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A third of commercial firms considering incorporation

12 April 2011

Just under a third of larger commercial firms are considering incorporation as ABS day approaches, a survey by accountants Baker Tilly has found.

The survey, which included firms with at least 25 partners but not members of the magic circle, indicated that 31 per cent were considering the move, while three per cent had already decided to incorporate.

It showed that 47 per cent of firms had changed their strategy to reflect the Legal Services Act and a further 31 per cent expected to. The same percentage, 47 per cent, said they would consider having an external investor.

George Bull, head of tax and professional practices at Baker Tilly (pictured) said commercial firms were “really coming to grips” with strategic planning for the arrival of ABS.

“A couple of years ago firms were not well prepared, but now they are well and truly on the case,” he said.

Speaking at the LegalFutures conference yesterday, Bull criticised the “intransigence” of many small law firms that said they had not had adequate notice of the imminent changes.

“The shift in the high street over the next six months to two years will be quite dramatic,” Bull said.

“Firms need to be savvy in the way they relate to clients or they will not be able to compete with highly-promoted alternatives.”

Bull said it was “heart-wrenching” to hear the worries of law firms in small towns. He mentioned the case of partners at two different firms who had grown up together but were appalled at the idea of sharing back office functions.

“The challenge for high street firms is to retain the loyalty of their clients and make sure they keep coming back. For the most part, people’s contact with the legal profession is so infrequent, that may be difficult.”

Earlier at the conference, Professor Richard Susskind, a specialist in legal technology and adviser to firms and government, said the power of IT was “almost unimaginable” and that by 2050 the average desktop computer would have more brain power than “the whole of humanity put together”.

He joked that “it might just be time for lawyers to rethink their working practices”.

He said that even though Twitter now had 200 million users, he “often got the impression that lawyers are waiting for it to take off”.

Professor Susskind said it was “terribly early days” to predict the impact of ABS and that early activity was only “mildly indicative”. However, he said it was “increasingly clear” that lawyers in foreign countries were watching what happened in Britain.

“We have a competitive advantage for a short period of time to build a legal industry that is more competitive than anyone else,” he said.

Professor Susskind predicted that many small firms and sole practices would struggle, many medium-sized firms would merge and some big firms would fail completely.

“It’s not going to happen over the next three to six months, but over the next three to six years,” he said.