This is a post for entrepreneurial lawyers who are thinking about striking out on their own. It might seem strange for a business that specialises in starting law firms to advocate not starting a law firm, but bear with me.
Starting a new law firm can be wonderful and liberating. It is a proven route to freedom and financial success.
But running a law firm is no walk in the park.
The initial startup excitement will pass. You will face daily headaches and challenges.
A recurring comment from our new law firm founders is “we didn’t appreciate how much management was involved”.
Law firm headaches
Even new and very small law firms are subject to a dizzying amount of rules and regulations, including:
- Professional indemnity insurance – if you can get it at all, PII is compulsory and usually the second largest expense behind salaries. And there’s no certainty – even established firms with good claims records can have the cost hiked for no obvious reason.
- Regulation – regulated law firms have to dance to the tune of SRA, LSB and Legal Ombudsman. Out of nowhere you can be forced to change your website, return a survey or change they way you take on clients. And there’s always the threat of them descending and closing down your business.
- Liability and hassle – partners, COLP, COFA and MLRO all have personal liability for compliance. Some people are never comfortable with this risk.
- Running costs – everything about a law firm seems expensive and quickly adds up. Recruitment, insurance, salaries, and software – it all seems to come at a premium for law firms.
- Closing down – if you need to shut the business (maybe you want to retire some day), you will need either an expensive run off policy, new partners to come into the business or an acquirer willing to be your successor practice. It’s not as simple as just closing the doors.
What to do instead of starting a law firm
Here are some alternatives to the path well trodden.
Come off the roll
Let’s start with the nuclear option.
If your expertise and reputation is more important to your clients then your regulatory status (and you’re not bothered about the ‘solicitor’ brand) you could always hand it all back.
Coming off the roll is one step further than surrendering your practising certificate. You will not be a solicitor at all, and will have to stop yourself identifying as a solicitor.
This means you will be limited to legal work outside the reserved legal activities. Anyone can provide legal services not on that list.
General legal advice, commercial work and some transactional should be possible. Although, you may find that other parties question your status and you may still have AML obligations
What happens if you want to go back on the roll? Well, if you have kept your nose clean you shouldn’t have too much trouble. It’s an application to the SRA, no additional qualifications are needed.
I’ve done it myself, and it was pretty painless. Maybe not so nuclear after all.
Become a freelance solicitor
If coming off the roll is a step too far, or you need to do reserved work (litigation, conveyancing or probate, for example) – the new freelance solicitor status could be an option.
Freelancers are true sole traders, without employees, engaging directly with clients in their personal capacity.
Freelance solicitors can (and the assumption was that they would) group together into chambers like barristers.
Although the insurance rules are significantly relaxed compared to law firms and sole practitioners, you will need some form of policy. One of the main barriers to widespread adoption of the model is the dearth of appropriate professional indemnity insurance. Our brokers have access to at least one insurer with a suitable policy.
Start an unregulated law firm
If you have no intention of doing any of the reserved activities, still want to practise as a solicitor, but don’t fancy being a sole trader freelancer, starting an unregulated firm could be the option for you.
Part of the new flexible modes of practise means that solicitors work through any unregulated business (e.g. Limited company or LLP).
This model will give you more personal protection that being a sole trader but it won’t be suitable for litigators, conveyancers, probate lawyers etc.
Some people split out their regulated and unregulated work, outsourcing the reserved bits to a regulated law firm.
Bolt onto another firm
In this model you take your practice, which may include employees, and partner with a suitable firm on a fee split basis.
You would effectively use that firm as a ‘platform’, through which you deliver legal services. They provide the insurance, regulated status, client account, compliance and so on. You do the work in their regulated environment.
They might even set up a separate trading name of the firm to match your brand. This works very well for businesses considering setting up an alternative business structure (ABS) to service their clients – think wealth managers, accountants, consultancies. It takes away the risk of going ‘all in’ with an ABS.
Entrepreneurs reading this will no doubt be thinking, “we should become the platform”.
Become a self-employed consultant lawyer
Dispersed or agile law firms (the likes of Gunnercooke, Setfords and Keystone) have paved the way for a multitude of options for the self-employed solicitor.
This is another model based on a fee sharing arrangement. It best suits lawyers who already have a client base that will follow them anywhere.
Fee split rates have settled at around 70/30 for work generated by the solicitor, or 50/50 for work supplied by the firm.
You could always contact us to find the best market rates and get some recommendations.
These practices often have a large cohort of independent lawyers on the books, so you can often benefit from internal referrals (some firms are better than others at facilitating this).
Do be aware that most firms require exclusivity, so do your research before jumping in with the first you see advertising “work from the beach!”) on social media.
Become a referrer
A bit left of field maybe, but throughout your career you have probably built up an impressive black book. If you started your own law firm, you would probably hit these people up first for work.
But what about, instead of delivering the service, placing that work with a trusted firm with whom you have a referral agreement? You introduce the work, but don’t have to actually do it.
This would suit the power networkers and those who love marketing. It is basically turning those skills into a full time role.
Depending on your referral partners, you might even insert yourself into the case as the client liaison partner, if for example your name is important to the client.
Take the next step
So that’s a long winded way of setting out some alternatives to setting up a law firm. There are no doubt lots of other models you can think of.
Talk to us to find out more about any of these options.
If we haven’t put you off and you still want to start your own firm, read How to start a law firm in 2021 next.
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