By Mehzabin Farazi -
There are five types of law practice structures under the Legal Profession Uniform Law (NSW) (Uniform Law). Section 6 of the Uniform Law provides that ‘law practice’ means:
- a sole practitioner; or
- a law firm; or
- a community legal service; or
- an incorporated legal practice; or
- an unincorporated legal practice
This article examines the differences and similarities between each of these practice structures.
Sole Practitioner
A sole practitioner is the simplest law practice structure. Under section 6 of the Uniform Law, a sole practitioner is defined as an Australian legal practitioner who engages in legal practice on their own account. They operate their legal practice as a sole trader and not through a separate legal entity, such as a company or in partnership with others as is the case in a law firm. A sole practitioner is ultimately responsible and liable for the legal services they provide[1] and personally bears the debts and losses of the business.
In NSW, a sole practitioner must operate under their own legal name, unless they register a business name with ASIC.[2]
To practise law as a sole practitioner, a solicitor must hold a practising certificate in the category of ‘principal of a law practice’. A solicitor is entitled to apply for and hold a principal’s practising certificate only after they have successfully removed conditions 2 (supervised legal practice) and 3 (practice management course) from their practising certificate. They can do so by submitting the Variation of a Practising Certificate to Practice as a Principal of a Law Practice form to the Law Society of NSW Registry.
Under section 211 of the Uniform Law, a sole practitioner must not engage in legal practice unless they hold an approved professional indemnity insurance policy.
Law firm (also known as partnership)
The definition of a law firm, under section 6 of the Uniform Law, is a partnership consisting only of Australian legal practitioners, or one or more Australian legal practitioners and one or more Australian-registered foreign lawyers. A partnership under the Uniform Law includes a limited partnership. All partners of a law firm must hold a principal of a law practice practising certificate.[3]
Section 1 of the Partnership Act 1892 (NSW) defines a partnership as “the relation which exists between persons carrying on a business in common with a view of profit.” In a general partnership, the partners are jointly and severally liable for the debts of the business. They own the business and make decisions together.
A partnership does not have its own legal personality and therefore has no capacity to enter into contracts with other legal entities in its own right[4]. A partnership contracts with other legal entities through one or more of its partners[5]. Acts done in the name of the partnership will bind the individual partners in the partnership[6].
Partners in a partnership owe fiduciary obligations to their fellow partners – they are expected to conduct business relations in good faith and for the joint advantage of the partners and avoid situations where their personal interest conflicts with their duties as a partner.[7]
The name of a law firm is the name of all the partners, unless an alternate business name is registered under the Australian business names register.
Unincorporated Legal Practice
Partnerships can also be set up in the form of an unincorporated legal practice (ULP). A ULP is defined in section 6 of the Uniform Law as an unincorporated body or group that satisfies the following criteria:
- it is:
- a partnership; or
- an unincorporated body or group, or an unincorporated body or group of a kind approved by the Council under section 114 of the Uniform Law or specified in the Uniform Rules for the purposes of this definition;
- it has given notice under section 104 of the Uniform Law that it intends to engage in legal practice in Australia and that notice is still operative;
- the legal services it provides or proposes to provide are not limited to either or both of the following:
- in-house legal services for the unincorporated body or group; or
- services that are not legally required to be provided by an Australian legal practitioner;
- it is not excluded by the Uniform Rules from being an unincorporated legal practice, but does not include a law firm; a community legal service; or an incorporated legal practice.
A ULP can be set up as a “limited partnership”, which has two categories of partners:
- General partners – who are responsible for managing the ULP’s business and have unlimited liability for its debts and obligations; and
- Limited partners – who invest capital in the ULP, but do not take an active management role, and have limited liability up to the amount of capital that they have contributed[8].
Similar to a general partnership, a limited partnership does not have a separate legal personality. It has no capacity to enter into contracts with other legal entities in its own right – it must contract through one or more of its partners.
Unlike in a traditional law firm (which is set up as a general partnership), in a limited partnership, the partners are not restricted to being only solicitors who hold a principal practising certificate. The partners can also be non-lawyers.
Further, a ULP can provide both legal and non-legal services. For example, it can be structured as both a service that provides legal services and real estate agency services. Some of the partners could be real estate agents.
Incorporated Legal Practice
An incorporated legal practice (ILP) is defined in section 6 of the Uniform Law as a “corporation” that satisfies the following criteria:
- it is a:
- company within the meaning of the Corporations Act 2001 (Cth); or
- a corporation, or a corporation of a kind, approved by the Council under section 114 of the Uniform Law or specified in the Legal Profession Uniform Rules (Uniform Rules) for the purposes of this definition;
- it has given notice under section 104 of the Uniform Law that it intends to engage in legal practice in Australia and that notice is still operative;
- the legal services it provides or proposes to provide are not limited to either or both of the following services:
- in-house legal services for the corporation or a related entity; or
- services that are not legally required to be provided by an Australian legal practitioner and that are provided by an officer or employee who is not an Australian legal practitioner; and
- it is not excluded by the Uniform Rules from being an incorporated legal practice, but does not include a community legal service.
Unlike sole practitioners and partnerships, an ILP has a separate legal personality to the principal solicitors who are responsible for carrying out and managing the legal services it provides. As such, like an individual, an ILP can incur debts, be a party to legal proceedings and hold insurance. Under section 212 of the Uniform Law, an ILP is required to hold an approved PII policy before it can engage in legal practice.
As with any company, an ILP is owned by its shareholders, and its decisions are made by its directors. At least one director of an ILP must be a solicitor who holds a principal of a law practice practising certificate. This solicitor is known as the ‘authorised principal’ of the ILP. An ILP must always have at least one authorised principal.[9]
Under section 104(1) of the Uniform Law, before an ILP can engage in legal practice, it must give the Law Society at least 14 days written notice of its intention to do so. This also applies to ILPs whose principal place of practice is a different state jurisdiction, but who will engage in some form of legal practice in NSW – for example they will be instructed by a client in NSW, or they will commence court proceedings in NSW.[10]Under section 104(3) of the Uniform Law, if an ILP is winding down, then it must give the Law Society notice of ceasing to engage in legal practice within 14 days.
An ILP can provide both legal and non-legal services, for example, it can employ both solicitors and migrations agents.
Community Legal Service
A community legal service (CLS) is defined in section 6 of the Uniform Law as an organisation (whether incorporated or not) that:
- holds itself out as:
- a community legal service; or
- a community legal centre; or
- an Aboriginal and Torres Strait Islander Legal Service;
whether or not it is a member of a State or Territory association of community legal centres, and whether or not it is accredited or certified by the National Association of Community Legal Centres; and
- is established and operated on a not-for-profit basis; and
- provides legal or legal-related services that:
- are directed generally to people who are disadvantaged (including but not limited to being financially disadvantaged) in accessing the legal system or in protecting their legal rights; or
- are conducted in the public interest.
A CLS can be established as a company or in an unincorporated form.
Under section 117 of the Uniform Law, a CLS or its governing body is required to have at least one Australian legal practitioner who is employed or engaged by the service or is a member of its governing body; and is designated by the governing body as a supervising legal practitioner for the service and responsible for the provision of legal services by the service.
Although a CLS must operate on a not-for-profit basis, it may make a profit provided that the income is not distributed to members or employees otherwise than by way of reasonable remuneration under a contract of service or for services.[11]
Resources
For further resources on establishing and maintaining a law practice in the various structures discussed in this article, see the Regulatory Compliance resources page on the Law Society website here.
Further guidance
The Law Society’s Professional Support Unit (PSU) provides free and confidential guidance to solicitors across NSW on their regulatory, professional and ethical obligations in legal practice. Contact PSU’s regulatory compliance line on (02) 9926 0115 or email regulatory.compliance@lawsociety.com.au for further information and guidance on setting up a law practice.
Mehzabin Farazi is a Professional Support Solicitor with the Law Society of NSW, providing guidance to solicitors regarding regulatory compliance in legal practice. Mez is an experienced family law practitioner and has worked in both private and community legal practice.
