The upside of external funding is clear, but firms should watch out for pitfalls says Clare Copeman
By the end of 2006, over 50% of the top 100 UK law firms had registered as limited liability partnerships with Companies House, which represents a significant development within the sector. However, the Legal Services Bill paves the way for further change, as it will allow firms to be licensed as alternative business structures (ABSs) with external (non-lawyer) shareholders or stakeholders.
A survey of 88 of the top 125 law firms, published by Smith & Williamson earlier this year shows that over half of those questioned expect to see firms seeking external funding, through private equity and public listing. The potential upside of external funding is clear to see…but firms must beware the possible pitfalls.
Tax and LLPs
The traditional partnership model has tended to suit law firms well, as they are generally people businesses with relatively low capital requirements. There has therefore been no great need to accumulate capital within the business—which can be done more tax-efficiently
