AS THE number of incorporated legal practices (ILPs) continues to rise, New South Wales Legal Services Commissioner, Steve Mark, says the shift in regulatory focus may force a cultural change across the entire profession.
Mark spoke to Lawyers Weekly ahead of his scheduled presentation at the Australian Financial Review’s Legal Reform Summit this week, and explained how the approach to regulation of ILPs in NSW, which will be followed by other states, is an attempt to make ethical conduct a part of the management systems of law firms.
Under the Legal Profession Act a solicitor director has certain additional responsibilities compared to either a legal practitioner in general practice or a company director. One of those responsibilities is to ensure that the ILP has appropriate management systems to render that practice compliant with the Legal Profession Act and the ethical duties of legal practice.
The Office of the Legal Service Commissioner (OLSC) has the power to discipline and even remove the practicing certificate of such a solicitor director if they fail to meet their responsibilities.
“We have established a process of deciding what sort of management systems are appropriate under the Act, rather than establishing a best practice program for lawyers. We ask the question what issues must a management system address to be appropriate, and we’ve come up — after consultation with the legal profession — with only ten issues.
“These issues include things such as negligence, conflicts of interest, billing practices, supervision of staff, file management and transfer.
“In establishing the rules for management systems we are attempting to embed ethical behaviour in management systems,” Mark, said.
All jurisdictions except South Australia have agreed to allow the incorporation of legal practices, and the regulators in those jurisdictions have agreed to adopt the process for self-assessment of management systems developed by the OLSC. This will ensure consistency in the regulation of ILPs throughout Australia.
ILPs in NSW now number 745 and make up approximately 18 per cent of the state’s 4278 law firms. That number is increasing exponentially as firms recognise the advantages of incorporating.
“Many firms tell me that their reason for incorporating is to achieve taxation benefits or are in light of the taxation changes in relation to service trusts. However, my view is that the best reason for becoming incorporated is to become managed, more efficient and more profitable. While partnerships are a good vehicle for legal practice some decisions such as the equitisation or de-equitising of partners would be much easier if they are directors under Corporations Law,” Mark said.
Gadens’ Sydney office incorporated in 2002 and managing partner Michael Bradley said the shift has been a success.
“It’s largely better from a tax planning point of view. It’s an easier business model to work with and it’s aligned with the business structure that our clients have. There are some significant administrative differences — obviously as a company we have certain compliance obligations which are different to what we had as a partnership. The tax arrangements are different. But we are very happy with it,” Bradley said.