Guidance

Setting up in practice in England and Wales

This guidance was issued by the SRA in July 2009. It does not form part of the rules and is not mandatory, but the SRA may have regard to it when exercising its regulatory functions.

Introduction

The following guidance will help you decide how to set up your practice, whether you are a solicitor or a registered European lawyer (REL). It is primarily intended to help you establish a firm regulated by the SRA. However, our rules also permit you to practise through a firm which is regulated by one of the other approved regulators and the guidance sets out the relevant considerations in respect of both types of practice.

The guidance will also be of interest to you if you are a registered foreign lawyer (RFL), another lawyer of England and Wales or a non-lawyer and you wish to become a manager in an SRA-regulated firm (see Legal disciplinary practices below). However, while the SRA's rules enable you to own and manage an SRA-regulated firm together with a solicitor or REL, you cannot set up such a firm on your own.

Terminology

References to

• "you" means a practising solicitor of England and Wales or a registered European lawyer;
• a rule means a rule in the Solicitor's Code of Conduct 2007 ("the Code");
• a "manager" means:
  • A partner in a partnership;
  • A member of an LLP; or
  • A director of a company;
• Recognised Bodies Regulation means the SRA Recognised Bodies Regulations 2009;
• a Practising Regulation means the SRA Practising Regulations 2009.

For a definition of other specific terms used in the rules, please see rule 24.

1. Practice regulated by the SRA

Advance planning

The implementation of the Legal Services Act 2007 has substantially altered the way in which solicitors and RELs may set up a new practice. while it has always been necessary to apply to the SRA for recognition of an incorporated practice before commencing practise, this has now been extended to partnerships (from 31 March 2009) and sole practitioners (from 1 July 2009).

If you are setting up a new practice, you must not commence practising until recognition has been granted.

The different types of practice

The types of business through which you may practise from an office in England and Wales are set out in rule 12 of the Code, (see rule 12.01(1) if you are a solicitor; rule 12.02(1) if you are a REL). Essentially, rule 12 allows you to set up the following types of practice:

• as a sole practitioner,
• a partnership,
• a limited liability partnership (LLP), or
• a company.

Setting up as a sole practitioner

You will need to apply in advance to the SRA for authorisation to be endorsed on your practising certificate as a recognised sole practitioner before you start practising (see "Making your application" below).

If you wish to set up your practice with a salaried partner, you cannot apply to be a recognised sole practitioner. A salaried partner is treated by the SRA as a full partner and you will therefore need to apply to become a recognised body partnership.

Setting up a partnership, an LLP or a company

Whether you intend to practise as a partnership or through a company or LLP, you will first need to apply to the SRA for recognition of your firm as a recognised body.

In order to be recognised the practice must comply with rule 14 which sets out the provisions governing the composition and structure of a recognised body generally, as well as the specific provisions applying to a partnership, an LLP or a company.

Recognised bodies are restricted in the type of services they can provide. Under rule 14.01(1), a recognised body may only provide legal services and 'man (or woman) of affairs' services of the type provided by solicitors, foreign lawyers and notaries (but only if there is a notary public in your practice; only the notary can provide that service).

For information as to who may be

• a partner in a partnership, see rule 14.04(1);
• a member in an LLP, see rule 14.05(1);
• a director, member or owner of a company, see rule 14.06(1) and (2).

For a definition of the various terms referred to in these rules, see rule 24.

Legal disciplinary practices (LDP)

Since 31 March 2009, solicitors and RELs have been permitted to enter into a practice which is an LDP—in other words, a recognised body which is owned and managed by solicitors and/or RELs, (with or without RFLs (registered foreign lawyers) or exempt European lawyers—see rule 24 for definitions), but which also comprises any of the following:

• other practising lawyers of England and Wales:
• Licensed conveyancers,
• Barristers,
• Notaries public,
• Legal executives (Fellows),
• Patent agents,
• Trademark agents,
• Law costs draftsmen,
• up to 25 per cent of non-lawyers.

To participate in an LDP, a non-lawyer individual must be approved by the SRA under Recognised Bodies Regulation 3. Unless the individual concerned has already been approved by the SRA (see "Non-lawyer managers" below), such approval must be obtained before the non-lawyer individual can become a manager or owner of the recognised body. A non-lawyer cannot be an owner of a recognised body unless he or she is also a manager in the firm (see rule 14.01(3)(d). There is one very limited exception to this in rule 14.01(3)(e).

If your new practice will be an LDP, you will need to pay particular attention to the fundamental requirements in rule 14.01. Rule 14.01(2) provides that there must be at least one solicitor or REL manager at all times ('the relevant lawyer requirement'). Rule 14.01(3) contains specific provisions as to the management and control of a recognised body which ensure that at least 75 per cent of those owning and controlling the recognised body at any time are practising lawyers ('the management and control requirement').

For example—if you want to set up a partnership in which one of the managers will be a non-lawyer, you will need to have at least three other managers who are practising lawyers in order to comply with rule 14.01(3), and at least one of these will must be a solicitor or REL in order to comply with rule 14.01(2).

There are several aspects to the rule 14 requirements and you need to read the rule carefully to ensure that your firm is, and remains, in compliance.

Alternative business structures

Rule 14 does not currently allow you to have a multi-disciplinary practice (i.e. one which provides services other than legal services), or a practice which has any external non-lawyer ownership.

Once fully implemented, the Legal Services Act will allow the development of alternative business structures, but this is unlikely to be before 2011.

Other essential requirements to set up a practice

Apart from the need to be recognised, there are three other essential requirements in order to set up a practice.

1. Practising certificate

You must have a current practising certificate or a current certificate of registration with the SRA as an REL (see rule 20.02).

2. Indemnity insurance

You must comply with the Solicitors' Indemnity Insurance Rules ("SIIR"). These require you (if you will be practising as a sole practitioner), or your recognised body, to have in place "qualifying insurance" from a "qualifying insurer" before commencing practice. If you are an REL, you may be able to apply for written exemption from this requirement under Schedule 3 of the SIIR. 

If you cannot obtain insurance from a qualifying insurer, you may apply to enter the assigned risks pool ("ARP").

details of qualifying insurers, the rules, the minimum terms and conditions, exemptions for RELs and the ARP, are available or contact the Professional Indemnity and Client Protection Policy Unit at the SRA (0870 606 2555).

Remember:

• Premiums vary and it is advisable to ask for quotes from a number of insurers, so make sure you allow sufficient time to do this.
• If you cease to practise without a successor practice, your insurer will be obliged to provide run-off cover for a period of six years. Your insurer can charge for this, so you will need to check.

3. Person qualified to supervise

 Rule 5 sets out the business management requirements, including the requirement for you (if you will be practising as a recognised sole practitioner), or one of the lawyer managers of your recognised body, to be "qualified to supervise".

To be qualified to supervise, the individual must

• have been entitled to practise as a lawyer for at least 36 months within the last 10 years, and
• have undertaken 12 hours management training.

4. Name of your practice

If you intend to practice as a sole practitioner or through a partnership, you will be asked in your application form to select a name under which your firm will be recognised (Practising Regulation 4(2)(a)(iii) for sole practices, the Recognised Bodies Regulation 2.1(d) for partnerships). The name you choose must not be misleading (see rule 7.01 and guidance notes 14 and 15 to the rule).

If your practice is an LLP or a company, the name under which the practice will be registered with the SRA must be the name under which it is registered at Companies House.

Trading names

The rules do not prevent you adopting a trading name(s) for your practice or for parts of it, although you will need to consider any legal requirements in this respect. You will need to give details of any trading names you want to adopt in your application form (and you must update us if there are any changes in future).

Making your application

To apply for recognition, you will need to send the appropriate application form and fee to the SRA. The form required depends on the type of practice you wish to set up:

• for a sole practitioner - form RSP1;
• for a partnership - form RB1;
• for an LLP - form RB2;
• for a company - form RB3.

Non-lawyer managers

If your new practice will include a non-lawyer manager, he or she must be approved by the SRA under the Recognised Bodies Regulation 3. Unless the individual has already been approved by the SRA (and such approval has not lapsed or been withdrawn—see below), you will need to apply for approval on form NL1.

If applying for approval, you will also need to submit to the SRA a form for a disclosure by the Criminal Records Bureau in respect of the individual. The form is not available on the SRA's website, but can be obtained by contacting us.

Approval of the individual cannot be granted until we have received the results of the CRB check. This may hold up the recognition of your practice, so if you do not want to delay the date on which you will commence practice, you may prefer to apply for recognition of the practice without reference to the non-lawyer manager. However, the individual concerned will not be able to become a manager until the SRA has given its approval.

Once granted, approval continues until withdrawn by the SRA, or until two years have elapsed since the individual was last a manager in a recognised body.

Other regulatory and legislative requirements

Financial services

You must be authorised by the Financial Services Authority (FSA) to carry on mainstream financial services. However, you can provide certain financial services in the course of legal practice without obtaining authorisation from the FSA provided you stay within the limitations laid down by the Solicitors' Financial Services (Scope) Rules 2001 and comply with the Solicitors' Financial Services (Conduct of Business) Rules 2001.

If you are not authorised by the FSA, you must be included in the FSA's Exempt Professional Firms Register and appoint a compliance officer if you intend to carry on insurance mediation activities for your clients (for example, obtaining restrictive covenant indemnity insurance in a conveyancing transaction is an insurance mediation activity). If you complete the relevant section in your application form for recognition, the SRA will arrange for your details to be forwarded to the FSA so that your firm can be added to the register. However, you must not carry on any insurance mediation activities until your details appear on the register.

Solicitors' Accounts Rules 1998 (SAR)

You must comply with the SAR if you or the recognised body hold or receive client money, or you operate a client's own account. You will need to set up procedures to comply with the rules and deliver an annual accountant's report if you hold or receive client money, or you operate a client's own account. If you will be practising through a corporate practice, the report must be submitted by the company or LLP and all of the managers. For more information, see the SAR .

The Code

You must of course comply with the Code insofar as it applies to you, but in particular:

•  rule 2.05 which requires you to ensure that you have a written complaints procedure;
•  rule 7 as regards publicity for your firm (including the requirements in respect of your notepaper, emails and website—see rule 7.07 and the transitional provisions in rule 25(6) and (7));
•  Rule 9 in respect of paying for referrals;
•  Rule 5.01 and 5.03 in respect of the arrangements you must make for the effective management of the firm and the supervision of clients' matters.

Following the implementation of the Legal Services Act, the SRA now regulates all employees of the firm, irrespective of whether the employee is legally qualified or not, and your employees must therefore also comply with the Code where appropriate.

Under rule 5.01(1)(i), you are required to put in place arrangements for the appropriate training of staff within the firm. What is appropriate will depend upon the nature of the job each employee does. For example, while an understanding of most of the rules will not be relevant to your office cleaning staff, you should ensure that they understand the basic requirement for confidentiality. For further guidance on this point, see "New duties for employees and firms".

Money laundering

It is essential that you familiarise yourself with the substantive criminal law relating to money laundering and the requirements under the Money Laundering Regulations 2007. Failure to comply with the Regulations when required to do so is a criminal offence.

Most firms are required to have a money laundering nominated (or reporting) officer in accordance with the Money Laundering Regulations 2007. For more information on this and detailed guidance generally, see the Law Society's Anti-money laundering practice note.

Data Protection

You must consider whether you need to register with the Commissioner's Office under the Data Protection Act.

Things to watch out for

There are a number of regulatory points to watch out for once you have commenced practice.

Renewal of recognition

Recognition (as a sole practitioner or a recognised body) must be renewed annually on or before 1 November.

Changing the framework of your practice

Bear in mind that if you subsequently decide to change the structure of your practice, you will need to apply for recognition of the new structure before you start practising through it. This would apply, for example

• if you are a sole practitioner and you want to take on a salaried or equity partner, or to become an LLP or company; or
• if your firm is a partnership and you want to convert it to an LLP or company. Although the partnership is a recognised body, that recognition cannot be transferred and you would need to make a new application for recognition of the LLP or company.

A change in the composition of a partnership itself will not usually affect the recognition, but it will do so if the change results in the partnership splitting into two or more firms, or where only one of the partners remains (see rule 14.04(2)—(9)).

Taking on a new manager

Before taking on a new manager (whether a lawyer or not), your recognised body must first be satisfied as to the prospective manager's eligibility. Rule 14.02 sets out the steps you must take in this respect. The written confirmations you obtain in accordance with the rule must be retained for six years from the date the manager ceases to be a manager in the practice and your firm must be able to produce them to the SRA on request.

You must notify the SRA within seven days of any changes to the managers (rule 14.07(2)). If a new manager joins the practice, this should be done on form NM1). If the new manager is a non-lawyer who does not have current approval from the SRA under Recognised Bodies Regulation 3, then you will first need to apply for such approval on form NL1.

Taking on employees

Under section 41 of the Solicitors Act 1974, it is a criminal offence to employ or remunerate in connection with your practice a solicitor or REL who has been struck off or suspended without first obtaining the written consent of the SRA.

There is a similar offence of employing or remunerating any person against whom the SRA or the Solicitors Disciplinary Tribunal (SDT) has made an order under section 43 of that Act, unless the SRA has given written consent. Section 43 orders are made where the individual has a serious criminal conviction or has engaged in conduct which, in the view of the SRA or SDT, makes it undesirable for that person to be involved in legal practice.

You are strongly advised to check directly with us, that neither of the above applies before taking on any individual.

Potential areas of risk under rule 14.01

There are a number of areas of risk for recognised bodies which can arise under rule 14, some of which may threaten your ability to continue practising—see rule 14, note 26 for a summary. In particular:

• Beware of breaching the relevant lawyer requirement  (i.e. to have at least one manager who is a solicitor or REL), or the management and control requirement (i.e to have at least 75% management and control of the firm by lawyers). If there is a breach, the SRA can revoke your recognition and you would have to cease practising. The rules do allow for the breach to be remedied if the circumstances were not reasonably foreseeable, but you would only have 28 days to do this (see rules 14.01(2)(b) and 14.01(3)(f)). The rules do not allow any period of grace if the circumstances were foreseeable.
• If the manager whose presence ensures that your practice complies with the relevant lawyer requirement, or the management and control requirement, can no longer fulfil that role because of one of the circumstances specified in rules 14.01(2)(c) or 14.01(2)(g), (for example, because the manager is committed to prison or loses capacity), then you must cease practising unless you can arrange for another person to fulfil that role within 28 days.

Your firm will be at particular risk in respect of the above if you have only one or two solicitor or REL managers, or your firm is an LDP in which you are close to the limit of 25 per cent of non-lawyer managers. If so, you should consider how to manage that risk in accordance with rule 5.01(1)(l).

Other notification requirements

If your firm is a recognised body, there are various circumstances which must be notified to the SRA within a specified time. These are set out in rule 14.07.

2. Practice regulated by another approved regulator

The other approved regulators for the purposes of the Legal Services Act and the Code are

• Bar Council (through the Bar Standards Board),
• Institute of Legal Executives,
• Council for Licensed Conveyancers,
• Chartered Institute of Patent Attorneys,
• Institute of Trade Mark Attorneys,
• Association of Law Costs Draftsmen,
• The Master of the Faculties.

 Rule 12 allows you to set up a practice under any of the above approved regulators provided that the regulator's rules permit it (see rule 12.01(1)(d) if you are a solicitor; rule 12.02(1)(d) if you are a REL). Such practices are referred to in the Code as an "authorised non-SRA firm".

Scope of work which you can do

If you are practising in an authorised non-SRA firm, you may only undertake work for the clients which is authorised by that regulator. However, rule 12 also allows you to undertake restricted work outside the scope of the firm's authorisation provided the work is undertaken

• for the firm itself (as opposed to the firm's clients), or
• for colleagues or related bodies, or pro bono in accordance with rules 13.02; 13.03 and 13.04 respectively.

For an example, see rule 12, note 11.

Regulatory framework

When working in an authorised non-SRA firm, you must comply with the rules of your firm's approved regulator. However, the extent to which you must also comply with the SRA's rules will depend on the type of work you are doing.

If you are doing work of the sort authorised by the firm's approved regulator, then you must comply with:

•  rule 1 (core duties),
•  rule 12 (framework of practice),
•  rule 20 (rights and obligations of practice),
•  rule 21 (separate businesses),
•  rule 23 (application of the rules), and
•  rule 24 (interpretation).

The remainder of the Code, together with the Solicitors' Accounts Rules (SAR) and the Solicitors' Indemnity Insurance Rules, will not apply.

If you are doing work outside the scope of the firm's authorisation, but as permitted under rule 12 (see "scope of work which you can do" above), then you must comply with the whole of the Code and the SAR.

As to the requirement to have a practising certificate, see rule 20.04(2) and (3).

As a solicitor or REL, you will continue to be subject to the disciplinary sanctions of the Solicitors Regulation Authority and the Solicitors Disciplinary Tribunal for breaches of whichever of the rules apply to you while practising.

3. Further sources of information and assistance

Professional Ethics

For clarification on any of the rules, contact Professional Ethics.

Useful Links

www.lawsociety.org.uk—for information on Law Society sections and groups, newsletters, practice notes and other services and advice.

www.lawcare.org.uk—for advice and support in dealing with health problems such as alcohol, drugs, stress or depression.

www.ico.gov.uk—the Information Commissioner's Office for data protection.

www.thesas.org.uk—this consists of independent solicitors around the country who will help you with problems ranging from personal difficulties to financial or disciplinary problems.

www.fsa.gov.uk—for advice on FSA authorisation or to check the Exempt Professional Firms register.