The magic of law firm Employee Ownership Trusts (EOTs)
We are seeing increasing numbers of law firms converting to the Employee Ownership Trust (EOT) structure. In this post, we explore the magic of EOTs for founders, employees and law firms as a whole.
Technical insight kindly provided by RVE Corporate Finance, experts in EOTs.
Law firm Employee Ownership Trusts are becoming more popular – Why?
In short, EOTs are an attractive alternative to the traditional law firm founder exit.
Instead of merging, selling to a third party or closing down, founders have the option of converting their law firm to an employee-owned business. Think John Lewis on a smaller scale.
For law firm founders this presents a tax-efficient way to exit the business.
For employees, an EOT is a golden opportunity to take a beneficial stake in their employer without having to buy in.
For the law firm itself, the structure bakes employee retention and performance incentives into its DNA. We are often told that law firms are only as valuable as its people. In which case, an EOT provides a route to increased valuation.
Brexit: How to keep your law firm’s data flowing in 2021
In this post, Rachael Eyre looks at the data protection implications for UK law firms post-Brexit:
- The challenges, including:
- Personal data transfers with the EU and countries with varying data protection regimes
- Where you offer services to clients in the EEA, but have no presence in the EEA
- UK Adequacy
- Privacy Shield
- Things to do before 1st January 2021
- The future
SRA practising renewal deadline today – unless they have contacted you directly
Today is the extended deadline to submit your practicing certificate and bulk renewal applications to the SRA. As we covered last time, the original deadline of 31 October was extended due to the IT shambles at the SRA.
If you are still having problems renewing – and there are many for whom the system still will not work – the SRA should have contacted you directly.
Scam Alert: Phishing emails claiming to come from the SRA
Over the past few weeks, many law firms have reported incidences of phishing emails landing in their inboxes, posing as the SRA.
Some of these ask you to click a link to verify information, stressing the importance of it being done immediately.
And now we understand that some firms are getting calls claiming to be from the SRA.
This is a scam!
- Fake SRA emails – We’ve seen a few of these over the past couple of weeks. The scammers have cleverly spoofed the “@sra.org.uk” email address which gives them some legitimacy. At a time of the year you would expect to receive emails from the regulator. If the copy was written in SRA style (and I guess that’s just a matter of time) they would be quite convincing. And now we understand some firms are receiving fake calls too. Take care!
- SRA guidance on NDAs – Guidance updated to strengthen the warning for solicitors, both in the content of the NDA itself and not taking unfair advantage of other parties. All NDAs should be treated as high risk, and we suggest putting a policy in place. We’re working on a template document – please contact us if you would like a copy.
- Updated SRA guidance on Consumer Credit – Essential reading if you are brave enough to enter into the world of consumer credit…..
- AML guidance for ‘tax advisers’ – Check if you are caught by the new wider definition of ‘tax advisers’ in the Money Laundering Regulations. If you are – and are not otherwise regulated for AML work – you must register with the SRA (with form FA10) by 21 January 2021.
Law Society practice notes and updates
- As my firm’s COLP, how can I protect myself from personal liability?
- ‘Fish files’ – the attack of the 4am impending doom case
National Crime Agency
- NCA Suspicious Activity Report (SARs) annual report 2020 – Worth a read. The number of SARs reaches a new record, up 20% on the previous year. DAMLs (defence requests) up a stonking 80%.
Spotted on LinkedIn
No, an Irish practising certificate is not a back door into EU practising rights
Question of the week
“Can we use the client account for an escrow transaction?”
The short answer to this is no – not if that is the only service you are offering. It is settled that solicitors must not use the client account as a banking facility – see SRA Warning Notice.
An escrow service is purely a banking facility. Since we are not regulated as banks, such arrangements allow money flows to avoid banking scrutiny, and there are associated financial crime risks. Don’t do it.
However, the more common scenario in law firms is where there is a linked piece of legal work, and it is necessary for the lawyer to hold onto the money pending certain trigger points. In that situation then the answer is probably yes. Maybe.
Sorry to be horribly vague, but every situation is fact dependent.
At one end of the spectrum you have a bread-and-butter property transaction, where the holding of funds is a fundamental part of the legal service – and in fact not unlike an escrow arrangement.
At the other end is a relatively light piece of legal work which happens to involve the transfer of significant sums.
Does the client account really need to be used?
If the money could be passed directly between the parties, you should stop and think whether the involvement of your client account is necessary and appropriate. Could a third party escrow agent be used?
Remember that you can’t just manufacture a piece of legal work to try to justify the holding of funds. The use of the client account should be intrinsically linked to the legal work.
The SRA takes this issue incredibly seriously.
Note the disciplinary decision of Nigel Timothy Williams, below.
- Nicholas Peter William Skinnard – struck off for operating a £3m loan scheme using clients’ money …for decades.
- Leanne Schrouder and Natasha Bournes – fined for providing legal services to a PI client outside of regulation.
- After a successful High Court appeal by the SRA, the SDT is ordered to re-hear the case of Nabeel Sheikh, a former Neumans partner accused of producing fraudulent bills.
- Bruce Leonard Crabb – agrees to be removed from the roll for failing to follow AML requirements in conveyancing transactions.
- Rodney William Noon – struck off for continuing to practise whilst suspended. A solicitor on the roll cannot be deliver any legal services without a valid PC.
- Nigel Timothy Williams – former partner of Womble Bond Dickinson fined by the SRA for using the client account as a banking facility for corporate clients over the course of several years. The dreaded escrow account strikes again!