Starting a new law firm (Part 4): Applying to the SRA

As a specialist adviser to the legal sector, Armstrong Watson has helped many firms to start practising. This series covers the top considerations when starting a law firm, with previous articles covering the importance of planning; the business structure of the firm; and tax considerations.

In this final article, I look into the application and recognition process with the Solicitors Regulation Authority (SRA).

The SRA often receives criticism from solicitors, but it has much improved its whole process of applying for recognition. In the past, it has taken up to three months for the organisation to approve new law firms from the point it receives all application information – and even then, only with constant chasing. For new alternative business structures (ABSs), the timescales were up to six months.

However, in our most recent applications for new law firms, it has been taking as little as six weeks for recognised bodies, and around three to four months for ABSs. Of late, we have also been receiving very few queries, if any, from the SRA, which may be due to our experience of what it is looking for in the applications.

Application forms to be completed

SRA form FA1 is an editable PDF, which means that you can save it, complete it in stages and change entries. It contains standard information requests but also looks at the role-holders, such as:

• compliance officers
• managers (directors in a company, partners in a partnership and members of an LLP)
• owners
• authorised signatories
• anti-money laundering reporting officers, and similar

For the SRA to assess the viability of the new firm, it also requires information on:

• sources of work
• sources of funding
• types of work to be undertaken
• any linked businesses

Form FA2 is an individual form focusing on the roles of those individuals, their background information, professional status, experience, reasons that they are appropriate, employment history and business interests.

These forms are used to assess the suitability of the candidates to take on their proposed roles. There are exemptions for certain individuals from completing form FA2 if they are ‘deemed approved’. An owner or manager who is deemed approved is a practising solicitor, and a compliance officer is someone in a law firm with a fee income not exceeding £600,000. Where the individual is deemed approved for one role but not another, they will still need to complete the forms but may not need to complete all sections.

Form FA3 needs to be completed as well if another entity will be a manager or owner of the new firm. This also assesses the suitability of the entity – and if part of a group, information about the group will also be required.

Accompanying materials

Other than for non-ABS smaller firms, the SRA will expect to see:

• business plans
• forecasts
• risk assessments and business continuity plans, and
• governance documents, such as shareholder agreements

The SRA will use all the above information to focus on the risks to the new firm. A common area of risk is business continuity, particularly for smaller firms. Applications should consider this in advance and set out contingency planning in the event of impacts on key individuals, premises, IT and so on.

Forms for ABSs

The SRA tends to ask for far more information if you are applying to be a licensed body (an ABS) rather than a recognised body (non-ABS), particularly on risks associated with separate business links.

The same form FA1 is used for ABSs, but there are additional questions on:

• material external interests
• associated relationships
• voting powers
• influence of non-authorised persons

The SRA also requires Forms FA2 on all non-deemed approved individuals, alongside the accompanying materials as set out above.

All forms can be submitted electronically. Use your covering email to explain the purpose of your application and add anything that isn’t included in the forms that you feel will benefit your application. You should then receive a positive response from the SRA.

In the meantime, you can concentrate on getting your new business ready to be a success from the start by following the guidance set out in this series of articles.

Find out more

In this series, I have provided a very high-level overview of how to start a law firm, but launching any new business – let alone a regulated one such as a law firm – is complex. You should seek advice from a legal sector specialist accountant on which route is best for you.

Visit the Armstrong Watson website to find out more information about how the specialist legal sector team helps with the themes discussed in this article.