Limited company structure in the legal sector

by | Jan 15, 2025

By Neil Wilson – Client Director.

There has been a steady increase in the number of law firms opting to operate with a limited company structure in the UK. According to information available from the ICAEW, 30% of law firms were limited liability companies in 2013 which had increased to 55% by September 2023.

The rise has been driven by a number of factors including the desire for greater flexibility, tax efficiency and limited liability protection.

As with any significant structural change, it is important that advice is taken to ensure the transition is appropriate and feasible for your business. Each structure has pros and cons, and there are implications (particularly regarding tax) which need to be carefully considered alongside a trusted advisor to ensure that transitioning to a limited company is the right decision for your business. Even if your day-to-day may look the same, altering the firms structure can have a significant impact on how your business is managed behind the scenes.

Key things to consider then looking at the viability of becoming a limited company:

Pros

  • Limited liability protection
  • Tax efficiencies
  • Easier succession and ownership changes
  • Flexibility in financing and investment
  • Often seen to add credibility to a business

Cons

  • Increased regulatory and compliance burden due to a more complex legal structure
  • Less flexibility in profit sharing
  • Loss of privacy due to Companies House reporting

Operating with a limited structure may not be suitable for all legal firms, but it is an attractive option for those who may be looking for a more flexible business structure. However, it is important to consider the increased regulatory obligations surrounding the change. Assessing the balance in line with your business’s operational structure, long term vision and financial goals, with the support of a trusted advisor will enable you to make an informed decision that is right for you.

At bennettbrooks we have been incorporating law firms for over 20 years and offer a bespoke package of services to assist you including advice on closing the old practice, opening the new one and everything in between!

You need to consider PAYE and VAT taxes, SRA applications, the goodwill valuation if being sold to the company, personal tax, how the company will be structured, and closing the old firm etc. Considering these complexities, this is rarely a quick process so forward planning is important. If you would like to explore how incorporation may look for your firm, please get in touch with us.

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