Five Reasons to Convert your Law Firm to an Alternative Business Structure ('ABS')

One of the most distinctive features of the legal market in England and Wales is how unusually open it is to non-lawyer participation. Unlike most jurisdictions around the world, the Legal Services Act 2007 permits up to 100% non-lawyer ownership of a law firm, full corporate ownership, and a wide range of holding company and group arrangements. This flexibility sits at the heart of the Alternative Business Structure model, and it is a model that an increasing number of law firms are choosing to adopt.

But converting a recognised body to an Alternative Business Structure is not a decision to take lightly, and it is not always the right answer. This article sets out five of the most compelling reasons to convert your law firm to an ABS, along with two situations where conversion is probably not the right move, a fundamental structural consideration that will shape the whole process, and answers to the questions we are asked most often.

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What Is an Alternative Business Structure?

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A recognised body is the traditional SRA-regulated law firm model, owned and managed entirely by lawyers. An Alternative Business Structure, also known as a licensed body, is a law firm that has obtained SRA authorisation to have non-lawyer owners or managers, or to operate within a broader corporate or trust structure. The SRA grants ABS licences rather than standard firm authorisations, and the process involves an additional layer of regulatory scrutiny. In day-to-day practice, the ongoing obligations of an ABS and a recognised body are broadly comparable. The real difference is structural flexibility.

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Five Reasons to Convert Your Law Firm to an ABS

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1. You Are Considering Selling the Firm​

This is probably the most strategically significant reason to pursue ABS conversion, and it is also the one that catches people out most often. If you are building a law firm with a view to an eventual exit, whether to private equity, a corporate acquirer, or a larger group, you will normally need ABS status before any transaction can complete. The SRA must approve changes in ownership and control. In practice, that means a sale cannot close until the regulator has granted the necessary approvals, and those approvals can take months.

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I have worked with law firm owners pursuing eight-figure exits. I have also been involved in transactions forming part of half-billion-pound group structures. In every case, the regulatory approval piece is the one element that cannot be fast-tracked. Everything else, legal drafting, due diligence, and commercial negotiation, can move quickly when there is momentum and money on the table. The SRA, however, works to its own timetable.

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The legal services market has also changed considerably. Law firms with strong recurring revenue, whether through retainer arrangements, subscription models or other forms of predictable income, are attracting serious investor interest. If you have built a firm generating half a million pounds in profit, or considerably more, and you have the kind of client relationships and revenue model that give acquirers confidence, there is a real market for what you have created. Getting your ABS status in order well in advance of any deal can make a huge difference.

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2. You Want to Promote a Non-Lawyer to the Board

In SRA authorisation terms, the concept of a "manager" has a specific and rather particular meaning. It does not simply mean a senior member of staff. In the context of SRA regulation, a manager is a principal of the business, so a director if the firm is a company, a member if it is an LLP, or a partner if it is a partnership. Equity or non-equity status is not the determining factor.

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If you want a non-lawyer - such as a Financial Director - to hold that status within your law firm, they must be approved by the SRA, and that approval is only available if the firm is authorised as an Alternative Business Structure. This matters in several practical situations. You may have an exceptional operations director, a finance professional, or a business development leader who has been central to the firm's growth and whom you want to recognise properly within the governance structure. Without ABS status, that is simply not possible.

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3. You Want to Add A Holding Company or Group Structure

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This is an area where we see well-intentioned but genuinely harmful mistakes made, sometimes on the advice of accountants who have not asked the right questions about the regulatory position.

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If your law firm is wholly owned by lawyers, you might reasonably assume that placing a holding company above it, also wholly owned and directed by those same lawyers, would be permissible without ABS authorisation. Sadly, that assumption is wrong and the consequences of getting it wrong can be serious. The SRA has taken the position that interposing a holding company structure of this kind means the firm is no longer a recognised body, and firms have lost their authorisation as a result.

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This is a regulatory trap that is entirely avoidable with the right advice at the outset. Holding company structures can be genuinely useful for tax planning purposes, and with appropriate advice, they can be implemented properly. But the starting point must be securing ABS authorisation, not retrofitting the regulatory position after the structure has already been put in place.

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4. You Want to Give Shares or Director Status to a Family Member

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This is becoming an increasingly common route for succession planning in small and medium-sized law firms, and when approached carefully it can also offer meaningful tax planning benefits (subject always to taking proper advice on that side of things).

The SRA's position is clear. If a family member, whether a spouse, civil partner, or other relative, is to hold shares in the firm or sit on the board, they must either be a qualified lawyer or the firm must be an ABS. For many firm owners, this is the simplest and most practical driver for conversion. It allows the next generation or a spouse who is genuinely involved in the business to hold equity, participate in governance, and benefit from the firm's success in a way that is both sustainable and, with the right structuring, tax efficient.

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5. MDP ABS: You Want to Provide Legal and Non-Legal Services Under One Roof

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My starting point with most clients who raise this question is that separating legal and non-legal services into distinct limited companies is usually the cleaner option. The reason is straightforward. The SRA's insurance requirements are significant, and it can be genuinely difficult to give clients the clarity they are entitled to about when a piece of work falls within SRA regulation and the protections that come with it, and when it does not. The rules require that clarity even where achieving it in practice is complicated.

That said, there are businesses for which a multidisciplinary practice is not just attractive but genuinely the right answer. I have worked with crisis management firms where the litigation team and the PR team need to work hand in hand, and where establishing a clean separation between the two entities would actually undermine the service model. The SRA does not allow law firm entities to simply share client information throughout their group and for some businesses, this creates show-stopping friction. For those businesses, obtaining an ABS licence and pressing ahead with an integrated practice is the right approach, even with the complexity that brings.

It is also worth noting that this is an area where the SRA draws a firm distinction between ABS firms and recognised bodies. A traditional recognised body is not permitted to provide services or goods that are not legal services or services closely connected to legal services. If you want to operate a multidisciplinary model, ABS authorisation is not optional. It is a regulatory requirement.

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A bonus: one reason not to become an ABS

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Because everyone else seems to be doing it.

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The fact that ABS conversions are increasingly common is not, by itself, a reason to pursue one. The core question is whether you need or want non-lawyer ownership or management in your firm, either now or within a realistic planning horizon. If the answer is genuinely no, then ABS authorisation comes with costs and complications that may simply not be worth it. The SRA charges a higher application fee for ABS authorisation, currently around £2,000 more than a standard firm application. Beyond that, there is the time involved, the potential for delay, and the fact that not all professional indemnity insurers are willing to quote for an ABS. If you do not have a clear reason to convert, it is probably better to wait until you do.

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The Beauty of an ABS Limited Company

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Before getting into the mechanics of ABS conversion, there is one question that shapes almost everything else: what is the current legal structure of your firm, and are you planning to keep it?

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If your firm is already a limited company and you are simply seeking to change its regulatory status from recognised body to Alternative Business Structure (ABS), then in many respects the process is relatively straightforward. You are keeping the same legal entity. You keep your SRA number. Your Compliance Officer for Legal Practice (COLP) and your Compliance Officer for Finance and Administration (COFA) remain in post. Your bank accounts, your policies and procedures, your client care documentation, your professional indemnity insurance, your contracts with suppliers and staff: all of these stay in place. The conversion is a regulatory change, not a structural reconstruction.

If, on the other hand, your firm is currently a partnership or an LLP and you want to convert to an ABS to bring in external investment or non-lawyer ownership, then you may well wish to incorporate as a limited company as well. This is where things can get more involved, because effectively what you are doing is setting up a new legal entity and transferring the business of the old firm into it. That means new bank accounts, novation of contracts and supplier agreements, a new SRA authorisation application, and all of the associated time and cost that goes with it. It is entirely feasible, and professional advisers, including insurers and accountants, are well used to handling these transitions, but it is considerably more work than a straightforward conversion of an existing company so it is good to go in with your eyes wide open.

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There is also a structural point worth making here. For most of the reasons set out in this article, a limited company is simply the better vehicle for an ABS law firm. It allows you to separate ownership from management in a way that a partnership or LLP does not. Shareholders and directors can be different people. Non-lawyer investors can hold equity without sitting on the board. The governance arrangements are more flexible and more familiar to external investors. If you are currently a partnership and you are seriously considering ABS conversion, the honest advice in most cases is to incorporate first and build the structure properly from the outset. The one partial exception is where you want to make a family member a partner in a traditional sense and the firm is already a partnership. In that scenario, a partnership ABS is technically possible, though the options for external investment and structural flexibility remain far more limited. For anything beyond a relatively straightforward domestic arrangement, a limited company ABS is almost always the preferred outcome.

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How Does ABS Conversion Actually Work?

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Converting a recognised body to an Alternative Business Structure involves a formal application to the SRA. The process is treated as an application for a new form of authorisation, which means completing the relevant SRA forms, obtaining approval for any new managers or owners who require it, and in many cases updating the firm's constitutional documentation. Where the conversion involves new non-lawyer owners or managers, those individuals will need to be approved by the SRA as part of the same process. Where the structure involves a holding company, a trust, or a corporate group, the application needs to present those arrangements clearly and explain precisely who requires approval and why.

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Timescales vary depending on the complexity of the structure and the SRA's current workload, but three to six months is a realistic expectation in the current regulatory climate. Early preparation makes a material difference.