Rule 14: Incorporated practice
Note 9 of the guidance to rule 14 was amended on 8 May 2008 to correct an editorial error.
Introduction
Under the Solicitors Act 1974, a body corporate - that is, a company or an LLP - may not carry on the practice of a solicitor unless it is a recognised body. A solicitor or an REL may only practise from an office in England and Wales through a body corporate if it is a recognised body.
Rule 14 sets out the requirements which apply specifically to a recognised body and its members, directors, shareowners and employees. There are provisions which exclude non-lawyers from being directors, members or shareowners of a recognised body. These are necessary because section 9 of the Administration of Justice Act 1985 restricts the management and control of recognised bodies to lawyers.
Rule
14.01 General
Compliance duties
- (1)
A recognised body must:
- (2)
A director of a recognised body which is a company must so far as possible ensure that the body complies with rule 14.
- (3)
A member of a recognised body which is an LLP must take all reasonable steps to ensure that the body complies with rule 14.
- (4)
A director, member or shareowner of a recognised body and a person employed to work in the practice of a recognised body must not cause, instigate or connive at any breach of these rules.
Mental Health Act equivalents
- (5)
In rule 14, references to a "patient" as defined by section 94 of the Mental Health Act 1983, a person made the subject of emergency powers, and a receiver appointed under that Act include equivalents in other Establishment Directive states.
14.02 Scope of practice
General business of a recognised body
- (1)
The business of a recognised body may consist only of professional services of the sort provided by individuals practising as solicitors and/or lawyers of other jurisdictions.
Conveyancing and probate
- (2)
A recognised body must not undertake any work which includes a conveyancing or probate service reserved to qualified persons by the Solicitors Act 1974, unless:
- (a)
if the recognised body is a company, at least one director is a solicitor with a practising certificate or an REL qualified to provide that service under regulation 12 or 13 of the European Communities (Lawyer's Practice) Regulations 2000 (SI 2000/1119); and, if the company is a societas Europaea with a two-tier system, at least one member of both the management organ and the supervisory organ is such a person; or
- (b)
if the recognised body is an LLP, at least one member is a solicitor with a practising certificate, an REL qualified to provide that service under regulation 12 or 13 of the European Communities (Lawyer's Practice) Regulations 2000 (SI 2000/1119), or a recognised body qualified to undertake the work under (a) above.
- (a)
14.03 Directors of a company
Persons who may be directors
- (1)
A recognised body which is a company must ensure that at all times:
- (a)
all the directors are solicitors with practising certificates, REL s, RFL s and/or non-registered European lawyers; and
- (b)
at least one director is a solicitor with a practising certificate or an REL, and, if the company is a societas Europaea with a two-tier system, at least one member of both the management organ and the supervisory organ is a solicitor with a practising certificate or an REL.
- (a)
Death of director
- (2)
If a director dies and this would put a company in breach of (1)(b) above, the company must ensure that a director who is a solicitor with a practising certificate or an REL is appointed within 14 days. If this is done the company will be deemed to have remained in compliance with (1)(b) above, and to that extent will not be liable to have its recognition revoked under regulation 7.1(b) of the Solicitors' Recognised Bodies Regulations.
Director incapacitated, abandoning the practice, etc.
- (3)
If the company's only, or last remaining, director who is a solicitor with a practising certificate or an REL or, if the company is a societas Europaea with a two-tier system, the only or last remaining member of either the management organ or the supervisory organ who is a solicitor with a practising certificate or an REL:
- (a)
is committed to prison in civil or criminal proceedings;
- (b)
becomes and continues to be unable to attend to the practice of the company because of incapacity caused by illness, accident or age;
- (c)
becomes and continues to be a "patient" as defined by section 94 of the Mental Health Act 1983 or is made the subject of powers exercised under section 98 of that Act and continues to be subject to those powers;
- (d)
abandons the practice of the company; or
- (e)
the director's practising certificate or registration is made subject to a condition which would be breached by continuing as a director,
the company must ensure that an additional or replacement director who is a solicitor with a practising certificate or an REL is appointed within 14 days.
- (a)
14.04 Members and shareowners of a company
Persons who may be members or shareowners
- (1)
A recognised body which is a company must ensure that all members and all shareowners are:
- (a)
solicitors with practising certificates;
- (b)
REL s;
- (c)
RFL s;
- (d)
non-registered European lawyers;
- (e)
recognised bodies; and/or
- (f)
European corporate practices.
- (a)
- (2)
A recognised body which is a company with shares must have at least one shareowner who is a solicitor with a practising certificate, an REL , a recognised body, or a European corporate practice which is at least partly owned by a solicitor with a practising certificate or an REL.
- (3)
A recognised body which is a company without shares must have at least one member who is a solicitor with a practising certificate, an REL , a recognised body, or a European corporate practice which is at least partly owned by a solicitor with a practising certificate or an REL.
Prohibition on creating third party interests
- (4)
A member or shareowner must not create any charge or other third party interest over his or her interest in the company, except by holding a share as nominee for a non-member shareowner who is eligible to be a member or shareowner under (1) above.
Record of non-member shareowners
- (5)
- (a)
A recognised body which is a company with shares must keep a record of any non-member shareowners, and retain the record for at least three years after their ownership ceases; and
- (b)
A member who holds a share as nominee for a non-member shareowner must keep the recognised body informed of all facts necessary to keep an accurate and up-to-date record.
- (a)
Death of member or shareowner of a company
- (6)
- (a)
If a member or shareowner of a company with shares dies and is eligible to be a member or shareowner at the date of death, then, whether or not the personal representatives are themselves eligible to be members or shareowners, the personal representatives may replace the deceased member or shareowner in their capacity as personal representatives, provided that:
- (i)
no vote may be exercised by or on behalf of a personal representative (and no such vote may be accepted) unless all the personal representatives are eligible to be members or shareowners;
- (ii)
no personal representative may hold or own a share in that capacity for longer than 12 months from the date of death;
- (iii)
within 12 months of the death the recognised body must cancel or acquire the shares or ensure that they are held and owned by persons eligible to be members and shareowners, but without this resulting in RFL s being the only shareowners; and
- (iv)
no vote may be exercised by or on behalf of any personal representative (and no such vote may be accepted) after the 12 month period has expired.
- (i)
- (b)
If, following the death of a member or shareowner, a company meets the requirements of (a) above the company will be deemed to have remained in compliance with (1) above as to membership and share ownership, and to that extent will not be liable to have its recognition revoked under regulation 7.1(b) of the Solicitors' Recognised Bodies Regulations.
- (a)
Member or shareowner ceasing to be eligible to be a member or shareowner
- (7)
- (a)
If a member or shareowner of a recognised body which is a company with shares ceases to be eligible to be a member or shareowner, or ceases to exist as a body corporate, then:
- (i)
no vote may be exercised or accepted on the shares held by or on behalf of that member or shareowner;
- (ii)
in the case of a member or shareowner becoming ineligible, a trustee in bankruptcy or liquidator may (whether or not eligible to be a member or shareowner) replace that member or shareowner in the capacity of trustee or liquidator for a period which must not exceed six months from the date the member or shareowner became ineligible; and
- (iii)
the company must cancel or acquire the shares within six months, or within that time ensure that the shares are held and owned by persons eligible to be members and shareowners, but without this resulting in RFL s being the only shareowners.
- (i)
- (b)
If (a) above applies and a company meets its requirements, the company will be deemed to have remained in compliance with (1) above as to membership and share ownership, and to that extent will not be liable to have its recognition revoked under regulation 7.1(b) of the Solicitors' Recognised Bodies Regulations.
- (a)
Member or shareowner becoming insolvent but not ineligible
- (8)
- (a)
If a member or shareowner of a recognised body which is a company with shares becomes insolvent but remains eligible to be a member or shareowner, then the trustee in bankruptcy or liquidator (whether eligible or not) may replace the insolvent member or shareowner in the capacity of trustee in bankruptcy or liquidator, provided that:
- (i)
no vote may be exercised by or on behalf of a trustee in bankruptcy or liquidator (and no such vote may be accepted) unless the trustee or liquidator is eligible to be a member or shareowner;
- (ii)
no trustee in bankruptcy or liquidator may hold or own a share in that capacity for longer than six months from the date of the insolvency;
- (iii)
within six months of the insolvency the company must cancel or acquire the shares or ensure that they are held and owned by persons eligible to be members and shareowners, and without this resulting in RFLs being the only shareowners; and
- (iv)
no vote may be exercised by or on behalf of any trustee in bankruptcy or liquidator (and no such vote may be accepted) after the six month period has expired.
- (i)
- (b)
If (a) above applies and a company meets its requirements, the company will be deemed to have remained in compliance with (1) above as to membership and share ownership, and to that extent will not be liable to have its recognition revoked under regulation 7.1(b) of the Solicitors' Recognised Bodies Regulations.
- (a)
Mental health receiver for a member or shareowner in a company
- (9)
- (a)
A receiver appointed under the Mental Health Act 1983 may be a member or shareowner in that capacity, without breach of these rules, provided that:
- (i)
the "patient" (as defined in the Mental Health Act 1983) remains eligible to be a member or shareowner; and
- (ii)
if the receiver is not eligible to be a member or shareowner, no vote is exercised or accepted on the shares.
- (i)
- (b)
If (a) above applies and a company meets its requirements, the company will be deemed to have remained in compliance with (1) above as to membership and share ownership, and to that extent will not be liable to have its recognition revoked under regulation 7.1(b) of the Solicitors' Recognised Bodies Regulations.
- (a)
Proxies and corporate representatives
- (10)
Only a solicitor with a practising certificate, an REL , an RFL or a non-registered European lawyer may be appointed as a proxy or corporate representative for the purpose of attending and voting at meetings.
14.05 Members of an LLP
Persons who may be members
- (1)
A recognised body which is an LLP must ensure that all the members are:
- (a)
solicitors with practising certificates;
- (b)
REL s;
- (c)
RFLs;
- (d)
non-registered European lawyers;
- (e)
recognised bodies; and/or
- (f)
European corporate practices.
- (a)
- (2)
- (a)
A recognised body which is an LLP must have at least two members.
- (b)
If a death results in an LLP having fewer than two members, but a person within (1) above becomes a member within six months, the LLP will be deemed to have remained in compliance with (a) above and to that extent will not be liable to have its recognition revoked under regulation 7.1(b) of the Solicitors' Recognised Bodies Regulations.
- (a)
- (3)
- (a)
A recognised body which is an LLP must have at least one member who is:
- (i)
a solicitor with a practising certificate;
- (ii)
an REL ;
- (iii)
a recognised body which is a company with a director who is a solicitor with a practising certificate or an REL ; or
- (iv)
a recognised body which is an LLP with a member who is a solicitor with a practising certificate or an REL .
- (i)
- (b)
If a member dies and this would put the company in breach of (a) above, but a person within (a) above becomes a member within 14 days, the LLP will be deemed to have remained in compliance with (a) above as to membership, and to that extent will not be liable to have its recognition revoked under regulation 7.1(b) of the Solicitors' Recognised Bodies Regulations.
- (a)
Member incapacitated, abandoning the practice, etc.
- (4)
If the last remaining solicitor or REL within (3)(a) above:
- (a)
is committed to prison in civil or criminal proceedings;
- (b)
becomes and continues to be unable to attend to the practice of the LLP because of incapacity caused by illness, accident or age;
- (c)
becomes and continues to be a "patient" as defined by section 94 of the Mental Health Act 1983 or is made the subject of powers exercised under section 98 of that Act and continues to be subject to those powers;
- (d)
abandons the practice of the LLP ; or
- (e)
the member's practising certificate or registration (or director's, as the case may be) is made subject to a condition which would be breached by continuing as a member or director,
the LLP must ensure that an additional or replacement solicitor with a practising certificate or REL within (3)(a) above is in place within 14 days.
- (a)
Prohibition on creating third party interests
- (5)
A member must not create any charge or other third party interest over the member's interest in the LLP .
14.06 Practising address and registered office of a recognised body
- (1)
A recognised body must have at least one practising address in England and Wales.
- (2)
A recognised body must have its registered office at a practising address in England and Wales if the recognised body is registered in England and Wales:
- (a)
under Part I of the Companies Act 1985;
- (b)
under the Limited Liability Partnerships Act 2000; or
- (c)
as a societas Europaea.
- (a)
14.07 Information and documentation
- (1)
A recognised body must supply any information and documentation relating to the ownership, structure, directors, members or shareowners of the recognised body as and when requested to do so by the Solicitors Regulation Authority.
- (2)
A recognised body must notify the Solicitors Regulation Authority immediately of any change to:
- (a)
its name;
- (b)
its registered office and/or any of its practising addresses; or
- (c)
its directors, members and/or shareowners.
- (a)
- (3)
A recognised body must notify the Solicitors Regulation Authority immediately if it is an unlimited company and it is re-registered as limited under the Companies Act 1985.
- (4)
If a recognised body's recognition expires automatically under regulation 8.2 of the Solicitors' Recognised Bodies Regulations, the directors (if it is a company) or the members (if it is an LLP ) must notify the Solicitors Regulation Authority immediately.
- (5)
If a recognised body which is an oversea company or a societas Europaea registered outside England, Wales and Scotland is subject to an event in its country of incorporation analogous to a winding-up order or administration order under Part II of the Insolvency Act 1986, a resolution for voluntary winding-up, or the appointment of an administrative receiver, the directors must notify the Solicitors Regulation Authority immediately.
Guidance to rule 14 - Incorporated practice
The legal and regulatory framework
- 1.
A body corporate through which a solicitor or REL practises must be a recognised body if it is to have an office in England and Wales. If a solicitor or an REL provides services to the public from an office in England and Wales through a company or an LLP which is not a recognised body, there is a breach of rule 12 (Framework of practice). If the company or LLP includes a solicitor there is also a criminal offence under the Solicitors Act 1974.
- 2.
A recognised body is a body corporate recognised by the Solicitors Regulation Authority under the Administration of Justice Act 1985, rule 14 and the Solicitors' Recognised Bodies Regulations 2007. Recognition will only be granted if a body corporate is:
- (a)
a company (including a societas Europaea) incorporated in England and Wales or in Scotland;
- (b)
a company incorporated in another Establishment Directive state and registered in England and Wales or in Scotland as an oversea company;
- (c)
an LLP incorporated in England and Wales or in Scotland; or
- (d)
a societas Europaea incorporated outside England, Wales and Scotland.
If you would like an information booklet on incorporating your practice as a company or as an LLP , contact the Professional Ethics Guidance Team.
- (a)
- 3.
A recognised body is, for the purposes of practice, in the same position as a solicitor or a partnership of solicitors, and subject to similar legal and professional requirements. Schedule 2 to the Administration of Justice Act 1985 the Solicitors' Incorporated Practices Order 1991 (SI 1991/2684) and the Solicitors' Incorporated Practices (Amendment) Order 2001 (SI 2001/ 645) apply provisions in the Solicitors Act 1974 and other legislation to recognised bodies, sometimes modified. The Solicitors' Disciplinary Tribunal has power to revoke recognition for misconduct.
- 4.
Under 14.03 to 14.05 a solicitor must have a current practising certificate in order to be a director, a member or a shareowner in a recognised body. Under section 1A of the Solicitors Act 1974, a solicitor must have a current practising certificate in order to work for a recognised body in England and Wales in connection with the provision of legal services.
- 5.
Under 14.06(1) every recognised body must have at least one practising address in England and Wales. Under 14.06(2) a recognised body incorporated in England and Wales must have its registered office in England or in Wales, and must practise from that office.
- 6.
A recognised body can be a member of another recognised body or own a share in another recognised body. It can practise in England and Wales in partnership with solicitors, RELs, or other recognised bodies, but not with RFLs (see 12.04 Recognised bodies)).
- 7.
A recognised body may practise outside England and Wales as well as in England and Wales. If a recognised body is incorporated in England and Wales, its practice from offices outside England and Wales will be subject to all the rules of conduct which apply to a solicitor practising from offices outside England and Wales. A recognised body incorporated outside England and Wales is subject only to certain rules in relation to overseas practice - see 23.01(d)(ii), 12.04(4) and 15.01(2)(a).
- 8.
If you practise through a corporate firm which has no office in England and Wales it does not have to be a recognised body - and indeed cannot be a recognised body because a recognised body has to have at least one practising address in England or Wales.
The Solicitors' Recognised Bodies Regulations 2007
- 9.
The Solicitors' Recognised Bodies Regulations 2007 ("the regulations") are rules made under
Schedule 9 tosection 9 of the Administration of Justice Act 1985. They govern the formalities of applications and appeals relating to recognition. They are not part of these rules. Under the regulations, the Solicitors Regulation Authority may only grant recognition if it is satisfied that the applicant body is registered in England and Wales or in Scotland, or is a societas Europaea, complies with or is exempt from the Solicitors' Indemnity Insurance Rules, has a name which is not misleading, and complies with rule 14 in its internal structure. The regulations also provide, amongst other things, that:- (a)
once granted recognition, a recognised body will be placed on a list kept by the Solicitors Regulation Authority and issued with a certificate of recognition;
- (b)
recognition is renewable every three years but expires automatically if a recognised body becomes insolvent; and
- (c)
the Solicitors Regulation Authority may revoke recognition if:
- (i)
the renewal date passes and no application is made for renewal;
- (ii)
the Authority is satisfied that recognition was granted as a result of mistake or fraud; or
- (iii)
the Authority is satisfied that a recognised body would not be eligible if applying for initial recognition - though t his power is tempered by a number of the provisions of rule 14. For example, recognition could be revoked if the only director who is a solicitor or REL dies, and the company fails to remedy the position within the 14 days' grace allowed under 14.03(2).
- (i)
- (a)
Compliance with rules
- 10.
A recognised body's practice in England and Wales is subject to all the rules and requirements of conduct which apply to solicitors. Under 14.01, reciprocal responsibilities are laid upon a recognised body and its directors and members to oversee each other's compliance with the provisions of rule 14. A solicitor or REL who is a director, member, shareowner or an employee of a recognised body must not turn a blind eye or otherwise connive at a breach of any of these rules.
- 11.
In addition to these rules, a recognised body must comply with the Solicitors' Indemnity Insurance Rules, the Solicitors' Accounts Rules 1998 and the statutory requirements to submit an accountant's report and to make a contribution to the Compensation Fund. The following matters should be borne in mind:
- (a)
Indemnity insurance
The Solicitors' Indemnity Insurance Rules apply to a recognised body, and recognition will not be granted or renewed unless the Solicitors Regulation Authority is satisfied that the body complies with or will comply with the indemnity rules. These require a recognised body to have "qualifying insurance" from a "qualifying insurer" in accordance with the minimum terms and conditions set out in the Solicitors' Indemnity Insurance Rules. For a recognised body with limited liability (i.e. a limited company or an LLP) the minimum level of cover is £3 million. For an unlimited company the minimum level is £2 million. A limited company which is a nominee company only may be exempt from the additional £1 million cover - see note 16(d) below. A recognised body may be eligible for full or partial exemption from the requirement to have "qualifying insurance". This is obtained only on application and only if the recognised body has at least one director, member or owner who is an REL, and has equivalent cover under the rules of the REL's home state (see Appendix 4 to the Solicitors' Indemnity Insurance Rules). A recognised body may also have additional "top-up" cover, from any insurer.
- (b)
Accountants' reports
If a recognised body holds or receives client money or controlled trust money, it will in due course have to deliver an accountant's report to the Solicitors Regulation Authority. This obligation also extends to the directors of a company and to the members of an LLP . The names of these individuals as well as the name of the recognised body must appear on the accountant's report, as well as the names of any assistant or consultant solicitor (or REL ) who has held or received the money or operated a client's own account as signatory.
- (c)
Compensation Fund contributions
Recognised bodies must pay a contribution to the Compensation Fund on initial recognition and every three years thereafter, when recognition is renewed. Solicitors, REL s and RFL s who practise through a recognised body also have to pay individual contributions on a yearly basis when renewing their practising certificates or registration. If the recognised body has (directly or indirectly) held or received client money or controlled trust money, the individual members', directors' and shareowners' contributions will be assessed at full rate.
- (a)
Ownership and direction
- 12.
A recognised body must be owned and directed by solicitors and/or RELs, although ownership and direction can be shared with other lawyers. In general, a director, member or shareowner who is not a solicitor or an REL must be an RFL. However, lawyers of Establishment Directive states who are based outside England and Wales ("non-registered European lawyers") may also share in the ownership and direction of a recognised body, and "European corporate practices" as defined in rule 24 (Interpretation), may be members or shareowners. The company secretary need not be a lawyer.
- (a)
A body corporate cannot be a director. At all times at least one of the directors of a recognised body which is a company must be a solicitor or an REL . A similar restriction applies to ensure that at least one solicitor or REL is involved in the membership of a recognised body which is an LLP .
- (b)
Every recognised body must be at least partly owned by a solicitor or an REL . No recognised body can, for example, be wholly owned by RFL s.
- (a)
- 13.
Subrules 14.03 to 14.05 require steps to be taken to regularise a recognised body's position following various events which would otherwise put the recognised body in breach of a provision of the rule. There are strict time limits for taking such action, and if the recognised body meets these there is no breach of the rule. For example, the death of the only director of a company who is a solicitor or REL would put the recognised body in breach of 14.03(1)(b), but if a new solicitor or REL director is appointed within 14 days there is no breach. It is very important to meet such time limits because breach of any provision of rule 14 can result in the recognised body losing its right to practise. The articles of association of a company and the members' agreement of an LLP must therefore allow for speedy action to be taken in such circumstances.
Charging a member's interest in a recognised body - 14.04(4) and 14.05(5)
- 14.
A member of a recognised body (whether it is a company or an LLP) may not create any charge or other third party interest in the body, except, in the case of a company, that a member may hold a share as nominee for a person who is eligible under the rules to own a share. The purpose is to ensure that control of the recognised body remains solely in the hands of persons who are eligible to be members. The prohibitions in 14.04(4) and 14.05(5) do not, however, prevent a member's bank taking a charge or assignment on a member's right to receive back his or her capital invested in a recognised body.
Executor, trustee and nominee companies
- 15.
If you wish to operate an executor, trustee or nominee company in conjunction with your main practice you should bear the following matters in mind:
- (a)
An English executor, trustee or nominee company itself provides the executor, trustee or nominee service. If run in conjunction with your practice it is a "business" for the purpose of rule 21 (Separate businesses), whether or not it is dormant for Companies Act purposes and whether or not a charge is made for its services. If you are practising from an office in England and Wales the company must therefore be a recognised body, or you will breach rule 21 - see 21.02(1)(g) and guidance note 8 to rule 21.
- (b)
An overseas executor, trustee or nominee company cannot be a recognised body. It can be run in accordance with rule 12 (Framework of practice), as an overseas practice. Alternatively, it can be operated as a "separate business" provided that you comply with rule 21 (Separate businesses) or with 15.21 (which relates to separate businesses overseas), as appropriate, in relation to the company. See also note 9 of the guidance to rule 21.
- (a)
- 16.
In relation to an English executor, trustee or nominee company, you should also note that:
- (a)
a recognised body, when holding money or receiving dividends as nominee, acts as a controlled trustee; and if the company holds client money or controlled trust money as defined in the Solicitors' Accounts Rules 1998 or in rule 24 (Interpretation) it must have its own client account, in its own name;
- (b)
a single set of accounting records may be used for the company and the main practice and a single accountant's report can be delivered for both, if the relevant accounting periods are the same, and provided the accountant deals with the accounts for each separately;
- (c)
a wholly owned executor, trustee or nominee company can be covered by the same policy of qualifying insurance as your main practice, but only if the company is named on the policy and certificate of insurance as a separate insured; and
- (d)
a nominee company may be exempt from the requirement to have an extra £1 million qualifying insurance if it can show that:
- (i)
it is a nominee company only;
- (ii)
it is wholly owned by your main practice;
- (iii)
it holds assets only for clients of your main practice;
- (iv)
it can act only as agent for your main practice; and
- (v)
all fees accrue to the benefit of your main practice.
- (i)
- (a)
Service companies
- 17.
A firm may have a service company to carry out administrative functions concerned with the running of the firm, such as the employment of qualified and unqualified staff, the hiring of premises, furniture and equipment and general maintenance. If the service company is wholly owned by the firm and provides services only to the firm and not to clients, it does not need to be a recognised body. The books of the company must be made available if the Solicitors Regulation Authority requires an inspection of accounts. See also notes 10 and 11 of the guidance to rule 21 (Separate businesses).
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