The choice of professional practice vehicle for modern law firms and other professionals is not a straightforward task. Few law firms now use a general partnership model, favouring instead an LLP or limited company. However, there is no magic answer as to what type of professional practice vehicle should be adopted and much will depend on the strategy, business plans, culture and partnership and governance structure of those involved in this key consideration.
An LLP is a body corporate with a separate legal personality, unlike a traditional partnership. There is limited liability for members of the LLP (to a degree) and tax transparency. Some disclosure is necessary – an LLP is required to publish its accounts but the relationship between the LLP members is governed by private agreement. In contrast a limited company is not tax transparent, there are extensive disclosure requirements and constraints on governance. Nevertheless limited companies allow for efficient profit retention and there is generally no risk on the clawback of distributions to member shareholders, unlike LLPs. Furthermore outside investment in limited companies is market standard whereas investing in a general partnership remains unattractive.
In the context of entity structure and incorporation our team of specialist partnership and employment lawyers advise lawyers and other professionals on setting-up new firms or adapting their current business models with our advice covering such diverse issues as the following:
- disclosure and regulatory requirements
- limited liability
- governance flexibility
- financial entitlements – profit share, salary or dividends and the separation of capital and income
- tax efficiency – employer NICs, entrepreneurs relief and employment related securities
- funding and capital – third party debt and/or tax reserves and capital maintenance
- succession planning
The most cost-efficient model for the business of a firm, especially from a tax point of view, is vital. We aim to ensure that our clients are aware of all the pros and cons of the professional practice vehicle to be adopted.
Our recent experience includes:
- providing legal and strategic advice to the founding member of a niche LLP upon establishing a specialist legal consultancy following the transfer of the business of the LLP to a national law firm
- advising a solicitor on her exit from a well-known law firm and establishing her own firm.
How Fox & Partners can help:
- we have a great deal of experience which has been acquired over many years of advising lawyers and other professionals on setting up new firms or adapting their current business models
- we understand the structure selection criteria for lawyers and other professionals and aim to provide clear cost-effective advice.
Please call us on 020 7618 2400