law firms); whereas, at the time of writing, the BSB only regulates 13 licensed bodies and 129 authorised bodies.
There are different application requirements, although there is some cross over, such as the requirement for: a business plan; financial plan; compliance plan (or document setting out how the regulatory obligations of the entity will be met); and a risk management plan with detailed processes and procedures.
Prior to authorisation there must be confirmation that PII can be obtained. Therefore, it is recommended that an application to the BMIF and/or a PII broker is made first. The BMIF or broker will highlight any gaps in an application, which can then be swiftly resolved.
The BSB, Fees and charges for BSB entities
The SRA, Apply for authorisation of a new firm
The BSB, How to apply and the BSB entity application process
The BSB, Authorisations Team Service Update
The SRA, Apply for authorisation of a new firm
The SRA, Search for a licensed body (ABS)
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