Alternative Business Structures Advantages and Disadvantages
The alternative business structures advantages and disadvantages depend on the long-term goals for a business and the state in which it registers.3 min read
The alternative business structures advantages and disadvantages depend on the long-term goals for a business and the state in which it registers. Alternative business structures offer pros and cons, but many newer law firms are choosing this format for their practice.
What Are Alternative Business Structures?
Before 2007, when the Legal Services Act was passed, any solicitor doing business in a legal capacity for the public had to do so in a law firm that solicitors owned. Once the act was passed, Alternative Business Structure (ABS) came onto the scene and allowed both non-solicitors and solicitors to own legal service firms.
If you've obtained an ABS license, you are able to provide legal services as a non-legal organization. This allows law firms to be managed by non-lawyers. ABS structures also allow law firms to offer more that just legal services. Law firms created as ABS can have outside investors, which is one of the biggest draws of this option.
The two main aspects of ABS are:
- Non-solicitor funding
- Tesco Law
Tesco law is a law that allows any ABS to offer different services under the same business. There has been a huge growth of co-op legal service firms over the past several years, thanks to this law. An ABS practicing primarily property law could offer mortgages and insurance services, conveyancing, and estate agency as one business, under one roof.
Advantages of ABS for Consumers
There are many advantages to ABS for the consumer. Someone looking for legal services who heads to an ABS-type firm will probably face lower legal costs. If a consumer needs help with a wide variety of things, they might be able to find all of the services they're looking for at one place.
Forming your business as an ABS could be the decision that gives you the edge over your competitors. Clients will likely appreciate the convenience of various services offered, and you'll have the ability to grow with more opportunities for investors.
Disadvantages of ABS for Consumers
Some believe that the possible disadvantages of ABS are too much to choose this structure. But many don't find these disadvantages to actually be disadvantageous. Some worry that more ABS firms will drive out smaller firms and lead to less options for consumers.
If a law firm is structured as an ABS, they could run into difficulty trying to expand or provide service overseas. Certain foreign countries do not yet accept ABS. This could be an issue for a consumer who wants to stick with a certain firm as they move overseas or travel.
Advantages of ABS for Law Firms
Law firms can benefit from choosing to form an ABS for their practice in several ways. As previously mentioned, the ability for ABS firms to offer various services is a huge draw. A firm can market itself as an all-encompassing service provider in a particular area when they're able to cover more bases.
When a law firm forms as a typical business structure, like a professional limited liability company or a corporate law firm, it must be owned by only legal professionals. Corporate law firms may only have solicitors as investors. However, this is not the case with ABS. Employees of the business who are not lawyers can own interest in the company. This could lead to better employee retention and possibly even a better environment throughout the business.
Disadvantages of ABS for Law Firms
There are a few possible disadvantages that a law firm might face if they choose to form as an ABS. Some worry that, if a firm is run by non-lawyers, it is likely to have legal work handled by non-lawyers. This actually already happens in certain areas of the law. For instance, much of the work involved in conveyance and deed of assignment matters is handled by non-legal professionals. However, ABS firms reserved certain legal activities for only the legal professionals employed there.
Others have shown concern for areas of legal practice that are more competitive with a high turnover rate. They believe there's an opportunity for ABS firms to cut corners in their legal work in order to handle matters more quickly for for lower prices. Again, these disadvantages are only possibilities and can be avoided under proper and honest legal practice.
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