SRA Authorisation Applications For Law Firm Set Ups & Alternative Business Structures (ABS)

Setting up a law firm / alternative business structure (ABS), or restructuring or acquiring a law firm in England & Wales, requires Solicitors Regulation Authority (SRA) authorisation. This is much more than an administrative exercise. It requires the completion of multiple lengthy SRA forms - FA1, FA2 etc - and is then subject to a detailed regulatory assessment carried out by the SRA's Authorisation team. For those new to the SRA process it can be daunting and difficult, especially to provide the SRA with the assurances that they want in the correct form in response to their inevitable additional questioning. However, with the right preparation, it is possible to significantly reduce the risk and stress the process can cause some applicants.

We specialise in helping founders, partners and investors navigate SRA authorisation - including COLP COFA authorisation and training, professional indemnity insurance considerations and more - in a way that supports long-term business strategy. We believe that regulatory hurdles should never distort the fundamentals of a business strategy and have a particular interest in ensuring that the firm has the right structure and strategy from day one. Similarly, by taking ownership of the regulatory workstream we can help the business leaders focus more on what they do best - building a great business and providing a great service.

Setting up a new law firm

We support solicitors and investors setting up new SRA-regulated firms in England & Wales, including traditional recognised bodies & ABS start-ups.

This includes early structure design, insurance preparation, governance planning, application drafting and regulatory engagement. We help clients design structures that are commercially sensible and regulator-ready.

Converting your firm to an ABS

Interested in selling your firm one day? Want to bring non-legal expertise onto the Board? Worried about succession planning? Just a few of the reasons Andy has been trusted over the years to convert traditional legal practices into alternative business structures, allowing investment / acquisition from non-lawyers and the ability to add non-lawyer directors to the team. We can work with you to determine the best approach to conversion and agree timing for making key changes.

Employee Ownership Trusts

Employee Ownership Trusts are increasingly used by law firms as a way of supporting succession, independence and long-term stability. Done well, they can be highly effective and tax efficient. But not any law firm can benefit - SRA approval for the new structure is necessary. We advise firms and owners on how the EOT structure maps to SRA requirements and explain clearly to the regulator how governance works, ensuring that a proportionate number of approvals only are necessary.

Alternative Business Structures (ABS)

We have a particular expertise & interest in structuring ABS / licensed body. Andy was part of the SRA team responsible for building the SRA's approach to non-lawyer ownership including training staff on key provisions. Andy loves to help founders, particularly those new to the legal world, get the structure and business model just right.

Law firm acquisitions & mergers

Mergers & acquisitions involving law firms raise distinct regulatory and insurance issues. We have over a decade of experience supporting buyers, sellers and merging firms on the best structure for a deal, professional indemnity exposure, client file transfer and consent considerations & transaction sequencing.

Typically we can use our depth of knowledge and years of experience to help the client achieve their goals without regulation dictating approach - as it should be.

Firm closure

In some situations, including following an asset sale or business restructure, it is necessary to close a regulated law firm. Knowing when and how to notify the SRA, how to deal with files, client money, insurance and residual liabilities, and how to manage the process in an orderly way requires careful planning. We support firms and owners through structured wind-downs, guiding the regulatory process and completing the necessary notifications and applications to ensure matters are brought to a proper conclusion.

10+ years experience | 100% success rate

How setting up a law firm & SRA Authorisation consultancy works

1. Getting the law firm structure right

Every project begins with an initial meeting to discuss the structure which will best meet the needs of the client. This important step is often overlooked and people proceed down a road which is much harder to change later. Our experience, depth of knowledge and knowledge of business structuring allows us to ensure that your goals guide your structure, not regulatory anomalies or fears. Indeed, some clients do not need to be a regulated law firm at all and this can make a significant difference to the business model and margins.

From this initial assessment, we determine:

eligibility for SRA authorisation
that obtaining SRA authorisation is the best fit
whether ABS status is required
who needs approval
what evidence is needed
what sequencing is realistic

This allows us to proceed to obtaining insurance documentation and preparing the SRA application.

2. Insurance and financial positioning

Broadly speaking if you meet the minimum requirements for setting up a law firm (see below for what these are) then with the right application and answers to follow up questions you would ordinarily obtain approval. Where projects more often fall down is actually before the SRA authorisation forms are ever submitted: it is in obtaining a professional indemnity insurance quotation. Without a quote from an insurance company which proves that you will be insured to the SRA's minimum terms standards -a sort of gold plated insurance contract which the regulator insists law firms use - you cannot even submit your application to the SRA for authorisation as a law firm.

Over the years we've built an excellent network of trusted insurance brokers who we work with to maximise your chances of securing a quote for professional indemnity cover. We can work with our clients on a business plan which is designed specifically with the underwriters' needs in mind. In practice it is vital that the document covers:

experience of the lawyers involved (see below for the level of experience insurers' look for) and supervision
work types and risk profile
financial projections
controls and systems
governance arrangements

Only after this insurance quote has been obtained can we proceed with the SRA authorisation application.

3. Getting ahead of the SRA's questions

We have over a decade of experience in SRA authorisation work and have successfully completed countless new law firm set ups as well as ABS conversions, mergers and acquisitions and more. Andy also helped to establish the ABS framework while working at the SRA and trained its staff on ABS approval while working there some years ago. When we work with a client on an SRA authorisation project we know immediately what issues will arise at the SRA and we put together a package of documents and a covering submission which answers these questions even before they have been asked. We consider this the most likely reason that our applications have typically always been dealt with quicker than average.

We can draft for you the various SRA forms and help you to collate the information necessary for their completion, specifically we can assist with:

SRA Form FA1 - this is used when a new law firm is being set up whether it is a sole practitioner, a traditional 'recognised body' or a 'licensed body' (alternative business structure or 'ABS')
SRA Form FA2 - this is used to obtain approval of the directors, the managers, the owners, the 'COLP' & 'COFA' (see below for more detail)
SRA Form FA3 - this is used, where needed, to obtain approval of corporate owners in a law firm
SRA Form FA8 - this is used to register the firm for certain 'exempt' services which would otherwise need to be regulated by the Financial Conduct Authority (FCA)
SRA Form FA10 or FA10b for existing firms which are restructuring - this is used to register the firm or update the firm's details for its work which is subject to the Money Laundering Regulations. This will often need to be accompanied by a Disclosure & Barring Services (DBS) basic check

4. Submission and SRA authorisation team questions

Once the bundle of SRA forms, supporting documentation and our submission is ready we liaise with the client to ensure that all of the details are correct. Once we are happy then the application is submitted. Typically this will be done via the client's own mySRA account and the SRA will then confirm that the application is complete and will be allocated to a caseworker.

While our track record suggests that we do typically speed up the SRA authorisation process, at this point all applications are somewhat at the mercy of the regulator. It is virtually unheard of for the SRA to consider any particular application 'urgent' and so we need to wait for the caseworker to review the matter and revert back to us. Typically speaking, no matter how well the application is prepared, the SRA still finds something that it wants to ask questions about and we work with the client to provide the correct reassurances while remaining commercially focused. Some of our applications have gone through in days, but typically and increasingly it takes 4-6 months even for very well prepared applications to receive their approval.

5. Getting your law firm ready for day one

As part of the process for new law firm applications, the SRA will often ask what steps have been taken to ensure that the firm is ready to practice in compliance with its rules. Sometimes there are significant questions raised about whether the 'COLP' or 'COFA' (see below for more detail) have undergone or require training on the roles or what policies and procedures are in place for matter supervision or for maintaining client confidentiality during a restructure or when a firm is to be part of a larger group.

We help ensure that governance, training and compliance systems are genuinely in place, not just drafted, so that both the firm and the regulator can have confidence in operational capability. Specifically, we can help with:

preparation of law firm office manuals which are SRA compliant, including compliance plans, client care procedures, anti-money laundering firm-wide risk assessments, procedures & more;
One to one training for incoming COLPs, COFAs, MLROs, MLCOs & more;
Ongoing compliance mentoring, coaching and support if needed.

6. SRA Authorisation completion

For SRA authorisation applications which proceed to SRA submission we have never had an application refused - that's a 100% success rate for submitted applications.

By the time of SRA approval you will be ready to trade in a compliant way which protects the investment you have made, namely you will have:

professional indemnity insurance in place, secured via a reputable broker
access to law firm SRA office manual procedures and templates, with support to tailor them if required
regulatory approval from the SRA authorisation team to start trading as a law firm or to begin operating within your new structure.

If you need further help with compliance from there please do not hesitate to ask for support. Even if we cannot assist you ourselves we will be able to make appropriate recommendations.

Arrange a consultation

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Call: 01789 576 007

Setting up a new law firm / ABS & restructuring, SRA authorisation FAQs

Do I actually need SRA authorisation to do what I want to do?

Not always - and getting this right at the outset can make a significant difference to cost, complexity and flexibility over the life of the business.

In England and Wales, only certain legal activities are “reserved” by law to authorised lawyers and authorised firms. These include conducting litigation, conveyancing, reserved probate work, certain advocacy and administering oaths. Much general legal advice, drafting and regulatory work is not reserved. In principle, a business can provide many types of legal services without being authorised as a law firm, provided it avoids reserved activities and complies with other relevant law.

Since late 2019, solicitors have been permitted to work outside traditional SRA-authorised firms in defined ways. That has created three broad models:

a fully SRA-authorised firm (traditional recognised body or ABS)
a freelance solicitor practising in their own name
an unregulated business employing solicitors, where the individuals remain regulated but the entity is not. Technically these are treated like 'in-house lawyers' but they can now provide certain limited services to the public. It can be an especially powerful model for B2B legal services.

Unregulated models can work well for advisory-only practices, commercial drafting, regulatory advice, certain employment work and some private client work. They are often leaner, cheaper to insure and less infrastructure-heavy.

However, they are generally unsuitable if you need to:

conduct litigation or formally act on the court record
undertake reserved conveyancing or probate
hold client money in the way traditional firms do
rely on SRA minimum terms professional indemnity insurance
provide clients with the fullest level of regulatory protection
remove possible uncertainty around the application of legal privilege and Compensation Fund access

In contrast, traditional firms can provide the full range of reserved services, must carry minimum terms insurance of at least £2–3 million, can hold client money and are subject to structured governance requirements including COLP and COFA roles. The downside is that they pay more to be regulated and in particular to be insured.

The correct model depends on the services you intend to provide now, what you may want to do in the future, how you want to position the business and what level of regulatory infrastructure makes sense for your clients and risk profile.

For most, an SRA regulated law firm is still the right way to go but it's good to be sure before moving ahead.

What are the eligibility requirements for SRA authorisation as a law firm / alternative business structure (ABS)?

To be eligible for authorisation as a law firm or an alternative business structure (ABS) in England & Wales, the regulator must be satisfied that the proposed business has the necessary people, structure, controls and oversight in place for safe operation.

In practice, this means you will generally need at least one person at director/partner/member level who is a qualified lawyer (for example, a solicitor, barrister or Chartered Legal Executive recognised in England & Wales) and at least one lawyer who is capable of supervising the legal work the firm will undertake. The SRA’s rules refer to a minimum of around three years’ post-qualification experience for this supervisory role, but in practice insurers demand someone with 5 years post qualification experience to be in place.

You also need a practising address in England & Wales (this is published and important for market transparency).

As mentioned above, before the SRA will accept an application for authorisation as a law firm / ABS, you will need to have secured a valid professional indemnity insurance quotation that meets the SRA’s minimum terms and conditions.

In addition, you must be able to demonstrate that you have identified who will hold the necessary compliance roles i.e. the COLP and COFA - so, named individual(s) in the firm who will have specific duties to facilitate and monitor compliance with SRA rules in the business. The SRA will need to be satisfied that those individuals are suitable and understand their responsibilities, and have at least initial policies and procedures prepared covering the regulatory risk areas you will manage. Finally, all proposed owners, managers and key role holders must satisfy the regulator’s “fit and proper” test, which looks at honesty, integrity, competence and financial probity. In practice what they look for is an absence of problems such as a criminal conviction in the past or significant impropriety or repeated financial problems - that will generally be sufficient to demonstrate good character.

What is a COLP & a COFA and what is the SRA COLP COFA approval process?

The Compliance Officer for Legal Practice (COLP) and the Compliance Officer for Finance and Administration (COFA) are statutory roles in every SRA-regulated firm or ABS. They are not optional and they are not ceremonial. The COLP is responsible for ensuring that the firm complies with the SRA’s Principles, Code of Conduct and regulatory obligations day-to-day. In fact, the COLP's responsibilities relate to pretty much every aspect of firm compliance when you really look at the rules in detail. That means, knowing when the firm’s systems or behaviours fall short and having the authority to escalate issues, remediate them and report to the regulator where appropriate.

The COFA is responsible for financial and administrative compliance, including ensuring that accounts rules are followed, client money (if any) is handled correctly, and internal financial controls are adequate.

Anyone wanting to set up a new law / alternative business structure / ABS must be able to identify who will hold these roles at the point of application. The COLP must be a lawyer, because they are expected to understand the practice of law and the ethical obligations that come with it. The COFA does not have to be legally or financially qualified or even have a financial background necessarily, but they must be capable of financial and administrative comprehension.

In practice, the COLP & COFA in many new law firm / ABS applicants do not have significant experience in this role and that is normally just fine. We can often help in arranging appropriate training and support for such individuals so don't let this put you off. Most problems are manageable and if you're not sure, contact us for a discussion.

Can a firm be 100% owned by non-lawyers - and what does that mean?

Yes - as long as your law firm is an 'ABS' then it can in principle be 100% owned by non-lawyers, provided that there is a lawyer involved at the 'principal' level. What this means in practice is that at least one individual lawyer must be at director/member/partner level in the business so that the business itself can be authorised to provide reserved legal services, but the equity or decision-making rights can be held entirely by non-lawyer individuals or entities. The non-lawyers involved will still be subject to fit and proper assessment if they are in management or control positions but they can completely own and control the firm.

What is an 'Alternative Business Structure' / ABS and how is it different to a traditional law firm?

At its simplest, an Alternative Business Structure ('ABS') - also known as a 'licensed body' - is just a law firm which the regulator has said is allowed to have a non-lawyer Director or owner. Without this license, 'traditional' law firms must be entirely owned and directed by lawyers.

ABS status therefore allows non-lawyers to hold management roles, ownership interests or voting rights in a law firm. In practice if somebody wants to acquire a law firm who is not themselves a lawyer then that law firm must become an ABS.

However this is not the only scenario in which a law firm might want to become an ABS and ABS conversion applications are more and more popular. This might be because:

a non-lawyer co-founder is involved
senior operational staff such as a financial director are to be awarded equity in the business or added to the Board
the firm forms part of a corporate group
an Employee Ownership Trust is introduced
family succession planning is undertaken
external investment is contemplated

In addition to increased flexibility in who can own and direct the law firm, ABS also have the option of delivering a wider array of services. Traditional law firms are restricted to providing legal or quasi legal services only. An ABS can provide any services it wants all under one roof - this is called a multi-disciplinary practice ('MDP'). In reality MDPs are complicated from a regulatory perspective and might not always be the best solution. However, it is an often overlooked option available only to law firms who have obtained the additional license as an alternative business structure (ABS).

When does a firm have to become an ABS?

If a structure makes a firm eligible to be licensed as an ABS - namely, because a non-lawyer has some sort of widely defined ownership or director role in a law firm - it must apply as one. It cannot choose to remain a traditional recognised body instead. That is a critical point that is often misunderstood. If it fails to do so then it risks losing its SRA authorisation, or so the SRA would say at least.

So, what triggers the need to be an ABS? This generally occurs where a 'non-authorised person' such as a non-lawyer or an overseas lawyer who is not registered with the SRA:

is a manager of a law firm (for example, a director, member or partner)
holds shares or economic interests in the law firm
is entitled to exercise or control voting rights in the law firm
or where another entity involved in ownership is itself controlled in part by non-authorised persons

The analysis can get quite technical and depends on:

the legal structure (company, LLP, partnership)
how profits and capital are allocated
what voting rights exist
whether veto rights are present
whether there is indirect control through holding companies or trusts

In practice, ABS status can be just as easily triggered by governance rights than by headline percentage ownership so it's important to be really careful.

Does the SRA require a business plan as part of the SRA authorisation application?

The SRA itself does not routinely require sight of a fully developed business plan solely for authorisation. Instead it is the professional indemnity insurers for whom a business plan is more commonly needed. That said, a credible business plan does not harm, just don't be surprised if the SRA does not ask for it.

How much does it cost to set up a law firm or ABS?

Like any other business start-up, costs can vary greatly depending on your model, scale and ambitions. Some elements to consider are:

SRA application fees for alternative business structure (ABS) applications start at £2,000.00 and for setting up a traditional law firm a recognised body from £200.00;
office space and associated overheads if you choose to have a physical presence - bear in mind though that today a lot of firms do not incur the expense of an office capable of housing all staff at all times anymore;
IT systems, document management, case management and cybersecurity infrastructure;
professional indemnity insurance — minimum terms cover for a solo or partnership generally starts at around £2 million and for LLPs/companies often at £3 million; insurers will price this according to work types and risk indicators and it is typically one of your largest recurring costs. The average professional indemnity insurance premium is roughly 5% of turnover but for a new law firm / ABS start up you would hope for it to be less than this. The type of work that you do though can dramatically impact the premium, with conveyancing for example often costing more than 5% in annual premiums and low value debt recovery or criminal law costing a lot less;
SRA regulatory fees — the regulator charges an annual regulatory fee for authorisation, which varies by when in the year you apply and whether you hold client money. Want an exact figure on the SRA fees? No problem - you can get a quote using the SRA fees calculator;
individual practising certificates for lawyers in the business;
compliance and governance overheads, including training, policies, audits and reporting systems.

Our fees vary depending upon the nature of the project but we would be happy to provide a full quotation following an initial consultation. Contact us to find out more.

Who does the SRA actually need to authorise a new law firm, ABS or a structure change?

Authorisation typically involves multiple layers of approval. Depending on structure, this may include:

the firm itself (FA1)
managers such as directors or members (FA2)
owners above certain thresholds (FA2 or FA3 if an entity)
compliance officers (FA2)
parent or holding entities (FA3)
financial services exempt services approval (FA8)
anti-money laundering approvals (FA10)

It will also be necessary as part of the application to include a structure diagram which clearly sets out ownership and control in the firm, the firm's constitutional documents and for individuals also regulated by another regulator a certificate of good standing. A disclosure and barring service (DBS) basic check may also be required. The SRA will assess character and suitability for relevant individuals and, in some cases, entities. Where corporate structures are involved, the analysis may extend up the ownership chain. In practice, clarity of structure reduces delay. It is far better to get ahead of possible questions to minimise the risks of delays later in the SRA authorisation process.

What does the SRA mean by “manager”?

Unfortunately the SRA authorisation process does involve the use of various terms that don't quite mean what they seem to. The classic one here is 'manager'. When the SRA uses the word manager it doesn't mean someone with line management responsibilities, it actually means an individual who is a 'principal' in the law firm i.e.

a partner in a partnership
a member in an LLP
a director in a company

It's important to get this right when answering the SRA's questions.

Contact us
Call: 01789 576007

For most projects we are able to offer a free initial consultation. Please note however that this is subject to availability and that we are selective in the projects which we take on. In the event that we cannot assist you then we can ordinarily make recommendations to alternative trusted advisers.