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Rule 14: Incorporated practiceRecognised Bodies

 

The Solicitors' Code of Conduct 2007 has been replaced on the 6 October 2011 by the SRA Code of Conduct 2011 as part of the introduction of outcomes-focused regulation.

Go to SRA Handbook

Rule 14.03 was amended on 1 October 2010 by the Solicitors' Code of Conduct and SRA Recognised Bodies Regulations (Miscellaneous) Amendment Rules 2010 to reflect various legislative changes.

Note 9 of the guidance to rule 14 was amended on 8 May 2008 to correct an editorial error.

Rule 14 of the Code of Conduct was amended on 31 March 2009 as part of a general updating of the rules to introduce firm-based regulation and legal disciplinary practices as provided for in the Legal Services Act 2007.

 

Introduction

Under the Solicitors Act 1974, a body corporate - that is, a company or an LLP - may not carry on the practice of a solicitor unless it is a recognised body. A solicitor or an REL may only practise from an office in England and Wales through a body corporate if it is a recognised body.

Rule 14 sets out the requirements which apply specifically to a recognised body and its members, directors, shareowners and employees. There are provisions which exclude non-lawyers from being directors, members or shareowners of a recognised body. These are necessary because section 9 of the Administration of Justice Act 1985 restricts the management and control of recognised bodies to lawyers.

Under rule 12 (Framework of practice) solicitors and RELs must not provide services to the public in England and Wales except through a firm which is a recognised body or a recognised sole practitioner (both regulated by the Solicitors Regulation Authority) or through an authorised non-SRA firm (regulated by another approved regulator). Rule 14 governs the composition and structure of a recognised body and the services a recognised body may provide, and is to a large extent based on the requirements of sections 9 and 9A of the Administration of Justice Act 1985.

Rule

14.01 Fundamental requirements for all recognised bodies

Services requirement
  • (1)

    The business of a recognised body may consist only of the provision of:

    • (a)

      professional services of the sort provided by individuals practising as solicitors and/or lawyers of other jurisdictions; and

    • (b)

      professional services of the sort provided by notaries public, but only if a notary public is a manager or employee of a recognised body,

    but this does not prevent a recognised body providing services within 21.03, or having an ownership interest in a company which is a separate business.

Relevant lawyer requirement
  • (2)
    • (a)

      At all times at least one manager of a recognised body must be:

      • (i)

        a solicitor with a current practising certificate;

      • (ii)

        an REL; or

      • (iii)

        (in the case of a partnership or LLP) a body corporate which is a legally qualified body with at least one manager who is a solicitor with a current practising certificate or an REL.

    • (b)

      If an event which could not reasonably have been foreseen would put a recognised body in breach of the relevant lawyer requirement but within 28 days the situation is remedied, the recognised body will be deemed to have remained in compliance with the relevant lawyer requirement and to that extent will not be liable to have its recognition revoked under regulation 9.1(b) of the Recognised Bodies Regulations.

    • (c)

      If the only, or last remaining, solicitor or REL whose role in the body ensures compliance with the relevant lawyer requirement:

      • (i)

        is committed to prison in civil or criminal proceedings;

      • (ii)

        becomes and continues to be unable to attend to the practice of the body because of incapacity caused by illness, accident or age;

      • (iii)

        becomes and continues to be a person who lacks capacity under Part 1 of the Mental Capacity Act 2005;

      • (iv)

        abandons the practice of the body; or

      • (v)

        is made subject to a condition on his or her practising certificate or registration which would be breached by continuing to fulfil the role of relevant lawyer within the body,

      the body must inform the Solicitors Regulation Authority within seven days and must within 28 days either ensure that the body can fulfil the relevant lawyer requirement without reference to that person, or cease to practise.

Management and control requirement
  • (3)
    • (a)

      At least 75% of the body's managers must be:

      • (i)

        individuals who are, and are entitled to practise as, lawyers of England and Wales, lawyers of Establishment Directive professions or RFLs; or

      • (ii)

        bodies corporate which are legally qualified bodies;

      although a legally qualified body cannot be a director of a recognised body which is a company, as under 14.06(1) all the directors must be individuals.

    • (b)

      Individuals who are, and are entitled to practise as, lawyers of England and Wales, lawyers of Establishment Directive professions or RFLs must make up at least 75% of the ultimate beneficial ownership of the recognised body.

    • (c)

      Individuals who are, and are entitled to practise as, lawyers of England and Wales, lawyers of Establishment Directive professions or RFLs, and/or legally qualified bodies, must:

      • (i)

        exercise or control the exercise of at least 75% of the voting rights in the recognised body; and

      • (ii)

        if the recognised body is a company with shares, hold (as registered members of the company) at least 75% of the shares.

    • (d)

      Every owner of the recognised body, and every person who exercises or controls the exercise of any voting rights in the body, must be:

      • (i)

        an individual who is, and is entitled to practise as, a lawyer of England and Wales, a lawyer of an Establishment Directive profession or an RFL;

      • (ii)

        a legally qualified body; or

      • (iii)

        an individual who is approved under regulation 3 of the Recognised Bodies Regulations and, subject to (e) below, is a manager of the body.

    • (e)

      An individual who is not entitled under (d)(i) above may be an owner of a recognised body without being a manager of the body if:

      • (i)

        the recognised body is a company which is wholly or partly owned by a partnership or LLP which is a legally qualified body;

      • (ii)

        the individual is approved under regulation 3 of the Recognised Bodies Regulations and is a manager of the partnership or LLP; and

      • (iii)

        the individual is precluded under the partnership agreement or members' agreement from exercising or authorising any vote in relation to the company.

    • (f)

      If an event which could not reasonably have been foreseen would put a recognised body in breach of the management and control requirement but within 28 days the situation is remedied, the recognised body will be deemed to have remained in compliance with the management and control requirement and to that extent will not be liable to have its recognition revoked under regulation 9.1(b) of the Recognised Bodies Regulations.

    • (g)

      If the only or last remaining lawyer of England and Wales, lawyer of an Establishment Directive profession or RFL whose role in the body ensures compliance with the management and control requirement:

      • (i)

        is committed to prison in civil or criminal proceedings;

      • (ii)

        becomes and continues to be unable to attend to the practice of the body because of incapacity caused by illness, accident or age;

      • (iii)

        becomes and continues to be a person who lacks capacity under Part 1 of the Mental Capacity Act 2005;

      • (iv)

        abandons the practice of the body; or

      • (v)

        is made subject to a condition on his or her practising certificate or registration which would be breached by continuing to fulfil that role,

      the body must inform the Solicitors Regulation Authority within seven days and must within 28 days either ensure that the body can fulfil the management and control requirement without reference to that person, or cease to practise.

14.012 General Duties in relation to compliance

Compliance duties
  • (1)

    • A recognised body must:

      • (a)

        A recognised body and its managers and employees must comply with rule 14; and.

      • (b)

        A recognised body must so far as possible ensure that its directors, members and shareownersmanagers, members and owners comply with 14.03, 14.04 and 14.05rule 14.

      • (c)

        A recognised body must not take on a new manager without first being satisfied of that manager's eligibility, by:

        • (i)

          checking that any solicitor has a practising certificate, that any REL or RFL is registered with the Solicitors Regulation Authority, and that the practising certificate or registration is not subject to a condition which would preclude that person becoming a manager;

        • (ii)

          obtaining (and retaining, for production to the Solicitors Regulation Authority if required), in respect of any lawyer authorised by an approved regulator but not by the SRA, written confirmation from the approved regulator to the effect that the lawyer is authorised by that approved regulator, entitled to practise and not subject to a condition or other restriction which would preclude that person becoming a manager;

        • (iii)

          obtaining (and retaining, for production to the Solicitors Regulation Authority if required), in respect of any individual who is entitled to be a manager only by virtue of approval under regulation 3 of the Recognised Bodies Regulations, written confirmation:

          • (A)

            from the Authority that the individual concerned is approved under regulation 3; and

          • (B)

            from the individual concerned, details of any event which the body will have to declare when next renewing its recognition, which has occurred in relation to that individual since he or she was last a manager of a recognised body renewing its recognition; and

        • (iv)

          in relation to any body corporate, making checks and obtaining (and retaining, for production to the Solicitors Regulation Authority if required) confirmations under (i) to (iii) above in respect of every individual who is a manager of or who has an interest in that body corporate.

    • (2)

      A directormanager of a recognised body which is a company:

      • (a)

        must so far as possible ensure that the body complies with rule 14;

      • (b)

        must ensure that the body complies with any condition imposed on its recognition; and

      • (c)

        must not cause, instigate or connive at any breach of these rules by the recognised body or any of its managers or employees.

    • (3)

      A member of a recognised body which is an LLP must take all reasonable steps to ensure that the body complies with rule 14.

    • (3)

      A solicitor, REL or RFL who is a member of, or the owner of a share in, a recognised body which is a company must not cause, instigate or connive at any breach of these rules by the recognised body or any of its managers or employees.

    • (4)

      A director, member or shareowner of a recognised body and a person employed to work in the practice of a recognised body must not cause, instigate or connive at any breach of these rules.

    • (5)

      The partners in a recognised body which is a partnership are responsible not only as managers but also, jointly and severally, as the recognised body.

Mental Health Act equivalents
  • (5)

    In rule 14, references to a "patient" as defined by section 94 of the Mental Health Act 1983, a person made the subject of emergency powers, and a receiver appointed under that Act include equivalents in other Establishment Directive states.

14.02 Scope of practice

General business of a recognised body
  • (1)

    The business of a recognised body may consist only of professional services of the sort provided by individuals practising as solicitors and/or lawyers of other jurisdictions.

Conveyancing and probate
  • (2)

    A recognised body must not undertake any work which includes a conveyancing or probate service reserved to qualified persons by the Solicitors Act 1974, unless:

    • (a)

      if the recognised body is a company, at least one director is a solicitor with a practising certificate or an REL qualified to provide that service under regulation 12 or 13 of the European Communities (Lawyer's Practice) Regulations 2000 (SI 2000/1119); and, if the company is a societas Europaea with a two-tier system, at least one member of both the management organ and the supervisory organ is such a person; or

    • (b)

      if the recognised body is an LLP, at least one member is a solicitor with a practising certificate, an REL qualified to provide that service under regulation 12 or 13 of the European Communities (Lawyer's Practice) Regulations 2000 (SI 2000/1119), or a recognised body qualified to undertake the work under (a) above.

14.03 Formation, office in England and Wales and registered office

Law of formation
  • (1)
    • (a)

      A recognised body which is a partnership may be formed under the law of any country and may be a legal person.

    • (b)

      A recognised body which is an LLP must be incorporated and registered in England and Wales or in, Scotland or Northern Ireland under the Limited Liability Partnerships Act 2000.

    • (c)

      A recognised body which is a company must be:

      • (i)

        incorporated and registered in England and Wales or in, Scotland or Northern Ireland under Part IParts 1 and 2 of the Companies Act 19852006;

      • (ii)

        incorporated in an Establishment Directive state and registered as an overseas company under Part IPart 34 of the Companies Act 19852006; or

      • (iii)

        incorporated and registered in an Establishment Directive state as a societas Europaea.

Practising address in England and Wales
  • (2)

    A recognised body must have at least one practising address in England and Wales.

Registered office of a company or LLP
  • (3)

    A recognised body must have its registered office at a practising address in England and Wales if the recognised body is registered in England and Wales:

    • (a)

      under Part IParts 1 and 2 of the Companies Act 19852006;

    • (b)

      under the Limited Liability Partnerships Act 2000; or

    • (c)

      as a societas Europaea.

14.04 Recognised bodies which are partnerships

Who may be a partner
  • (1)

    Provided that the fundamental requirements for all recognised bodies set out in 14.01 are met, a recognised body which is a partnership may have all or any of the following as a partner:

    • (a)

      a lawyer of England and Wales (including a solicitor with a current practising certificate);

    • (b)

      an REL;

    • (c)

      an RFL;

    • (d)

      an exempt European lawyer;

    • (e)

      an individual approved under regulation 3 of the Recognised Bodies Regulations;

    • (f)

      a body corporate which is a legally qualified body.

Change to the composition of the partnership
  • (2)

    Recognition may continue despite a change in the composition of a recognised body which is a partnership, subject to (3) to (5) below.

  • (3)
    • (a)

      A recognised body which is a partnership must cease to practise from the date of any failure to comply with 14.01(2)(a) or (b) (relevant lawyer requirement), and with 14.01(3)(a)-(e) or (f) (management and control requirement) which results from the change.

    • (b)

      A recognised body which is a partnership must cease to practise from the date of any change which results in there being no remaining partner who was a partner before the change; the 28 day period under 14.01(2)(b) and 14.01(3)(f) does not apply.

  • (4)

    If a partnership change results in there being only one remaining principal who or which needs to be recognised as a recognised sole practitioner but could not reasonably have commenced an application in advance of the change, the firm need not cease to practise if the remaining principal:

    • (a)

      is a solicitor or REL;

    • (b)

      notifies the Solicitors Regulation Authority within seven days;

    • (c)

      is granted temporary emergency recognition.

  • (5)
    • (a)

      Temporary emergency recognition may be granted for an initial period of 28 days and may be extended in response to a reasonable request by the applicant.

    • (b)

      During the initial 28 day period, or such extended period as the Solicitors Regulation Authority may allow, the remaining principal must:

      • (i)

        cease to practise, and notify the Solicitors Regulation Authority; or

      • (ii)

        commence a substantive application for recognition as a recognised sole practitioner (or, if the remaining principal has taken on a new partner, as a recognised body) by submitting a completed application form, together with the prescribed fee and any Compensation Fund contribution required.

    • (c)

      Subject to (d) below, if an application has been commenced under (b)(ii) above, temporary emergency recognition must be extended pending determination of the application.

    • (d)

      In exceptional circumstances and for reasonable cause the Solicitors Regulation Authority may revoke a temporary emergency recognition at any time.

    • (e)

      The grant or extension of a temporary emergency recognition is without prejudice to the discretion of the Solicitors Regulation Authority to refuse a substantive application made under (b)(ii) above.

Partnership splitting into two or more firms
  • (6)

    Subject to (7) to (9) below, if a recognised body which is a partnership splits so that the recognised body will continue but one or more of the former partners intend to carry on as a separate firm, the separate firm must, before commencing practice, obtain recognition as a recognised body or a recognised sole practitioner.

  • (7)

    Following such a partnership split, the Solicitors Regulation Authority will if necessary decide which of the groups of former partners will continue to be covered by the existing recognition and which must apply for a new recognition, and may apportion recognition fees and Compensation Fund contributions between the groups. Any such decision will be without prejudice to the outcome of any legal dispute between the former partners.

  • (8)

    If the principal(s) in the new firm could not reasonably have commenced an application for recognition in advance of the change, the new firm may practise from the date of the split provided that the following conditions are met:

    • (a)

      the new firm is:

      • (i)

        a partnership which complies with rule 14 of the Solicitors' Code of Conduct in its formation, composition and structure; or

      • (ii)

        a solicitor or REL sole practitioner;

      and complies with the Solicitors' Indemnity Insurance Rules;

    • (b)

      the new firm notifies the Solicitors Regulation Authority within seven days; and

    • (c)

      the Solicitors Regulation Authority grants the firm temporary emergency recognition.

  • (9)
    • (a)

      Temporary emergency recognition may be granted for an initial period of 28 days and may be extended in response to a reasonable request by the applicant.

    • (b)

      During the initial 28 day period, or such extended period as the Solicitors Regulation Authority may allow, the new firm must:

      • (i)

        cease to practise, and notify the Solicitors Regulation Authority; or

      • (ii)

        commence a substantive application for recognition as a recognised body or recognised sole practitioner by submitting a completed application form, together with the prescribed fee and any Compensation Fund contribution required.

    • (c)

      Subject to (d) below, if an application has been commenced under (b)(ii) above, temporary emergency recognition must be extended pending determination of the application.

    • (d)

      In exceptional circumstances and for reasonable cause the Solicitors Regulation Authority may revoke a temporary emergency recognition at any time.

    • (e)

      The grant or extension of a temporary emergency recognition is without prejudice to the discretion of the Solicitors Regulation Authority to refuse a substantive application made under (b)(ii) above.

Only one active partner remaining
  • (10)

    If a partner in a partnership which is a recognised body:

    • (a)

      is committed to prison in civil or criminal proceedings;

    • (b)

      becomes and continues to be unable to attend to the practice of the body because of incapacity caused by illness, accident or age;

    • (c)

      becomes and continues to be a person who lacks capacity under Part 1 of the Mental Capacity Act 2005;

    • (d)

      abandons the practice of the body; or

    • (e)

      is made subject to a condition on his or her practising certificate or registration which would be breached by continuing as a partner;

    and this results in there being only one active partner, that partner must inform the Solicitors Regulation Authority within seven days.

Prohibition on creating third party interests
  • (11)

    A partner in a partnership must not create any charge or other third party interest over his or her interest in the partnership.

14.03 Directors of a company

Persons who may be directors
  • (1)

    A recognised body which is a company must ensure that at all times:

    • (a)

      all the directors are solicitors with practising certificates, REL s, RFL s and/or non-registered European lawyers; and

    • (b)

      at least one director is a solicitor with a practising certificate or an REL, and, if the company is a societas Europaea with a two-tier system, at least one member of both the management organ and the supervisory organ is a solicitor with a practising certificate or an REL.

Death of director
  • (2)

    If a director dies and this would put a company in breach of (1)(b) above, the company must ensure that a director who is a solicitor with a practising certificate or an REL is appointed within 14 days. If this is done the company will be deemed to have remained in compliance with (1)(b) above, and to that extent will not be liable to have its recognition revoked under regulation 7.1(b) of the Solicitors' Recognised Bodies Regulations.

Director incapacitated, abandoning the practice, etc.
  • (3)

    If the company's only, or last remaining, director who is a solicitor with a practising certificate or an REL or, if the company is a societas Europaea with a two-tier system, the only or last remaining member of either the management organ or the supervisory organ who is a solicitor with a practising certificate or an REL:

    • (a)

      is committed to prison in civil or criminal proceedings;

    • (b)

      becomes and continues to be unable to attend to the practice of the company because of incapacity caused by illness, accident or age;

    • (c)

      becomes and continues to be a "patient" as defined by section 94 of the Mental Health Act 1983 or is made the subject of powers exercised under section 98 of that Act and continues to be subject to those powers;

    • (d)

      abandons the practice of the company; or

    • (e)

      the director's practising certificate or registration is made subject to a condition which would be breached by continuing as a director,

    the company must ensure that an additional or replacement director who is a solicitor with a practising certificate or an REL is appointed within 14 days.

14.04 Members and shareowners of a company

Persons who may be members or shareowners
  • (1)

    A recognised body which is a company must ensure that all members and all shareowners are:

    • (a)

      solicitors with practising certificates;

    • (b)

      REL s;

    • (c)

      RFL s;

    • (d)

      non-registered European lawyers;

    • (e)

      recognised bodies; and/or

    • (f)

      European corporate practices.

  • (2)

    A recognised body which is a company with shares must have at least one shareowner who is a solicitor with a practising certificate, an REL, a recognised body, or a European corporate practice which is at least partly owned by a solicitor with a practising certificate or an REL.

  • (3)

    A recognised body which is a company without shares must have at least one member who is a solicitor with a practising certificate, an REL, a recognised body, or a European corporate practice which is at least partly owned by a solicitor with a practising certificate or an REL.

Prohibition on creating third party interests
  • (4)

    A member or shareowner must not create any charge or other third party interest over his or her interest in the company, except by holding a share as nominee for a non-member shareowner who is eligible to be a member or shareowner under (1) above.

Record of non-member shareowners
  • (5)
    • (a)

      A recognised body which is a company with shares must keep a record of any non-member shareowners, and retain the record for at least three years after their ownership ceases; and

    • (b)

      A member who holds a share as nominee for a non-member shareowner must keep the recognised body informed of all facts necessary to keep an accurate and up-to-date record.

Death of member or shareowner of a company
  • (6)
    • (a)

      If a member or shareowner of a company with shares dies and is eligible to be a member or shareowner at the date of death, then, whether or not the personal representatives are themselves eligible to be members or shareowners, the personal representatives may replace the deceased member or shareowner in their capacity as personal representatives, provided that:

      • (i)

        no vote may be exercised by or on behalf of a personal representative (and no such vote may be accepted) unless all the personal representatives are eligible to be members or shareowners;

      • (ii)

        no personal representative may hold or own a share in that capacity for longer than 12 months from the date of death;

      • (iii)

        within 12 months of the death the recognised body must cancel or acquire the shares or ensure that they are held and owned by persons eligible to be members and shareowners, but without this resulting in RFL s being the only shareowners; and

      • (iv)

        no vote may be exercised by or on behalf of any personal representative (and no such vote may be accepted) after the 12 month period has expired.

    • (b)

      If, following the death of a member or shareowner, a company meets the requirements of (a) above the company will be deemed to have remained in compliance with (1) above as to membership and share ownership, and to that extent will not be liable to have its recognition revoked under regulation 7.1(b) of the Solicitors' Recognised Bodies Regulations.

Member or shareowner ceasing to be eligible to be a member or shareowner
  • (7)
    • (a)

      If a member or shareowner of a recognised body which is a company with shares ceases to be eligible to be a member or shareowner, or ceases to exist as a body corporate, then:

      • (i)

        no vote may be exercised or accepted on the shares held by or on behalf of that member or shareowner;

      • (ii)

        in the case of a member or shareowner becoming ineligible, a trustee in bankruptcy or liquidator may (whether or not eligible to be a member or shareowner) replace that member or shareowner in the capacity of trustee or liquidator for a period which must not exceed six months from the date the member or shareowner became ineligible; and

      • (iii)

        the company must cancel or acquire the shares within six months, or within that time ensure that the shares are held and owned by persons eligible to be members and shareowners, but without this resulting in RFL s being the only shareowners.

    • (b)

      If (a) above applies and a company meets its requirements, the company will be deemed to have remained in compliance with (1) above as to membership and share ownership, and to that extent will not be liable to have its recognition revoked under regulation 7.1(b) of the Solicitors' Recognised Bodies Regulations.

Member or shareowner becoming insolvent but not ineligible
  • (8)
    • (a)

      If a member or shareowner of a recognised body which is a company with shares becomes insolvent but remains eligible to be a member or shareowner, then the trustee in bankruptcy or liquidator (whether eligible or not) may replace the insolvent member or shareowner in the capacity of trustee in bankruptcy or liquidator, provided that:

      • (i)

        no vote may be exercised by or on behalf of a trustee in bankruptcy or liquidator (and no such vote may be accepted) unless the trustee or liquidator is eligible to be a member or shareowner;

      • (ii)

        no trustee in bankruptcy or liquidator may hold or own a share in that capacity for longer than six months from the date of the insolvency;

      • (iii)

        within six months of the insolvency the company must cancel or acquire the shares or ensure that they are held and owned by persons eligible to be members and shareowners, and without this resulting in RFLs being the only shareowners; and

      • (iv)

        no vote may be exercised by or on behalf of any trustee in bankruptcy or liquidator (and no such vote may be accepted) after the six month period has expired.

    • (b)

      If (a) above applies and a company meets its requirements, the company will be deemed to have remained in compliance with (1) above as to membership and share ownership, and to that extent will not be liable to have its recognition revoked under regulation 7.1(b) of the Solicitors' Recognised Bodies Regulations.

Mental health receiver for a member or shareowner in a company
  • (9)
    • (a)

      A receiver appointed under the Mental Health Act 1983 may be a member or shareowner in that capacity, without breach of these rules, provided that:

      • (i)

        the "patient" (as defined in the Mental Health Act 1983) remains eligible to be a member or shareowner; and

      • (ii)

        if the receiver is not eligible to be a member or shareowner, no vote is exercised or accepted on the shares.

    • (b)

      If (a) above applies and a company meets its requirements, the company will be deemed to have remained in compliance with (1) above as to membership and share ownership, and to that extent will not be liable to have its recognition revoked under regulation 7.1(b) of the Solicitors' Recognised Bodies Regulations.

Proxies and corporate representatives
  • (10)

    Only a solicitor with a practising certificate, an REL, an RFL or a non-registered European lawyer may be appointed as a proxy or corporate representative for the purpose of attending and voting at meetings.

14.05 Members of anRecognised bodies which are LLPs

Persons who may be members
  • (1)

    A recognised body which is an LLP must ensure that all the members are:

    • (a)

      solicitors with practising certificates;

    • (b)

      REL s;

    • (c)

      RFLs;

    • (d)

      non-registered European lawyers;

    • (e)

      recognised bodies; and/or

    • (f)

      European corporate practices.

  • (2)
    • (a)

      A recognised body which is an LLP must have at least two members.

    • (b)

      If a death results in an LLP having fewer than two members, but a person within (1) above becomes a member within six months, the LLP will be deemed to have remained in compliance with (a) above and to that extent will not be liable to have its recognition revoked under regulation 7.1(b) of the Solicitors' Recognised Bodies Regulations.

  • (3)
    • (a)

      A recognised body which is an LLP must have at least one member who is:

      • (i)

        a solicitor with a practising certificate;

      • (ii)

        an REL;

      • (iii)

        a recognised body which is a company with a director who is a solicitor with a practising certificate or an REL; or

      • (iv)

        a recognised body which is an LLP with a member who is a solicitor with a practising certificate or an REL.

    • (b)

      If a member dies and this would put the company in breach of (a) above, but a person within (a) above becomes a member within 14 days, the LLP will be deemed to have remained in compliance with (a) above as to membership, and to that extent will not be liable to have its recognition revoked under regulation 7.1(b) of the Solicitors' Recognised Bodies Regulations.

Member incapacitated, abandoning the practice, etc.
  • (4)

    If the last remaining solicitor or REL within (3)(a) above:

    • (a)

      is committed to prison in civil or criminal proceedings;

    • (b)

      becomes and continues to be unable to attend to the practice of the LLP because of incapacity caused by illness, accident or age;

    • (c)

      becomes and continues to be a "patient" as defined by section 94 of the Mental Health Act 1983 or is made the subject of powers exercised under section 98 of that Act and continues to be subject to those powers;

    • (d)

      abandons the practice of the LLP; or

    • (e)

      the member's practising certificate or registration (or director's, as the case may be) is made subject to a condition which would be breached by continuing as a member or director,

    the LLP must ensure that an additional or replacement solicitor with a practising certificate or REL within (3)(a) above is in place within 14 days.

Prohibition on creating third party interests
  • (5)

    A member must not create any charge or other third party interest over the member's interest in the LLP.

14.06 Practising address and registered office of a recognised body

  • (1)

    A recognised body must have at least one practising address in England and Wales.

  • (2)

    A recognised body must have its registered office at a practising address in England and Wales if the recognised body is registered in England and Wales:

    • (a)

      under Part I of the Companies Act 1985;

    • (b)

      under the Limited Liability Partnerships Act 2000; or

    • (c)

      as a societas Europaea.

Who may be a member
  • (1)

    Provided that the fundamental requirements for all recognised bodies set out in 14.01 are met, a recognised body which is an LLP may have all or any of the following as a member:

    • (a)

      a lawyer of England and Wales (including a solicitor with a current practising certificate);

    • (b)

      an REL;

    • (c)

      an RFL;

    • (d)

      an exempt European lawyer;

    • (e)

      an individual approved under regulation 3 of the Recognised Bodies Regulations;

    • (f)

      a body corporate which is a legally qualified body.

Minimum number of members
  • (2)
    • (a)

      A recognised body which is an LLP must have at least two members.

    • (b)

      If an event which could not reasonably have been foreseen results in an LLP having fewer than two members, but within six months the situation is remedied, the LLP will be deemed to have remained in compliance with (a) above and to that extent will not be liable to have its recognition revoked under regulation 9.1(b) of the Recognised Bodies Regulations.

Prohibition on creating third party interests
  • (3)

    A member must not create any charge or other third party interest over the member's interest in the LLP.

14.06 Recognised bodies which are companies

Who may be a director
  • (1)

    Provided that the fundamental requirements for all recognised bodies set out in 14.01 are met, a recognised body which is a company may have all or any of the following as a director:

    • (a)

      a lawyer of England and Wales (including a solicitor with a current practising certificate);

    • (b)

      an REL;

    • (c)

      an RFL;

    • (d)

      an exempt European lawyer;

    • (e)

      an individual approved under regulation 3 of the Recognised Bodies Regulations.

Who may be a member or shareowner
  • (2)

    Provided that the fundamental requirements for all recognised bodies set out in 14.01 are met, a recognised body which is a company may have all or any of the following as a member or shareowner:

    • (a)

      a lawyer of England and Wales (including a solicitor with a current practising certificate);

    • (b)

      an REL;

    • (c)

      an RFL;

    • (d)

      an exempt European lawyer;

    • (e)

      an individual approved under regulation 3 of the Recognised Bodies Regulations, who is also a director of the company;

    • (f)

      a legally qualified body.

Prohibition on creating third party interests
  • (3)

    A member or shareowner must not create any charge or other third party interest over his or her interest in the company, except by holding a share as nominee for a non-member shareowner who is eligible to be a member or shareowner under (2) above.

Record of non-member shareowners
  • (4)
    • (a)

      A recognised body which is a company with shares must keep a record of any non-member shareowners, and retain the record for at least three years after their ownership ceases; and

    • (b)

      a member who holds a share as nominee for a non-member shareowner must keep the recognised body informed of all facts necessary to keep an accurate and up-to-date record.

Death of member or shareowner of a company
  • (5)
    • (a)

      If a recognised body is a company with shares and a member or shareowner dies and is eligible to be a member or shareowner at the date of death, then, whether or not the personal representatives are themselves eligible to be members or shareowners, the personal representatives may replace the deceased member or shareowner in their capacity as personal representatives, provided that:

      • (i)

        no vote may be exercised by or on behalf of a personal representative (and no such vote may be accepted) unless all the personal representatives are eligible to be members or shareowners;

      • (ii)

        no personal representative may hold or own a share in that capacity for longer than 12 months from the date of death;

      • (iii)

        within 12 months of the death the recognised body must cancel or acquire the shares or ensure that they are held and owned by persons eligible to be members or shareowners, but without this resulting in RFLs being the only shareowners; and

      • (iv)

        no vote may be exercised by or on behalf of any personal representative (and no such vote may be accepted) after the 12 month period has expired.

    • (b)

      If, following the death of a member or shareowner, a company meets the requirements of (a) above the company will be deemed to have remained in compliance with (2) above as to membership and share ownership, and to that extent will not be liable to have its recognition revoked under regulation 9.1(b) of the Recognised Bodies Regulations.

Member or shareowner ceasing to be eligible to be a member or shareowner
  • (6)
    • (a)

      If a recognised body is a company with shares and a member or shareowner ceases to be eligible to be a member or shareowner, or ceases to exist as a body corporate, then:

      • (i)

        no vote may be exercised or accepted on the shares held by or on behalf of that member or shareowner;

      • (ii)

        in the case of a member or shareowner becoming ineligible, a trustee in bankruptcy or liquidator may (whether or not eligible to be a member or shareowner) replace that member or shareowner in the capacity of trustee or liquidator for a period which must not exceed six months from the date the member or shareowner became ineligible; and

      • (iii)

        the company must cancel or acquire the shares within six months, or within that time ensure that the shares are held and owned by persons eligible to be members or shareowners, but without this resulting in breach of the relevant lawyer requirement or the management and control requirement in 14.01(2) or (3).

    • (b)

      If (a) above applies and a company meets its requirements, the company will be deemed to have remained in compliance with (2) above as to membership and share ownership, and to that extent will not be liable to have its recognition revoked under regulation 9.1(b) of the Recognised Bodies Regulations.

Member or shareowner becoming insolvent but not ineligible
  • (7)
    • (a)

      If a recognised body is a company with shares and a member or shareowner becomes insolvent but remains eligible to be a member or shareowner, then the trustee in bankruptcy or liquidator (whether eligible or not) may replace the insolvent member or shareowner in the capacity of trustee in bankruptcy or liquidator, provided that:

      • (i)

        no vote may be exercised by or on behalf of a trustee in bankruptcy or liquidator (and no such vote may be accepted) unless the trustee or liquidator is eligible to be a member or shareowner;

      • (ii)

        no trustee in bankruptcy or liquidator may hold or own a share in that capacity for longer than six months from the date of the insolvency;

      • (iii)

        within six months of the insolvency the company must cancel or acquire the shares or ensure that they are held and owned by persons eligible to be members or shareowners, but without this resulting in breach of the relevant lawyer requirement or the management and control requirement in 14.01(2) or (3); and

      • (iv)

        no vote may be exercised by or on behalf of any trustee in bankruptcy or liquidator (and no such vote may be accepted) after the six month period has expired.

    • (b)

      If (a) above applies and a company meets its requirements, the company will be deemed to have remained in compliance with (2) above as to membership and share ownership, and to that extent will not be liable to have its recognition revoked under regulation 9.1(b) of the Recognised Bodies Regulations.

Court of Protection deputy
  • (8)
    • (a)

      A Court of Protection deputy appointed under section 19 of the Mental Capacity Act 2005 may be a member or shareowner in that capacity, without breach of these rules, provided that:

      • (i)

        the person in respect of whom the deputy has been appointed remains eligible to be a member or shareowner; and

      • (ii)

        if the deputy is not eligible to be a member or shareowner, no vote is exercised or accepted on the shares.

    • (b)

      If (a) above applies and a company meets its requirements, the company will be deemed to have remained in compliance with (2) above as to membership and share ownership, and to that extent will not be liable to have its recognition revoked under regulation 9.1(b) of the Recognised Bodies Regulations.

14.07 Information and documentation

  • (1)

    A recognised body must supply any information and documentation relating to the ownership,its composition and structure or to any of its managers, employees, members or owners, directors, members or shareowners of the recognised body as and when requested to do so by the Solicitors Regulation Authority.

  • (2)

    A recognised body must notify the Solicitors Regulation Authority immediatelywithin seven days of any change to:

    • (a)

      its name;

    • (b)

      its registered office and/or any of its practising addresses; or

    • (c)

      its directors, members and/or shareownersmanagers; or

    • (d)

      its members and/or shareowners if it is a company.

  • (3)

    A recognised body must notify the Solicitors Regulation Authority immediatelywithin seven days if it is an unlimited company and it is re-registered as limited under the Companies Act 19852006.

  • (4)

    If a recognised body's recognition expires automatically under regulation 8.2 of the Solicitors' Recognised Bodies Regulations, the directors (if it is a company) or the members (if it is an LLP) must notify the Solicitors Regulation Authority immediately.

    (4)

    If a relevant insolvency event within the meaning of paragraph 32(1A) of Schedule 2 to the Administration of Justice Act 1985 occurs in relation to a recognised body its managers must notify the Solicitors Regulation Authority within seven days.

  • (5)

    If a recognised body which is an overseas company or a societas Europaea registered outside England, Wales and Scotlandthe United Kingdom is subject to an event in its country of incorporation analogous to a winding-up order or, an administration order under Part II of the Insolvency Act 1986, a resolution for voluntary winding-up, or the appointment of an administrative receiver, the directors must notify the Solicitors Regulation Authority immediatelywithin seven days.

14.08 Mental Health Act equivalents

In this rule:

    • (a)

      references to a person who lacks capacity under Part 1 of the Mental Capacity Act 2005 include a "patient" as defined by section 94 of the Mental Health Act 1983 and a person made the subject of emergency powers under that Act, and equivalents in other Establishment Directive states; and

    • (b)

      references to a Court of Protection deputy appointed under section 19 of the Mental Capacity Act 2005 include a Court of Protection receiver appointed under the Mental Health Act 1983, and equivalents in other Establishment Directive states.

Guidance to rule 14 - Incorporated practiceRecognised Bodies

The legal and regulatory framework

  • 1.

    A body corporate through which a solicitor or REL practises must be a recognised body if it is to have an office in England and Wales. If a solicitor or an REL provides services to the public from an office in England and Wales through a company or an LLP which is not a recognised body, there is a breach of rule 12 (Framework of practice). If the company or LLP includes a solicitor there is also a criminal offence under the Solicitors Act 1974.

  • 2.1.

    A recognised body is a body corporatepartnership, LLP or company recognised by the Solicitors Regulation AuthoritySRA under section 9 of the Administration of Justice Act, rule 14 1985 and regulation 2 of the Solicitors'SRA Recognised Bodies Regulations 20072009.

  • 2.

    Rule 12 (Framework of practice) states that solicitors and RELs must not provide services to the public in England and Wales except through a firm which is a recognised body or a recognised sole practitioner (both regulated by the SRA) or through an authorised non-SRA firm, or as permitted under rule 13 (In-house practice, etc.) in respect of law centres, advice centres, etc. Rule 14 governs the composition and structure of a recognised body and the services a recognised body may provide. The rule is largely based on the requirements of section 9A of the Administration of Justice Act 1985.

  • 3.

    A recognised body, and a "manager" or employee of a recognised body, are subject to the Code and other SRA rules, subject to regulation by the SRA, and subject to disciplinary sanctions of the SRA and the Solicitors Disciplinary Tribunal.

  • 4.

    In this guidance the term "manager" has a special meaning, as in rule 14 and in the Recognised Bodies Regulations. It means:

    • (a)

      a partner, or a person held out as a partner, in an unincorporated firm;

    • (b)

      a member of an LLP; or

    • (c)

      a director of a company.

    In other words the "manager" as an individual does not necessarily have to perform any particular management function – although the "manager" will be subject to the rules him- or herself, and in many circumstances will also be responsible under the rules and in law for the conduct of the recognised body.

The three fundamental requirements

  • 5.

    The fundamental requirements which must be fulfilled for recognised body status are:

    • (a)

      the services requirement,

    • (b)

      the relevant lawyer requirement,

    • (c)

      the management and control requirement.

    These are explained in more detail below.

The services requirement
  • 6.

    Rule 14.01(1) sets out the type of services which a recognised body is permitted to provide – legal services and "man (or woman) of affairs" services as provided by solicitors, services as provided by foreign lawyers, and notarial services (if the firm has a "manager" or employee who is a notary).

  • 7.

    A recognised body is not prohibited from owning a "separate business" – i.e. a business which provides "man (or woman) of affairs" services but not as a legal practice – so long as there is compliance with rule 21 (Separate businesses).

The relevant lawyer requirement
  • 8.

    Rule 14.01(2)(a) states that at least one "manager" of a recognised body must be:

    • (a)

      a solicitor with a current practising certificate;

    • (b)

      an REL; or

    • (c)

      (in the case of a recognised body which is a partnership or LLP) a "legally qualified body" with at least one "manager" who is a solicitor with a current practising certificate or an REL.

  • 9.

    A "legally qualified body" is defined as:

    • (a)

      a recognised body,

    • (b)

      an authorised non-SRA firm, or

    • (c)

      a European corporate practice (as defined in rule 24),

    of which lawyers must make up at least 75% of the ultimate beneficial ownership.

The management and control requirement
  • 10.

    The management and control requirement is set out in rule 14.01(3), and is aimed at ensuring that every recognised body is at least 75% owned and managed by lawyers.

  • 11.

    More specifically, the management and control requirement is made up of the following six tests, which deal with various markers of management, ownership and the holding of shares:

    • (a)

      at least 75% of a recognised body's "managers" must be lawyers or "legally qualified bodies";

    • (b)

      lawyers must make up at least 75% of the ultimate beneficial ownership of the recognised body;

    • (c)

      lawyers and/or "legally qualified bodies" must exercise or control the exercise of at least 75% of the voting rights in the recognised body;

    • (d)

      if the recognised body is a company with shares, lawyers and/or "legally qualified bodies" must hold (as registered members of the company) at least 75% of the shares;

    • (e)

      every owner of the recognised body must be a lawyer, a "legally qualified body" or an individual non-lawyer who is approved by the SRA under regulation 3 of the Recognised Bodies Regulations; and

    • (f)

      every non-lawyer owner of the recognised body must be a "manager" of the body unless:

      • (i)

        the recognised body is a company which is wholly or partly owned by a partnership or LLP which is a "legally qualified body";

      • (ii)

        the non-lawyer owner is a "manager" of the partnership or LLP; and

      • (iii)

        the non-lawyer owner is precluded under the partnership agreement or members' agreement from exercising or authorising any vote in relation to the company.

  • 12.

    "Lawyers" in the context of the management and control requirement means practising lawyers – solicitors, barristers, notaries, legal executives, licensed conveyancers, patent agents, trade mark agents, law costs draftsmen, European lawyers of Establishment Directive professions, and RFLs.

Some regulatory provisions

  • 13.

    Recognition is granted on an annual basis, and an application for renewal has to be made by 31 October in each year. There is an annual recognition fee and an annual contribution to the Compensation Fund. Applications for initial recognition, and for renewal of recognition, are made under regulation 2 of the Recognised Bodies Regulations.

  • 14.

    The "relevant lawyer requirement" basically provides that there must be at least one solicitor or REL "manager". The "management and control requirement" basically provides that at least 75% of the management and ownership must be in the hands of lawyers.

  • 15.

    In addition, rule 14 provides that the partners in a recognised body which is a partnership, the members of a recognised body which is an LLP, and the members and shareowners of a recognised body which is a company must comprise some combination of the following:

    • (a)

      practising lawyers of England and Wales (solicitors, barristers, notaries, legal executives, licensed conveyancers, patent agents, trade mark agents, law costs draftsmen);

    • (b)

      practising European lawyers of Establishment Directive professions;

    • (c)

      RFLs;

    • (d)

      individuals approved by the SRA under regulation 3 of the Recognised Bodies Regulations as suitable to be a "manager" of a recognised body – such individuals fall into one of three categories:

      • (i)

        non-lawyers;

      • (ii)

        lawyers of foreign legal professions whose members are not eligible to become RFLs;

      • (iii)

        non-practising barristers or non-practising foreign lawyers, whose professional rules or training regulations prevent them from changing status so as to be able to practise through the recognised body as practising lawyers;

      an application for SRA approval of an individual as suitable to be a "manager" must be made under regulation 3 of the Recognised Bodies Regulations by the recognised body or prospective recognised body concerned;

    • (e)

      "legally qualified bodies" – recognised bodies, authorised non-SRA firms, or European corporate practices.

  • 16.

    In relation to the directors of a recognised body which is a company, the "relevant lawyer requirement" has the effect that at least one director must be a solicitor or REL. The "management and control requirement" has the effect that at least 75% of the directors must be lawyers. Rule 14 further provides that the directors must comprise some combination of the following:

    • (a)

      practising lawyers of England and Wales (solicitors, barristers, notaries, legal executives, licensed conveyancers, patent agents, trade mark agents, law costs draftsmen);

    • (b)

      practising European lawyers of Establishment Directive professions;

    • (c)

      RFLs;

    • (d)

      individuals approved by the SRA under regulation 3 of the Recognised Bodies Regulations.

Recognition will only be granted if a body corporate is:

    • (a)

      a company (including a societas Europaea) incorporated in England and Wales or in Scotland;

    • (b)

      a company incorporated in another Establishment Directive state and registered in England and Wales or in Scotland as an oversea company;

    • (c)

      an LLP incorporated in England and Wales or in Scotland; or

    • (d)

      a societas Europaea incorporated outside England, Wales and Scotland.

    If you would like an information booklet on incorporating your practice as a company or as an LLP, contact the Professional Ethics Guidance Team.

  • 3.

    A recognised body is, for the purposes of practice, in the same position as a solicitor or a partnership of solicitors, and subject to similar legal and professional requirements. Schedule 2 to the Administration of Justice Act 1985 the Solicitors' Incorporated Practices Order 1991 (SI 1991/2684) and the Solicitors' Incorporated Practices (Amendment) Order 2001 (SI 2001/ 645) apply provisions in the Solicitors Act 1974 and other legislation to recognised bodies, sometimes modified. The Solicitors Disciplinary Tribunal has power to revoke recognition for misconduct.

  • 4.17.

    Under 14.03 to 14.05 aA solicitor must have a current practising certificate in order to be a partner, a director, a member or a shareowner in a recognised body. Under section 1A of the Solicitors Act 1974, a solicitor must have a current practising certificate in order to work forbe employed in a recognised body in England and Wales in connection with the provision of any legal services.

  • 5.18.

    Under 14.06(1) everyEvery recognised body must have at least one practising address in England and Wales.

    Under 14.06(2) aA recognised body incorporated in England and Wales as an LLP or company must have its registered office in England or in Wales, and must practise from that office. These requirements as to the registered office do not apply to a recognised body incorporated outside England and Wales – whether it is an LLP incorporated in Scotland, or a company incorporated in Scotland, Northern Ireland or some other Establishment Directive state.

    Note that the fact that a firm has been recognised as a recognised body under Scottish law does not exempt it from having to be recognised as a recognised body by the SRA.

  • 6.

    A recognised body can be a member of another recognised body or own a share in another recognised body. It can practise in England and Wales in partnership with solicitors, RELs, or other recognised bodies, but not with RFLs (see 12.04 Recognised bodies)).

  • 19.

    A recognised body may practise as a firm in its own right (a partnership, LLP or company), or it may wholly or partly own another recognised body, or be wholly or partly owned by another recognised body. A recognised body which is a company or LLP can be a partner together with solicitors, RELs, RFLs and/or other recognised bodies in a partnership which is itself a recognised body; or it can be a member together with solicitors, RELs, RFLs and/or other recognised bodies in an LLP which is itself a recognised body.

  • 7.20.

    A recognised body may practise outside England and Wales as well asin addition to practising in England and Wales. If a recognised body is incorporated in England and Wales, its practice from offices outside England and Wales will be subject to all the rules of conduct which apply to a solicitor practising from offices outside England and Wales. A recognised body incorporated outside England and Wales is subject only to certain rules in relation to overseas practice - see 23.01(d)(ii), 12.04(4) and 15.01(2)(a).

  • 8.21.

    If you practiseyour firm practises overseas through a corporatean associated firm which has no office in England and Wales it does not have to be a recognised body - and indeed cannot be a recognised body because a recognised body has to have at least one practising address in England orand Wales.

The Solicitors' Recognised Bodies Regulations 2007

  • 9.

    The Solicitors' Recognised Bodies Regulations 2007 ("the regulations") are rules made under Schedule 9 to section 9 of the Administration of Justice Act 1985. They govern the formalities of applications and appeals relating to recognition. They are not part of these rules. Under the regulations, the Solicitors Regulation Authority may only grant recognition if it is satisfied that the applicant body is registered in England and Wales or in Scotland, or is a societas Europaea, complies with or is exempt from the Solicitors' Indemnity Insurance Rules, has a name which is not misleading, and complies with rule 14 in its internal structure. The regulations also provide, amongst other things, that:

    • (a)

      once granted recognition, a recognised body will be placed on a list kept by the Solicitors Regulation Authority and issued with a certificate of recognition;

    • (b)

      recognition is renewable every three years but expires automatically if a recognised body becomes insolvent; and

    • (c)

      the Solicitors Regulation Authority may revoke recognition if:

      • (i)

        the renewal date passes and no application is made for renewal;

      • (ii)

        the Authority is satisfied that recognition was granted as a result of mistake or fraud; or

      • (iii)

        the Authority is satisfied that a recognised body would not be eligible if applying for initial recognition - thought his power is tempered by a number of the provisions of rule 14. For example, recognition could be revoked if the only director who is a solicitor or REL dies, and the company fails to remedy the position within the 14 days' grace allowed under 14.03(2).

Compliance with rules

  • 10.

    A recognised body's practice in England and Wales is subject to all the rules and requirements of conduct which apply to solicitors. Under 14.01, reciprocal responsibilities are laid upon a recognised body and its directors and members to oversee each other's compliance with the provisions of rule 14. A solicitor or REL who is a director, member, shareowner or an employee of a recognised body must not turn a blind eye or otherwise connive at a breach of any of these rules.

  • 11.22.

    In addition to these rules, a recognised body must comply with the Solicitors' Indemnity Insurance Rules, the Solicitors' Accounts Rules 1998 and the statutory requirements to submit an accountant's report and to make a contribution to the Compensation Fund(unless authorised by the FSA) with the Solicitors' Financial Services (Scope) Rules and the Solicitors' Financial Services (Conduct of Business) Rules. The following matters should be borne in mind:

Indemnity insurance

  • 23.

    The Solicitors' Indemnity Insurance Rules apply to a recognised body, and recognition will not be granted or renewed unless the Solicitors Regulation Authority is satisfied that the body complies with or will comply with the indemnity rules. These require a recognised body to have "qualifying insurance" from a "qualifying insurer" in accordance with the minimum terms and conditions set out in the Solicitors' Indemnity Insurance Rules(with some limited scope for exemptions in respect of RELs' participation in recognised bodies). For a recognised body with limited liability (i.e. a limited company or an LLP) the minimum level of cover is £3 million. For an unlimited company the minimum level is £2 million. A limited company which is a nominee company only may be exempt from the additional £1 million cover - see note 16(d) below. A recognised body may be eligible for full or partial exemption from the requirement to have "qualifying insurance". This is obtained only on application and only if the recognised body has at least one director, member or owner who is an REL, and has equivalent cover under the rules of the REL's home state (see Appendix 4 to the Solicitors' Indemnity Insurance Rules). The basic minimum level of cover is £2 million for any one claim. A recognised body with limited liability (i.e. an LLP, a limited company, or a partnership one or more of whose partners is an LLP or a limited company) is required to have minimum cover of £3 million for any one claim. Some recognised bodies which are nominee companies escape the requirement for an extra £1 million cover - see note 28(d) below. A recognised body may also have additional "top-up" cover, from any insurer.

Accountants' reports

  • 24

    If a recognised body holds or receives client money or controlled trust money, it will in due course have to deliver an accountant's report to the Solicitors Regulation AuthoritySRA. This obligation also extends to the directors of a company and to the members of an LLP"managers" of the recognised body. The names of these individuals as well asthe current "managers" along with the name of the recognised body must appear on the accountant's report, as well as the names of any assistant or consultant solicitor (or REL)employee or "manager" who or which has held or received theclient money or, and any individual employee or "manager" who has operated a client's own account as signatory.

  • (c)

    Compensation Fund contributions

    Recognised bodies must pay a contribution to the Compensation Fund on initial recognition and every three years thereafter, when recognition is renewed. Solicitors, RELs and RFLs who practise through a recognised body also have to pay individual contributions on a yearly basis when renewing their practising certificates or registration. If the recognised body has (directly or indirectly) held or received client money or controlled trust money, the individual members', directors' and shareowners' contributions will be assessed at full rate.

Ownership and direction

  • 12.

    A recognised body must be owned and directed by solicitors and/or RELs, although ownership and direction can be shared with other lawyers. In general, a director, member or shareowner who is not a solicitor or an REL must be an RFL. However, lawyers of Establishment Directive states who are based outside England and Wales ("non-registered European lawyers") may also share in the ownership and direction of a recognised body, and "European corporate practices" as defined in rule 24 (Interpretation), may be members or shareowners. The company secretary need not be a lawyer.

    • (a)

      A body corporate cannot be a director. At all times at least one of the directors of a recognised body which is a company must be a solicitor or an REL. A similar restriction applies to ensure that at least one solicitor or REL is involved in the membership of a recognised body which is an LLP.

    • (b)

      Every recognised body must be at least partly owned by a solicitor or an REL. No recognised body can, for example, be wholly owned by RFLs.

  • 13.

    Subrules 14.03 to 14.05 require steps to be taken to regularise a recognised body's position following various events which would otherwise put the recognised body in breach of a provision of the rule. There are strict time limits for taking such action, and if the recognised body meets these there is no breach of the rule. For example, the death of the only director of a company who is a solicitor or REL would put the recognised body in breach of 14.03(1)(b), but if a new solicitor or REL director is appointed within 14 days there is no breach. It is very important to meet such time limits because breach of any provision of rule 14 can result in the recognised body losing its right to practise. The articles of association of a company and the members' agreement of an LLP must therefore allow for speedy action to be taken in such circumstances.

Charging a member's interest in a recognised body - 14.04(4) and 14.05(5)14.04(11), 14.05(3) and 14.06(3)

  • 14.25.

    A partner in a recognised body which is a partnership, or a member of a recognised body (whether it is a company orwhich is an LLP) may, or a member or shareowner of a recognised body which is a company, must not create any charge or other third party interest over his or her interest in the body, except, in the case of a company, that a member may hold a share as nominee for a person who is eligible under the rules to own a share. The purpose is to ensure that control of the recognised body remains solely in the hands of persons who are eligible to be members, and that there is no breach of the management and control condition. The prohibitions in 14.04(4) and 14.05(5) do not, however, prevent a member's bank taking a charge or assignment on a member's right to receive back his or her capital invested in a recognised body.

Steps to be taken to deal with certain emergencies

  • 26.

    Rule 14 contains a number of provisions setting out what must be done if certain events befall a recognised body and its members, directors or shareowners. It is essential to deal with these situations in accordance with the rules:

    • (a)

      an unforeseeable event which would put the body in breach of the relevant lawyer requirement – see 14.01(2)(b);

    • (b)

      certain specified events (e.g. imprisonment, or incapacity caused by illness) which demonstrate that the last solicitor or REL whose role ensures compliance with the relevant lawyer requirement is no longer suitable to fulfil that role – see 14.01(2)(c);

    • (c)

      an unforeseeable event which would put the body in breach of the management and control requirement – see 14.01(3)(f);

    • (d)

      certain specified events (e.g. imprisonment, or incapacity caused by illness) which demonstrate that the last lawyer whose role ensures compliance with the management and control requirement is no longer suitable to fulfil that role – see 14.01(3)(g);

    • (e)

      a foreseeable event which causes a partnership to be in breach of the relevant lawyer requirement or the management and control requirement – see 14.04(3)(a);

    • (f)

      an event in relation to a partnership which results in there being no remaining partner – see 14.04(3)(b);

    • (g)

      a partnership change which results in there being only one remaining solicitor or REL principal who could not reasonably have made prior arrangements – see 14.04(4);

    • (h)

      a partnership split, where the new firm was in a position to make prior arrangements – see 14.04(6) and (7);

    • (i)

      a partnership split, where the new firm could not reasonably have made prior arrangements – see 14.04(7) and (8);

    • (j)

      certain specified events (e.g. imprisonment, or incapacity caused by illness) which demonstrate that a partner is no longer suitable to fulfil that role, and which leave only one partner who is not subject to such an event – see 14.04(10);

    • (k)

      death of a member or shareowner of a company – see 14.06(5)(a) and (b);

    • (l)

      member or shareowner of a company ceases to be eligible to be a member or shareowner – see 14.06(6)(a) and (b);

    • (m)

      member or shareowner of a company becomes insolvent but remains eligible to be a member or shareowner – see 14.06(7)(a) and (b);

    • (n)

      Court of Protection deputy appointed in respect of a member or shareowner of a company – see 14.06(8)(a) and (b).

Executor, trustee and nominee companies

  • 15.27.

    If you wish to operate an executor, trustee or nominee company in conjunction with your main practice you should bear the following matters in mind:

    • (a)

      An English executor, trustee or nominee company itself provides the executor, trustee or nominee service. If run in conjunction with your practice it is a "business" for the purpose of rule 21 (Separate businesses), whether or not it is dormant for Companies Act purposes and whether or not a charge is made for its services. If you are practising from an office in England and Wales theThe company must therefore be a recognised body, or you will breach rule 21 - see 21.02(1)(g) and note 8note 11 of the guidance to rule 21.

    • (b)

      An overseas executor, trustee or nominee company cannot be a recognised body. It can be run in accordance with rule 12 (Framework of practice), as an overseas practice. Alternatively, it can be operated as a "separate business" provided that you comply with rule 21 (Separate businesses)or with 15.21 (which relates to separate businesses overseas), as appropriate, in relation to the company. See also note 912 of the guidance to rule 21.

  • 16.28.

    In relation to an English executor, trustee or nominee company, you should also note that:

    • (a)

      a recognised body, when holding money or receiving dividends as nominee, acts as a controlled trustee; and if the company holds client money or controlled trust money as defined in the Solicitors' Accounts Rules 1998 or in rule 24 (Interpretation), and it must have its own client account, in its own name;

    • (b)

      a single set of accounting records may be used for the company and the main practice and a single accountant's report can be delivered for both, if the relevant accounting periods are the same, and provided the accountant deals with the accounts for each separately;

    • (c)

      a wholly owned executor, trustee or nominee company can be covered by the same policy of qualifying insurance as your main practice, but only if the company is named on the policy and certificate of insurance as a separate insured; and

    • (d)

      a nominee company may be exempt from the requirement to have an extra £1 million qualifying insurance if it can show that:

      • (i)

        it is a nominee company only;

      • (ii)

        it is wholly owned byall the directors of the company are partners or members in your main practice;

      • (iii)

        it holds assets only for clients of your main practice;

      • (iv)

        it can act only as agent for your main practice; and

      • (v)

        all fees accrue to the benefit of your main practice.

Companies providing company secretarial services

  • 29.

    Your firm may own a company whose purpose is to provide company secretarial services to clients of the firm. Such a company may either be operated as a legal practice (and must therefore be a recognised body), or it may be operated as a "separate business" (and must therefore be operated in compliance with rule 21 and may also need to be separately regulated by HMRC under the anti-money laundering legislation).

Service companies

  • 17.30.

    A firm may have a wholly owned service company to carrywhich has no face to the public and provides no services to the public but carries out administrative functions concerned with the running of the firm, such as the employment of qualified and unqualified staff, the hiring of premises, furniture and equipment and general maintenance. If the service company is wholly owned by the firm and provides services only to the firm and not to clients, itSuch a company does not need to be a recognised body and is not a "separate business". The books of the company must be made available if the Solicitors Regulation AuthoritySRA requires an inspection of accounts. See also notes 10 and 1114 and 15 of the guidance to rule 21 (Separate businesses).

7/1/2007 12:00:00 AM

Rule 14: Incorporated practiceRecognised Bodies

 

The Solicitors' Code of Conduct 2007 has been replaced on the 6 October 2011 by the SRA Code of Conduct 2011 as part of the introduction of outcomes-focused regulation.

Go to SRA Handbook

Rule 14.03 was amended on 1 October 2010 by the Solicitors' Code of Conduct and SRA Recognised Bodies Regulations (Miscellaneous) Amendment Rules 2010 to reflect various legislative changes.

Note 9 of the guidance to rule 14 was amended on 8 May 2008 to correct an editorial error.

Rule 14 of the Code of Conduct was amended on 31 March 2009 as part of a general updating of the rules to introduce firm-based regulation and legal disciplinary practices as provided for in the Legal Services Act 2007.

 

Introduction

Under the Solicitors Act 1974, a body corporate - that is, a company or an LLP - may not carry on the practice of a solicitor unless it is a recognised body. A solicitor or an REL may only practise from an office in England and Wales through a body corporate if it is a recognised body.

Rule 14 sets out the requirements which apply specifically to a recognised body and its members, directors, shareowners and employees. There are provisions which exclude non-lawyers from being directors, members or shareowners of a recognised body. These are necessary because section 9 of the Administration of Justice Act 1985 restricts the management and control of recognised bodies to lawyers.

Under rule 12 (Framework of practice) solicitors and RELs must not provide services to the public in England and Wales except through a firm which is a recognised body or a recognised sole practitioner (both regulated by the Solicitors Regulation Authority) or through an authorised non-SRA firm (regulated by another approved regulator). Rule 14 governs the composition and structure of a recognised body and the services a recognised body may provide, and is to a large extent based on the requirements of sections 9 and 9A of the Administration of Justice Act 1985.

Rule

14.01 Fundamental requirements for all recognised bodies

Services requirement
  • (1)

    The business of a recognised body may consist only of the provision of:

    • (a)

      professional services of the sort provided by individuals practising as solicitors and/or lawyers of other jurisdictions; and

    • (b)

      professional services of the sort provided by notaries public, but only if a notary public is a manager or employee of a recognised body,

    but this does not prevent a recognised body providing services within 21.03, or having an ownership interest in a company which is a separate business.

Relevant lawyer requirement
  • (2)
    • (a)

      At all times at least one manager of a recognised body must be:

      • (i)

        a solicitor with a current practising certificate;

      • (ii)

        an REL; or

      • (iii)

        (in the case of a partnership or LLP) a body corporate which is a legally qualified body with at least one manager who is a solicitor with a current practising certificate or an REL.

    • (b)

      If an event which could not reasonably have been foreseen would put a recognised body in breach of the relevant lawyer requirement but within 28 days the situation is remedied, the recognised body will be deemed to have remained in compliance with the relevant lawyer requirement and to that extent will not be liable to have its recognition revoked under regulation 9.1(b) of the Recognised Bodies Regulations.

    • (c)

      If the only, or last remaining, solicitor or REL whose role in the body ensures compliance with the relevant lawyer requirement:

      • (i)

        is committed to prison in civil or criminal proceedings;

      • (ii)

        becomes and continues to be unable to attend to the practice of the body because of incapacity caused by illness, accident or age;

      • (iii)

        becomes and continues to be a person who lacks capacity under Part 1 of the Mental Capacity Act 2005;

      • (iv)

        abandons the practice of the body; or

      • (v)

        is made subject to a condition on his or her practising certificate or registration which would be breached by continuing to fulfil the role of relevant lawyer within the body,

      the body must inform the Solicitors Regulation Authority within seven days and must within 28 days either ensure that the body can fulfil the relevant lawyer requirement without reference to that person, or cease to practise.

Management and control requirement
  • (3)
    • (a)

      At least 75% of the body's managers must be:

      • (i)

        individuals who are, and are entitled to practise as, lawyers of England and Wales, lawyers of Establishment Directive professions or RFLs; or

      • (ii)

        bodies corporate which are legally qualified bodies;

      although a legally qualified body cannot be a director of a recognised body which is a company, as under 14.06(1) all the directors must be individuals.

    • (b)

      Individuals who are, and are entitled to practise as, lawyers of England and Wales, lawyers of Establishment Directive professions or RFLs must make up at least 75% of the ultimate beneficial ownership of the recognised body.

    • (c)

      Individuals who are, and are entitled to practise as, lawyers of England and Wales, lawyers of Establishment Directive professions or RFLs, and/or legally qualified bodies, must:

      • (i)

        exercise or control the exercise of at least 75% of the voting rights in the recognised body; and

      • (ii)

        if the recognised body is a company with shares, hold (as registered members of the company) at least 75% of the shares.

    • (d)

      Every owner of the recognised body, and every person who exercises or controls the exercise of any voting rights in the body, must be:

      • (i)

        an individual who is, and is entitled to practise as, a lawyer of England and Wales, a lawyer of an Establishment Directive profession or an RFL;

      • (ii)

        a legally qualified body; or

      • (iii)

        an individual who is approved under regulation 3 of the Recognised Bodies Regulations and, subject to (e) below, is a manager of the body.

    • (e)

      An individual who is not entitled under (d)(i) above may be an owner of a recognised body without being a manager of the body if:

      • (i)

        the recognised body is a company which is wholly or partly owned by a partnership or LLP which is a legally qualified body;

      • (ii)

        the individual is approved under regulation 3 of the Recognised Bodies Regulations and is a manager of the partnership or LLP; and

      • (iii)

        the individual is precluded under the partnership agreement or members' agreement from exercising or authorising any vote in relation to the company.

    • (f)

      If an event which could not reasonably have been foreseen would put a recognised body in breach of the management and control requirement but within 28 days the situation is remedied, the recognised body will be deemed to have remained in compliance with the management and control requirement and to that extent will not be liable to have its recognition revoked under regulation 9.1(b) of the Recognised Bodies Regulations.

    • (g)

      If the only or last remaining lawyer of England and Wales, lawyer of an Establishment Directive profession or RFL whose role in the body ensures compliance with the management and control requirement:

      • (i)

        is committed to prison in civil or criminal proceedings;

      • (ii)

        becomes and continues to be unable to attend to the practice of the body because of incapacity caused by illness, accident or age;

      • (iii)

        becomes and continues to be a person who lacks capacity under Part 1 of the Mental Capacity Act 2005;

      • (iv)

        abandons the practice of the body; or

      • (v)

        is made subject to a condition on his or her practising certificate or registration which would be breached by continuing to fulfil that role,

      the body must inform the Solicitors Regulation Authority within seven days and must within 28 days either ensure that the body can fulfil the management and control requirement without reference to that person, or cease to practise.

14.012 General Duties in relation to compliance

Compliance duties
  • (1)

    • A recognised body must:

      • (a)

        A recognised body and its managers and employees must comply with rule 14; and.

      • (b)

        A recognised body must so far as possible ensure that its directors, members and shareownersmanagers, members and owners comply with 14.03, 14.04 and 14.05rule 14.

      • (c)

        A recognised body must not take on a new manager without first being satisfied of that manager's eligibility, by:

        • (i)

          checking that any solicitor has a practising certificate, that any REL or RFL is registered with the Solicitors Regulation Authority, and that the practising certificate or registration is not subject to a condition which would preclude that person becoming a manager;

        • (ii)

          obtaining (and retaining, for production to the Solicitors Regulation Authority if required), in respect of any lawyer authorised by an approved regulator but not by the SRA, written confirmation from the approved regulator to the effect that the lawyer is authorised by that approved regulator, entitled to practise and not subject to a condition or other restriction which would preclude that person becoming a manager;

        • (iii)

          obtaining (and retaining, for production to the Solicitors Regulation Authority if required), in respect of any individual who is entitled to be a manager only by virtue of approval under regulation 3 of the Recognised Bodies Regulations, written confirmation:

          • (A)

            from the Authority that the individual concerned is approved under regulation 3; and

          • (B)

            from the individual concerned, details of any event which the body will have to declare when next renewing its recognition, which has occurred in relation to that individual since he or she was last a manager of a recognised body renewing its recognition; and

        • (iv)

          in relation to any body corporate, making checks and obtaining (and retaining, for production to the Solicitors Regulation Authority if required) confirmations under (i) to (iii) above in respect of every individual who is a manager of or who has an interest in that body corporate.

    • (2)

      A directormanager of a recognised body which is a company:

      • (a)

        must so far as possible ensure that the body complies with rule 14;

      • (b)

        must ensure that the body complies with any condition imposed on its recognition; and

      • (c)

        must not cause, instigate or connive at any breach of these rules by the recognised body or any of its managers or employees.

    • (3)

      A member of a recognised body which is an LLP must take all reasonable steps to ensure that the body complies with rule 14.

    • (3)

      A solicitor, REL or RFL who is a member of, or the owner of a share in, a recognised body which is a company must not cause, instigate or connive at any breach of these rules by the recognised body or any of its managers or employees.

    • (4)

      A director, member or shareowner of a recognised body and a person employed to work in the practice of a recognised body must not cause, instigate or connive at any breach of these rules.

    • (5)

      The partners in a recognised body which is a partnership are responsible not only as managers but also, jointly and severally, as the recognised body.

Mental Health Act equivalents
  • (5)

    In rule 14, references to a "patient" as defined by section 94 of the Mental Health Act 1983, a person made the subject of emergency powers, and a receiver appointed under that Act include equivalents in other Establishment Directive states.

14.02 Scope of practice

General business of a recognised body
  • (1)

    The business of a recognised body may consist only of professional services of the sort provided by individuals practising as solicitors and/or lawyers of other jurisdictions.

Conveyancing and probate
  • (2)

    A recognised body must not undertake any work which includes a conveyancing or probate service reserved to qualified persons by the Solicitors Act 1974, unless:

    • (a)

      if the recognised body is a company, at least one director is a solicitor with a practising certificate or an REL qualified to provide that service under regulation 12 or 13 of the European Communities (Lawyer's Practice) Regulations 2000 (SI 2000/1119); and, if the company is a societas Europaea with a two-tier system, at least one member of both the management organ and the supervisory organ is such a person; or

    • (b)

      if the recognised body is an LLP, at least one member is a solicitor with a practising certificate, an REL qualified to provide that service under regulation 12 or 13 of the European Communities (Lawyer's Practice) Regulations 2000 (SI 2000/1119), or a recognised body qualified to undertake the work under (a) above.

14.03 Formation, office in England and Wales and registered office

Law of formation
  • (1)
    • (a)

      A recognised body which is a partnership may be formed under the law of any country and may be a legal person.

    • (b)

      A recognised body which is an LLP must be incorporated and registered in England and Wales or in, Scotland or Northern Ireland under the Limited Liability Partnerships Act 2000.

    • (c)

      A recognised body which is a company must be:

      • (i)

        incorporated and registered in England and Wales or in, Scotland or Northern Ireland under Part IParts 1 and 2 of the Companies Act 19852006;

      • (ii)

        incorporated in an Establishment Directive state and registered as an overseas company under Part IPart 34 of the Companies Act 19852006; or

      • (iii)

        incorporated and registered in an Establishment Directive state as a societas Europaea.

Practising address in England and Wales
  • (2)

    A recognised body must have at least one practising address in England and Wales.

Registered office of a company or LLP
  • (3)

    A recognised body must have its registered office at a practising address in England and Wales if the recognised body is registered in England and Wales:

    • (a)

      under Part IParts 1 and 2 of the Companies Act 19852006;

    • (b)

      under the Limited Liability Partnerships Act 2000; or

    • (c)

      as a societas Europaea.

14.04 Recognised bodies which are partnerships

Who may be a partner
  • (1)

    Provided that the fundamental requirements for all recognised bodies set out in 14.01 are met, a recognised body which is a partnership may have all or any of the following as a partner:

    • (a)

      a lawyer of England and Wales (including a solicitor with a current practising certificate);

    • (b)

      an REL;

    • (c)

      an RFL;

    • (d)

      an exempt European lawyer;

    • (e)

      an individual approved under regulation 3 of the Recognised Bodies Regulations;

    • (f)

      a body corporate which is a legally qualified body.

Change to the composition of the partnership
  • (2)

    Recognition may continue despite a change in the composition of a recognised body which is a partnership, subject to (3) to (5) below.

  • (3)
    • (a)

      A recognised body which is a partnership must cease to practise from the date of any failure to comply with 14.01(2)(a) or (b) (relevant lawyer requirement), and with 14.01(3)(a)-(e) or (f) (management and control requirement) which results from the change.

    • (b)

      A recognised body which is a partnership must cease to practise from the date of any change which results in there being no remaining partner who was a partner before the change; the 28 day period under 14.01(2)(b) and 14.01(3)(f) does not apply.

  • (4)

    If a partnership change results in there being only one remaining principal who or which needs to be recognised as a recognised sole practitioner but could not reasonably have commenced an application in advance of the change, the firm need not cease to practise if the remaining principal:

    • (a)

      is a solicitor or REL;

    • (b)

      notifies the Solicitors Regulation Authority within seven days;

    • (c)

      is granted temporary emergency recognition.

  • (5)
    • (a)

      Temporary emergency recognition may be granted for an initial period of 28 days and may be extended in response to a reasonable request by the applicant.

    • (b)

      During the initial 28 day period, or such extended period as the Solicitors Regulation Authority may allow, the remaining principal must:

      • (i)

        cease to practise, and notify the Solicitors Regulation Authority; or

      • (ii)

        commence a substantive application for recognition as a recognised sole practitioner (or, if the remaining principal has taken on a new partner, as a recognised body) by submitting a completed application form, together with the prescribed fee and any Compensation Fund contribution required.

    • (c)

      Subject to (d) below, if an application has been commenced under (b)(ii) above, temporary emergency recognition must be extended pending determination of the application.

    • (d)

      In exceptional circumstances and for reasonable cause the Solicitors Regulation Authority may revoke a temporary emergency recognition at any time.

    • (e)

      The grant or extension of a temporary emergency recognition is without prejudice to the discretion of the Solicitors Regulation Authority to refuse a substantive application made under (b)(ii) above.

Partnership splitting into two or more firms
  • (6)

    Subject to (7) to (9) below, if a recognised body which is a partnership splits so that the recognised body will continue but one or more of the former partners intend to carry on as a separate firm, the separate firm must, before commencing practice, obtain recognition as a recognised body or a recognised sole practitioner.

  • (7)

    Following such a partnership split, the Solicitors Regulation Authority will if necessary decide which of the groups of former partners will continue to be covered by the existing recognition and which must apply for a new recognition, and may apportion recognition fees and Compensation Fund contributions between the groups. Any such decision will be without prejudice to the outcome of any legal dispute between the former partners.

  • (8)

    If the principal(s) in the new firm could not reasonably have commenced an application for recognition in advance of the change, the new firm may practise from the date of the split provided that the following conditions are met:

    • (a)

      the new firm is:

      • (i)

        a partnership which complies with rule 14 of the Solicitors' Code of Conduct in its formation, composition and structure; or

      • (ii)

        a solicitor or REL sole practitioner;

      and complies with the Solicitors' Indemnity Insurance Rules;

    • (b)

      the new firm notifies the Solicitors Regulation Authority within seven days; and

    • (c)

      the Solicitors Regulation Authority grants the firm temporary emergency recognition.

  • (9)
    • (a)

      Temporary emergency recognition may be granted for an initial period of 28 days and may be extended in response to a reasonable request by the applicant.

    • (b)

      During the initial 28 day period, or such extended period as the Solicitors Regulation Authority may allow, the new firm must:

      • (i)

        cease to practise, and notify the Solicitors Regulation Authority; or

      • (ii)

        commence a substantive application for recognition as a recognised body or recognised sole practitioner by submitting a completed application form, together with the prescribed fee and any Compensation Fund contribution required.

    • (c)

      Subject to (d) below, if an application has been commenced under (b)(ii) above, temporary emergency recognition must be extended pending determination of the application.

    • (d)

      In exceptional circumstances and for reasonable cause the Solicitors Regulation Authority may revoke a temporary emergency recognition at any time.

    • (e)

      The grant or extension of a temporary emergency recognition is without prejudice to the discretion of the Solicitors Regulation Authority to refuse a substantive application made under (b)(ii) above.

Only one active partner remaining
  • (10)

    If a partner in a partnership which is a recognised body:

    • (a)

      is committed to prison in civil or criminal proceedings;

    • (b)

      becomes and continues to be unable to attend to the practice of the body because of incapacity caused by illness, accident or age;

    • (c)

      becomes and continues to be a person who lacks capacity under Part 1 of the Mental Capacity Act 2005;

    • (d)

      abandons the practice of the body; or

    • (e)

      is made subject to a condition on his or her practising certificate or registration which would be breached by continuing as a partner;

    and this results in there being only one active partner, that partner must inform the Solicitors Regulation Authority within seven days.

Prohibition on creating third party interests
  • (11)

    A partner in a partnership must not create any charge or other third party interest over his or her interest in the partnership.

14.03 Directors of a company

Persons who may be directors
  • (1)

    A recognised body which is a company must ensure that at all times:

    • (a)

      all the directors are solicitors with practising certificates, REL s, RFL s and/or non-registered European lawyers; and

    • (b)

      at least one director is a solicitor with a practising certificate or an REL, and, if the company is a societas Europaea with a two-tier system, at least one member of both the management organ and the supervisory organ is a solicitor with a practising certificate or an REL.

Death of director
  • (2)

    If a director dies and this would put a company in breach of (1)(b) above, the company must ensure that a director who is a solicitor with a practising certificate or an REL is appointed within 14 days. If this is done the company will be deemed to have remained in compliance with (1)(b) above, and to that extent will not be liable to have its recognition revoked under regulation 7.1(b) of the Solicitors' Recognised Bodies Regulations.

Director incapacitated, abandoning the practice, etc.
  • (3)

    If the company's only, or last remaining, director who is a solicitor with a practising certificate or an REL or, if the company is a societas Europaea with a two-tier system, the only or last remaining member of either the management organ or the supervisory organ who is a solicitor with a practising certificate or an REL:

    • (a)

      is committed to prison in civil or criminal proceedings;

    • (b)

      becomes and continues to be unable to attend to the practice of the company because of incapacity caused by illness, accident or age;

    • (c)

      becomes and continues to be a "patient" as defined by section 94 of the Mental Health Act 1983 or is made the subject of powers exercised under section 98 of that Act and continues to be subject to those powers;

    • (d)

      abandons the practice of the company; or

    • (e)

      the director's practising certificate or registration is made subject to a condition which would be breached by continuing as a director,

    the company must ensure that an additional or replacement director who is a solicitor with a practising certificate or an REL is appointed within 14 days.

14.04 Members and shareowners of a company

Persons who may be members or shareowners
  • (1)

    A recognised body which is a company must ensure that all members and all shareowners are:

    • (a)

      solicitors with practising certificates;

    • (b)

      REL s;

    • (c)

      RFL s;

    • (d)

      non-registered European lawyers;

    • (e)

      recognised bodies; and/or

    • (f)

      European corporate practices.

  • (2)

    A recognised body which is a company with shares must have at least one shareowner who is a solicitor with a practising certificate, an REL, a recognised body, or a European corporate practice which is at least partly owned by a solicitor with a practising certificate or an REL.

  • (3)

    A recognised body which is a company without shares must have at least one member who is a solicitor with a practising certificate, an REL, a recognised body, or a European corporate practice which is at least partly owned by a solicitor with a practising certificate or an REL.

Prohibition on creating third party interests
  • (4)

    A member or shareowner must not create any charge or other third party interest over his or her interest in the company, except by holding a share as nominee for a non-member shareowner who is eligible to be a member or shareowner under (1) above.

Record of non-member shareowners
  • (5)
    • (a)

      A recognised body which is a company with shares must keep a record of any non-member shareowners, and retain the record for at least three years after their ownership ceases; and

    • (b)

      A member who holds a share as nominee for a non-member shareowner must keep the recognised body informed of all facts necessary to keep an accurate and up-to-date record.

Death of member or shareowner of a company
  • (6)
    • (a)

      If a member or shareowner of a company with shares dies and is eligible to be a member or shareowner at the date of death, then, whether or not the personal representatives are themselves eligible to be members or shareowners, the personal representatives may replace the deceased member or shareowner in their capacity as personal representatives, provided that:

      • (i)

        no vote may be exercised by or on behalf of a personal representative (and no such vote may be accepted) unless all the personal representatives are eligible to be members or shareowners;

      • (ii)

        no personal representative may hold or own a share in that capacity for longer than 12 months from the date of death;

      • (iii)

        within 12 months of the death the recognised body must cancel or acquire the shares or ensure that they are held and owned by persons eligible to be members and shareowners, but without this resulting in RFL s being the only shareowners; and

      • (iv)

        no vote may be exercised by or on behalf of any personal representative (and no such vote may be accepted) after the 12 month period has expired.

    • (b)

      If, following the death of a member or shareowner, a company meets the requirements of (a) above the company will be deemed to have remained in compliance with (1) above as to membership and share ownership, and to that extent will not be liable to have its recognition revoked under regulation 7.1(b) of the Solicitors' Recognised Bodies Regulations.

Member or shareowner ceasing to be eligible to be a member or shareowner
  • (7)
    • (a)

      If a member or shareowner of a recognised body which is a company with shares ceases to be eligible to be a member or shareowner, or ceases to exist as a body corporate, then:

      • (i)

        no vote may be exercised or accepted on the shares held by or on behalf of that member or shareowner;

      • (ii)

        in the case of a member or shareowner becoming ineligible, a trustee in bankruptcy or liquidator may (whether or not eligible to be a member or shareowner) replace that member or shareowner in the capacity of trustee or liquidator for a period which must not exceed six months from the date the member or shareowner became ineligible; and

      • (iii)

        the company must cancel or acquire the shares within six months, or within that time ensure that the shares are held and owned by persons eligible to be members and shareowners, but without this resulting in RFL s being the only shareowners.

    • (b)

      If (a) above applies and a company meets its requirements, the company will be deemed to have remained in compliance with (1) above as to membership and share ownership, and to that extent will not be liable to have its recognition revoked under regulation 7.1(b) of the Solicitors' Recognised Bodies Regulations.

Member or shareowner becoming insolvent but not ineligible
  • (8)
    • (a)

      If a member or shareowner of a recognised body which is a company with shares becomes insolvent but remains eligible to be a member or shareowner, then the trustee in bankruptcy or liquidator (whether eligible or not) may replace the insolvent member or shareowner in the capacity of trustee in bankruptcy or liquidator, provided that:

      • (i)

        no vote may be exercised by or on behalf of a trustee in bankruptcy or liquidator (and no such vote may be accepted) unless the trustee or liquidator is eligible to be a member or shareowner;

      • (ii)

        no trustee in bankruptcy or liquidator may hold or own a share in that capacity for longer than six months from the date of the insolvency;

      • (iii)

        within six months of the insolvency the company must cancel or acquire the shares or ensure that they are held and owned by persons eligible to be members and shareowners, and without this resulting in RFLs being the only shareowners; and

      • (iv)

        no vote may be exercised by or on behalf of any trustee in bankruptcy or liquidator (and no such vote may be accepted) after the six month period has expired.

    • (b)

      If (a) above applies and a company meets its requirements, the company will be deemed to have remained in compliance with (1) above as to membership and share ownership, and to that extent will not be liable to have its recognition revoked under regulation 7.1(b) of the Solicitors' Recognised Bodies Regulations.

Mental health receiver for a member or shareowner in a company
  • (9)
    • (a)

      A receiver appointed under the Mental Health Act 1983 may be a member or shareowner in that capacity, without breach of these rules, provided that:

      • (i)

        the "patient" (as defined in the Mental Health Act 1983) remains eligible to be a member or shareowner; and

      • (ii)

        if the receiver is not eligible to be a member or shareowner, no vote is exercised or accepted on the shares.

    • (b)

      If (a) above applies and a company meets its requirements, the company will be deemed to have remained in compliance with (1) above as to membership and share ownership, and to that extent will not be liable to have its recognition revoked under regulation 7.1(b) of the Solicitors' Recognised Bodies Regulations.

Proxies and corporate representatives
  • (10)

    Only a solicitor with a practising certificate, an REL, an RFL or a non-registered European lawyer may be appointed as a proxy or corporate representative for the purpose of attending and voting at meetings.

14.05 Members of anRecognised bodies which are LLPs

Persons who may be members
  • (1)

    A recognised body which is an LLP must ensure that all the members are:

    • (a)

      solicitors with practising certificates;

    • (b)

      REL s;

    • (c)

      RFLs;

    • (d)

      non-registered European lawyers;

    • (e)

      recognised bodies; and/or

    • (f)

      European corporate practices.

  • (2)
    • (a)

      A recognised body which is an LLP must have at least two members.

    • (b)

      If a death results in an LLP having fewer than two members, but a person within (1) above becomes a member within six months, the LLP will be deemed to have remained in compliance with (a) above and to that extent will not be liable to have its recognition revoked under regulation 7.1(b) of the Solicitors' Recognised Bodies Regulations.

  • (3)
    • (a)

      A recognised body which is an LLP must have at least one member who is:

      • (i)

        a solicitor with a practising certificate;

      • (ii)

        an REL;

      • (iii)

        a recognised body which is a company with a director who is a solicitor with a practising certificate or an REL; or

      • (iv)

        a recognised body which is an LLP with a member who is a solicitor with a practising certificate or an REL.

    • (b)

      If a member dies and this would put the company in breach of (a) above, but a person within (a) above becomes a member within 14 days, the LLP will be deemed to have remained in compliance with (a) above as to membership, and to that extent will not be liable to have its recognition revoked under regulation 7.1(b) of the Solicitors' Recognised Bodies Regulations.

Member incapacitated, abandoning the practice, etc.
  • (4)

    If the last remaining solicitor or REL within (3)(a) above:

    • (a)

      is committed to prison in civil or criminal proceedings;

    • (b)

      becomes and continues to be unable to attend to the practice of the LLP because of incapacity caused by illness, accident or age;

    • (c)

      becomes and continues to be a "patient" as defined by section 94 of the Mental Health Act 1983 or is made the subject of powers exercised under section 98 of that Act and continues to be subject to those powers;

    • (d)

      abandons the practice of the LLP; or

    • (e)

      the member's practising certificate or registration (or director's, as the case may be) is made subject to a condition which would be breached by continuing as a member or director,

    the LLP must ensure that an additional or replacement solicitor with a practising certificate or REL within (3)(a) above is in place within 14 days.

Prohibition on creating third party interests
  • (5)

    A member must not create any charge or other third party interest over the member's interest in the LLP.

14.06 Practising address and registered office of a recognised body

  • (1)

    A recognised body must have at least one practising address in England and Wales.

  • (2)

    A recognised body must have its registered office at a practising address in England and Wales if the recognised body is registered in England and Wales:

    • (a)

      under Part I of the Companies Act 1985;

    • (b)

      under the Limited Liability Partnerships Act 2000; or

    • (c)

      as a societas Europaea.

Who may be a member
  • (1)

    Provided that the fundamental requirements for all recognised bodies set out in 14.01 are met, a recognised body which is an LLP may have all or any of the following as a member:

    • (a)

      a lawyer of England and Wales (including a solicitor with a current practising certificate);

    • (b)

      an REL;

    • (c)

      an RFL;

    • (d)

      an exempt European lawyer;

    • (e)

      an individual approved under regulation 3 of the Recognised Bodies Regulations;

    • (f)

      a body corporate which is a legally qualified body.

Minimum number of members
  • (2)
    • (a)

      A recognised body which is an LLP must have at least two members.

    • (b)

      If an event which could not reasonably have been foreseen results in an LLP having fewer than two members, but within six months the situation is remedied, the LLP will be deemed to have remained in compliance with (a) above and to that extent will not be liable to have its recognition revoked under regulation 9.1(b) of the Recognised Bodies Regulations.

Prohibition on creating third party interests
  • (3)

    A member must not create any charge or other third party interest over the member's interest in the LLP.

14.06 Recognised bodies which are companies

Who may be a director
  • (1)

    Provided that the fundamental requirements for all recognised bodies set out in 14.01 are met, a recognised body which is a company may have all or any of the following as a director:

    • (a)

      a lawyer of England and Wales (including a solicitor with a current practising certificate);

    • (b)

      an REL;

    • (c)

      an RFL;

    • (d)

      an exempt European lawyer;

    • (e)

      an individual approved under regulation 3 of the Recognised Bodies Regulations.

Who may be a member or shareowner
  • (2)

    Provided that the fundamental requirements for all recognised bodies set out in 14.01 are met, a recognised body which is a company may have all or any of the following as a member or shareowner:

    • (a)

      a lawyer of England and Wales (including a solicitor with a current practising certificate);

    • (b)

      an REL;

    • (c)

      an RFL;

    • (d)

      an exempt European lawyer;

    • (e)

      an individual approved under regulation 3 of the Recognised Bodies Regulations, who is also a director of the company;

    • (f)

      a legally qualified body.

Prohibition on creating third party interests
  • (3)

    A member or shareowner must not create any charge or other third party interest over his or her interest in the company, except by holding a share as nominee for a non-member shareowner who is eligible to be a member or shareowner under (2) above.

Record of non-member shareowners
  • (4)
    • (a)

      A recognised body which is a company with shares must keep a record of any non-member shareowners, and retain the record for at least three years after their ownership ceases; and

    • (b)

      a member who holds a share as nominee for a non-member shareowner must keep the recognised body informed of all facts necessary to keep an accurate and up-to-date record.

Death of member or shareowner of a company
  • (5)
    • (a)

      If a recognised body is a company with shares and a member or shareowner dies and is eligible to be a member or shareowner at the date of death, then, whether or not the personal representatives are themselves eligible to be members or shareowners, the personal representatives may replace the deceased member or shareowner in their capacity as personal representatives, provided that:

      • (i)

        no vote may be exercised by or on behalf of a personal representative (and no such vote may be accepted) unless all the personal representatives are eligible to be members or shareowners;

      • (ii)

        no personal representative may hold or own a share in that capacity for longer than 12 months from the date of death;

      • (iii)

        within 12 months of the death the recognised body must cancel or acquire the shares or ensure that they are held and owned by persons eligible to be members or shareowners, but without this resulting in RFLs being the only shareowners; and

      • (iv)

        no vote may be exercised by or on behalf of any personal representative (and no such vote may be accepted) after the 12 month period has expired.

    • (b)

      If, following the death of a member or shareowner, a company meets the requirements of (a) above the company will be deemed to have remained in compliance with (2) above as to membership and share ownership, and to that extent will not be liable to have its recognition revoked under regulation 9.1(b) of the Recognised Bodies Regulations.

Member or shareowner ceasing to be eligible to be a member or shareowner
  • (6)
    • (a)

      If a recognised body is a company with shares and a member or shareowner ceases to be eligible to be a member or shareowner, or ceases to exist as a body corporate, then:

      • (i)

        no vote may be exercised or accepted on the shares held by or on behalf of that member or shareowner;

      • (ii)

        in the case of a member or shareowner becoming ineligible, a trustee in bankruptcy or liquidator may (whether or not eligible to be a member or shareowner) replace that member or shareowner in the capacity of trustee or liquidator for a period which must not exceed six months from the date the member or shareowner became ineligible; and

      • (iii)

        the company must cancel or acquire the shares within six months, or within that time ensure that the shares are held and owned by persons eligible to be members or shareowners, but without this resulting in breach of the relevant lawyer requirement or the management and control requirement in 14.01(2) or (3).

    • (b)

      If (a) above applies and a company meets its requirements, the company will be deemed to have remained in compliance with (2) above as to membership and share ownership, and to that extent will not be liable to have its recognition revoked under regulation 9.1(b) of the Recognised Bodies Regulations.

Member or shareowner becoming insolvent but not ineligible
  • (7)
    • (a)

      If a recognised body is a company with shares and a member or shareowner becomes insolvent but remains eligible to be a member or shareowner, then the trustee in bankruptcy or liquidator (whether eligible or not) may replace the insolvent member or shareowner in the capacity of trustee in bankruptcy or liquidator, provided that:

      • (i)

        no vote may be exercised by or on behalf of a trustee in bankruptcy or liquidator (and no such vote may be accepted) unless the trustee or liquidator is eligible to be a member or shareowner;

      • (ii)

        no trustee in bankruptcy or liquidator may hold or own a share in that capacity for longer than six months from the date of the insolvency;

      • (iii)

        within six months of the insolvency the company must cancel or acquire the shares or ensure that they are held and owned by persons eligible to be members or shareowners, but without this resulting in breach of the relevant lawyer requirement or the management and control requirement in 14.01(2) or (3); and

      • (iv)

        no vote may be exercised by or on behalf of any trustee in bankruptcy or liquidator (and no such vote may be accepted) after the six month period has expired.

    • (b)

      If (a) above applies and a company meets its requirements, the company will be deemed to have remained in compliance with (2) above as to membership and share ownership, and to that extent will not be liable to have its recognition revoked under regulation 9.1(b) of the Recognised Bodies Regulations.

Court of Protection deputy
  • (8)
    • (a)

      A Court of Protection deputy appointed under section 19 of the Mental Capacity Act 2005 may be a member or shareowner in that capacity, without breach of these rules, provided that:

      • (i)

        the person in respect of whom the deputy has been appointed remains eligible to be a member or shareowner; and

      • (ii)

        if the deputy is not eligible to be a member or shareowner, no vote is exercised or accepted on the shares.

    • (b)

      If (a) above applies and a company meets its requirements, the company will be deemed to have remained in compliance with (2) above as to membership and share ownership, and to that extent will not be liable to have its recognition revoked under regulation 9.1(b) of the Recognised Bodies Regulations.

14.07 Information and documentation

  • (1)

    A recognised body must supply any information and documentation relating to the ownership,its composition and structure or to any of its managers, employees, members or owners, directors, members or shareowners of the recognised body as and when requested to do so by the Solicitors Regulation Authority.

  • (2)

    A recognised body must notify the Solicitors Regulation Authority immediatelywithin seven days of any change to:

    • (a)

      its name;

    • (b)

      its registered office and/or any of its practising addresses; or

    • (c)

      its directors, members and/or shareownersmanagers; or

    • (d)

      its members and/or shareowners if it is a company.

  • (3)

    A recognised body must notify the Solicitors Regulation Authority immediatelywithin seven days if it is an unlimited company and it is re-registered as limited under the Companies Act 19852006.

  • (4)

    If a recognised body's recognition expires automatically under regulation 8.2 of the Solicitors' Recognised Bodies Regulations, the directors (if it is a company) or the members (if it is an LLP) must notify the Solicitors Regulation Authority immediately.

    (4)

    If a relevant insolvency event within the meaning of paragraph 32(1A) of Schedule 2 to the Administration of Justice Act 1985 occurs in relation to a recognised body its managers must notify the Solicitors Regulation Authority within seven days.

  • (5)

    If a recognised body which is an overseas company or a societas Europaea registered outside England, Wales and Scotlandthe United Kingdom is subject to an event in its country of incorporation analogous to a winding-up order or, an administration order under Part II of the Insolvency Act 1986, a resolution for voluntary winding-up, or the appointment of an administrative receiver, the directors must notify the Solicitors Regulation Authority immediatelywithin seven days.

14.08 Mental Health Act equivalents

In this rule:

    • (a)

      references to a person who lacks capacity under Part 1 of the Mental Capacity Act 2005 include a "patient" as defined by section 94 of the Mental Health Act 1983 and a person made the subject of emergency powers under that Act, and equivalents in other Establishment Directive states; and

    • (b)

      references to a Court of Protection deputy appointed under section 19 of the Mental Capacity Act 2005 include a Court of Protection receiver appointed under the Mental Health Act 1983, and equivalents in other Establishment Directive states.

Guidance to rule 14 - Incorporated practiceRecognised Bodies

The legal and regulatory framework

  • 1.

    A body corporate through which a solicitor or REL practises must be a recognised body if it is to have an office in England and Wales. If a solicitor or an REL provides services to the public from an office in England and Wales through a company or an LLP which is not a recognised body, there is a breach of rule 12 (Framework of practice). If the company or LLP includes a solicitor there is also a criminal offence under the Solicitors Act 1974.

  • 2.1.

    A recognised body is a body corporatepartnership, LLP or company recognised by the Solicitors Regulation AuthoritySRA under section 9 of the Administration of Justice Act, rule 14 1985 and regulation 2 of the Solicitors'SRA Recognised Bodies Regulations 20072009.

  • 2.

    Rule 12 (Framework of practice) states that solicitors and RELs must not provide services to the public in England and Wales except through a firm which is a recognised body or a recognised sole practitioner (both regulated by the SRA) or through an authorised non-SRA firm, or as permitted under rule 13 (In-house practice, etc.) in respect of law centres, advice centres, etc. Rule 14 governs the composition and structure of a recognised body and the services a recognised body may provide. The rule is largely based on the requirements of section 9A of the Administration of Justice Act 1985.

  • 3.

    A recognised body, and a "manager" or employee of a recognised body, are subject to the Code and other SRA rules, subject to regulation by the SRA, and subject to disciplinary sanctions of the SRA and the Solicitors Disciplinary Tribunal.

  • 4.

    In this guidance the term "manager" has a special meaning, as in rule 14 and in the Recognised Bodies Regulations. It means:

    • (a)

      a partner, or a person held out as a partner, in an unincorporated firm;

    • (b)

      a member of an LLP; or

    • (c)

      a director of a company.

    In other words the "manager" as an individual does not necessarily have to perform any particular management function – although the "manager" will be subject to the rules him- or herself, and in many circumstances will also be responsible under the rules and in law for the conduct of the recognised body.

The three fundamental requirements

  • 5.

    The fundamental requirements which must be fulfilled for recognised body status are:

    • (a)

      the services requirement,

    • (b)

      the relevant lawyer requirement,

    • (c)

      the management and control requirement.

    These are explained in more detail below.

The services requirement
  • 6.

    Rule 14.01(1) sets out the type of services which a recognised body is permitted to provide – legal services and "man (or woman) of affairs" services as provided by solicitors, services as provided by foreign lawyers, and notarial services (if the firm has a "manager" or employee who is a notary).

  • 7.

    A recognised body is not prohibited from owning a "separate business" – i.e. a business which provides "man (or woman) of affairs" services but not as a legal practice – so long as there is compliance with rule 21 (Separate businesses).

The relevant lawyer requirement
  • 8.

    Rule 14.01(2)(a) states that at least one "manager" of a recognised body must be:

    • (a)

      a solicitor with a current practising certificate;

    • (b)

      an REL; or

    • (c)

      (in the case of a recognised body which is a partnership or LLP) a "legally qualified body" with at least one "manager" who is a solicitor with a current practising certificate or an REL.

  • 9.

    A "legally qualified body" is defined as:

    • (a)

      a recognised body,

    • (b)

      an authorised non-SRA firm, or

    • (c)

      a European corporate practice (as defined in rule 24),

    of which lawyers must make up at least 75% of the ultimate beneficial ownership.

The management and control requirement
  • 10.

    The management and control requirement is set out in rule 14.01(3), and is aimed at ensuring that every recognised body is at least 75% owned and managed by lawyers.

  • 11.

    More specifically, the management and control requirement is made up of the following six tests, which deal with various markers of management, ownership and the holding of shares:

    • (a)

      at least 75% of a recognised body's "managers" must be lawyers or "legally qualified bodies";

    • (b)

      lawyers must make up at least 75% of the ultimate beneficial ownership of the recognised body;

    • (c)

      lawyers and/or "legally qualified bodies" must exercise or control the exercise of at least 75% of the voting rights in the recognised body;

    • (d)

      if the recognised body is a company with shares, lawyers and/or "legally qualified bodies" must hold (as registered members of the company) at least 75% of the shares;

    • (e)

      every owner of the recognised body must be a lawyer, a "legally qualified body" or an individual non-lawyer who is approved by the SRA under regulation 3 of the Recognised Bodies Regulations; and

    • (f)

      every non-lawyer owner of the recognised body must be a "manager" of the body unless:

      • (i)

        the recognised body is a company which is wholly or partly owned by a partnership or LLP which is a "legally qualified body";

      • (ii)

        the non-lawyer owner is a "manager" of the partnership or LLP; and

      • (iii)

        the non-lawyer owner is precluded under the partnership agreement or members' agreement from exercising or authorising any vote in relation to the company.

  • 12.

    "Lawyers" in the context of the management and control requirement means practising lawyers – solicitors, barristers, notaries, legal executives, licensed conveyancers, patent agents, trade mark agents, law costs draftsmen, European lawyers of Establishment Directive professions, and RFLs.

Some regulatory provisions

  • 13.

    Recognition is granted on an annual basis, and an application for renewal has to be made by 31 October in each year. There is an annual recognition fee and an annual contribution to the Compensation Fund. Applications for initial recognition, and for renewal of recognition, are made under regulation 2 of the Recognised Bodies Regulations.

  • 14.

    The "relevant lawyer requirement" basically provides that there must be at least one solicitor or REL "manager". The "management and control requirement" basically provides that at least 75% of the management and ownership must be in the hands of lawyers.

  • 15.

    In addition, rule 14 provides that the partners in a recognised body which is a partnership, the members of a recognised body which is an LLP, and the members and shareowners of a recognised body which is a company must comprise some combination of the following:

    • (a)

      practising lawyers of England and Wales (solicitors, barristers, notaries, legal executives, licensed conveyancers, patent agents, trade mark agents, law costs draftsmen);

    • (b)

      practising European lawyers of Establishment Directive professions;

    • (c)

      RFLs;

    • (d)

      individuals approved by the SRA under regulation 3 of the Recognised Bodies Regulations as suitable to be a "manager" of a recognised body – such individuals fall into one of three categories:

      • (i)

        non-lawyers;

      • (ii)

        lawyers of foreign legal professions whose members are not eligible to become RFLs;

      • (iii)

        non-practising barristers or non-practising foreign lawyers, whose professional rules or training regulations prevent them from changing status so as to be able to practise through the recognised body as practising lawyers;

      an application for SRA approval of an individual as suitable to be a "manager" must be made under regulation 3 of the Recognised Bodies Regulations by the recognised body or prospective recognised body concerned;

    • (e)

      "legally qualified bodies" – recognised bodies, authorised non-SRA firms, or European corporate practices.

  • 16.

    In relation to the directors of a recognised body which is a company, the "relevant lawyer requirement" has the effect that at least one director must be a solicitor or REL. The "management and control requirement" has the effect that at least 75% of the directors must be lawyers. Rule 14 further provides that the directors must comprise some combination of the following:

    • (a)

      practising lawyers of England and Wales (solicitors, barristers, notaries, legal executives, licensed conveyancers, patent agents, trade mark agents, law costs draftsmen);

    • (b)

      practising European lawyers of Establishment Directive professions;

    • (c)

      RFLs;

    • (d)

      individuals approved by the SRA under regulation 3 of the Recognised Bodies Regulations.

Recognition will only be granted if a body corporate is:

    • (a)

      a company (including a societas Europaea) incorporated in England and Wales or in Scotland;

    • (b)

      a company incorporated in another Establishment Directive state and registered in England and Wales or in Scotland as an oversea company;

    • (c)

      an LLP incorporated in England and Wales or in Scotland; or

    • (d)

      a societas Europaea incorporated outside England, Wales and Scotland.

    If you would like an information booklet on incorporating your practice as a company or as an LLP, contact the Professional Ethics Guidance Team.

  • 3.

    A recognised body is, for the purposes of practice, in the same position as a solicitor or a partnership of solicitors, and subject to similar legal and professional requirements. Schedule 2 to the Administration of Justice Act 1985 the Solicitors' Incorporated Practices Order 1991 (SI 1991/2684) and the Solicitors' Incorporated Practices (Amendment) Order 2001 (SI 2001/ 645) apply provisions in the Solicitors Act 1974 and other legislation to recognised bodies, sometimes modified. The Solicitors Disciplinary Tribunal has power to revoke recognition for misconduct.

  • 4.17.

    Under 14.03 to 14.05 aA solicitor must have a current practising certificate in order to be a partner, a director, a member or a shareowner in a recognised body. Under section 1A of the Solicitors Act 1974, a solicitor must have a current practising certificate in order to work forbe employed in a recognised body in England and Wales in connection with the provision of any legal services.

  • 5.18.

    Under 14.06(1) everyEvery recognised body must have at least one practising address in England and Wales.

    Under 14.06(2) aA recognised body incorporated in England and Wales as an LLP or company must have its registered office in England or in Wales, and must practise from that office. These requirements as to the registered office do not apply to a recognised body incorporated outside England and Wales – whether it is an LLP incorporated in Scotland, or a company incorporated in Scotland, Northern Ireland or some other Establishment Directive state.

    Note that the fact that a firm has been recognised as a recognised body under Scottish law does not exempt it from having to be recognised as a recognised body by the SRA.

  • 6.

    A recognised body can be a member of another recognised body or own a share in another recognised body. It can practise in England and Wales in partnership with solicitors, RELs, or other recognised bodies, but not with RFLs (see 12.04 Recognised bodies)).

  • 19.

    A recognised body may practise as a firm in its own right (a partnership, LLP or company), or it may wholly or partly own another recognised body, or be wholly or partly owned by another recognised body. A recognised body which is a company or LLP can be a partner together with solicitors, RELs, RFLs and/or other recognised bodies in a partnership which is itself a recognised body; or it can be a member together with solicitors, RELs, RFLs and/or other recognised bodies in an LLP which is itself a recognised body.

  • 7.20.

    A recognised body may practise outside England and Wales as well asin addition to practising in England and Wales. If a recognised body is incorporated in England and Wales, its practice from offices outside England and Wales will be subject to all the rules of conduct which apply to a solicitor practising from offices outside England and Wales. A recognised body incorporated outside England and Wales is subject only to certain rules in relation to overseas practice - see 23.01(d)(ii), 12.04(4) and 15.01(2)(a).

  • 8.21.

    If you practiseyour firm practises overseas through a corporatean associated firm which has no office in England and Wales it does not have to be a recognised body - and indeed cannot be a recognised body because a recognised body has to have at least one practising address in England orand Wales.

The Solicitors' Recognised Bodies Regulations 2007

  • 9.

    The Solicitors' Recognised Bodies Regulations 2007 ("the regulations") are rules made under Schedule 9 to section 9 of the Administration of Justice Act 1985. They govern the formalities of applications and appeals relating to recognition. They are not part of these rules. Under the regulations, the Solicitors Regulation Authority may only grant recognition if it is satisfied that the applicant body is registered in England and Wales or in Scotland, or is a societas Europaea, complies with or is exempt from the Solicitors' Indemnity Insurance Rules, has a name which is not misleading, and complies with rule 14 in its internal structure. The regulations also provide, amongst other things, that:

    • (a)

      once granted recognition, a recognised body will be placed on a list kept by the Solicitors Regulation Authority and issued with a certificate of recognition;

    • (b)

      recognition is renewable every three years but expires automatically if a recognised body becomes insolvent; and

    • (c)

      the Solicitors Regulation Authority may revoke recognition if:

      • (i)

        the renewal date passes and no application is made for renewal;

      • (ii)

        the Authority is satisfied that recognition was granted as a result of mistake or fraud; or

      • (iii)

        the Authority is satisfied that a recognised body would not be eligible if applying for initial recognition - thought his power is tempered by a number of the provisions of rule 14. For example, recognition could be revoked if the only director who is a solicitor or REL dies, and the company fails to remedy the position within the 14 days' grace allowed under 14.03(2).

Compliance with rules

  • 10.

    A recognised body's practice in England and Wales is subject to all the rules and requirements of conduct which apply to solicitors. Under 14.01, reciprocal responsibilities are laid upon a recognised body and its directors and members to oversee each other's compliance with the provisions of rule 14. A solicitor or REL who is a director, member, shareowner or an employee of a recognised body must not turn a blind eye or otherwise connive at a breach of any of these rules.

  • 11.22.

    In addition to these rules, a recognised body must comply with the Solicitors' Indemnity Insurance Rules, the Solicitors' Accounts Rules 1998 and the statutory requirements to submit an accountant's report and to make a contribution to the Compensation Fund(unless authorised by the FSA) with the Solicitors' Financial Services (Scope) Rules and the Solicitors' Financial Services (Conduct of Business) Rules. The following matters should be borne in mind:

Indemnity insurance

  • 23.

    The Solicitors' Indemnity Insurance Rules apply to a recognised body, and recognition will not be granted or renewed unless the Solicitors Regulation Authority is satisfied that the body complies with or will comply with the indemnity rules. These require a recognised body to have "qualifying insurance" from a "qualifying insurer" in accordance with the minimum terms and conditions set out in the Solicitors' Indemnity Insurance Rules(with some limited scope for exemptions in respect of RELs' participation in recognised bodies). For a recognised body with limited liability (i.e. a limited company or an LLP) the minimum level of cover is £3 million. For an unlimited company the minimum level is £2 million. A limited company which is a nominee company only may be exempt from the additional £1 million cover - see note 16(d) below. A recognised body may be eligible for full or partial exemption from the requirement to have "qualifying insurance". This is obtained only on application and only if the recognised body has at least one director, member or owner who is an REL, and has equivalent cover under the rules of the REL's home state (see Appendix 4 to the Solicitors' Indemnity Insurance Rules). The basic minimum level of cover is £2 million for any one claim. A recognised body with limited liability (i.e. an LLP, a limited company, or a partnership one or more of whose partners is an LLP or a limited company) is required to have minimum cover of £3 million for any one claim. Some recognised bodies which are nominee companies escape the requirement for an extra £1 million cover - see note 28(d) below. A recognised body may also have additional "top-up" cover, from any insurer.

Accountants' reports

  • 24

    If a recognised body holds or receives client money or controlled trust money, it will in due course have to deliver an accountant's report to the Solicitors Regulation AuthoritySRA. This obligation also extends to the directors of a company and to the members of an LLP"managers" of the recognised body. The names of these individuals as well asthe current "managers" along with the name of the recognised body must appear on the accountant's report, as well as the names of any assistant or consultant solicitor (or REL)employee or "manager" who or which has held or received theclient money or, and any individual employee or "manager" who has operated a client's own account as signatory.

  • (c)

    Compensation Fund contributions

    Recognised bodies must pay a contribution to the Compensation Fund on initial recognition and every three years thereafter, when recognition is renewed. Solicitors, RELs and RFLs who practise through a recognised body also have to pay individual contributions on a yearly basis when renewing their practising certificates or registration. If the recognised body has (directly or indirectly) held or received client money or controlled trust money, the individual members', directors' and shareowners' contributions will be assessed at full rate.

Ownership and direction

  • 12.

    A recognised body must be owned and directed by solicitors and/or RELs, although ownership and direction can be shared with other lawyers. In general, a director, member or shareowner who is not a solicitor or an REL must be an RFL. However, lawyers of Establishment Directive states who are based outside England and Wales ("non-registered European lawyers") may also share in the ownership and direction of a recognised body, and "European corporate practices" as defined in rule 24 (Interpretation), may be members or shareowners. The company secretary need not be a lawyer.

    • (a)

      A body corporate cannot be a director. At all times at least one of the directors of a recognised body which is a company must be a solicitor or an REL. A similar restriction applies to ensure that at least one solicitor or REL is involved in the membership of a recognised body which is an LLP.

    • (b)

      Every recognised body must be at least partly owned by a solicitor or an REL. No recognised body can, for example, be wholly owned by RFLs.

  • 13.

    Subrules 14.03 to 14.05 require steps to be taken to regularise a recognised body's position following various events which would otherwise put the recognised body in breach of a provision of the rule. There are strict time limits for taking such action, and if the recognised body meets these there is no breach of the rule. For example, the death of the only director of a company who is a solicitor or REL would put the recognised body in breach of 14.03(1)(b), but if a new solicitor or REL director is appointed within 14 days there is no breach. It is very important to meet such time limits because breach of any provision of rule 14 can result in the recognised body losing its right to practise. The articles of association of a company and the members' agreement of an LLP must therefore allow for speedy action to be taken in such circumstances.

Charging a member's interest in a recognised body - 14.04(4) and 14.05(5)14.04(11), 14.05(3) and 14.06(3)

  • 14.25.

    A partner in a recognised body which is a partnership, or a member of a recognised body (whether it is a company orwhich is an LLP) may, or a member or shareowner of a recognised body which is a company, must not create any charge or other third party interest over his or her interest in the body, except, in the case of a company, that a member may hold a share as nominee for a person who is eligible under the rules to own a share. The purpose is to ensure that control of the recognised body remains solely in the hands of persons who are eligible to be members, and that there is no breach of the management and control condition. The prohibitions in 14.04(4) and 14.05(5) do not, however, prevent a member's bank taking a charge or assignment on a member's right to receive back his or her capital invested in a recognised body.

Steps to be taken to deal with certain emergencies

  • 26.

    Rule 14 contains a number of provisions setting out what must be done if certain events befall a recognised body and its members, directors or shareowners. It is essential to deal with these situations in accordance with the rules:

    • (a)

      an unforeseeable event which would put the body in breach of the relevant lawyer requirement – see 14.01(2)(b);

    • (b)

      certain specified events (e.g. imprisonment, or incapacity caused by illness) which demonstrate that the last solicitor or REL whose role ensures compliance with the relevant lawyer requirement is no longer suitable to fulfil that role – see 14.01(2)(c);

    • (c)

      an unforeseeable event which would put the body in breach of the management and control requirement – see 14.01(3)(f);

    • (d)

      certain specified events (e.g. imprisonment, or incapacity caused by illness) which demonstrate that the last lawyer whose role ensures compliance with the management and control requirement is no longer suitable to fulfil that role – see 14.01(3)(g);

    • (e)

      a foreseeable event which causes a partnership to be in breach of the relevant lawyer requirement or the management and control requirement – see 14.04(3)(a);

    • (f)

      an event in relation to a partnership which results in there being no remaining partner – see 14.04(3)(b);

    • (g)

      a partnership change which results in there being only one remaining solicitor or REL principal who could not reasonably have made prior arrangements – see 14.04(4);

    • (h)

      a partnership split, where the new firm was in a position to make prior arrangements – see 14.04(6) and (7);

    • (i)

      a partnership split, where the new firm could not reasonably have made prior arrangements – see 14.04(7) and (8);

    • (j)

      certain specified events (e.g. imprisonment, or incapacity caused by illness) which demonstrate that a partner is no longer suitable to fulfil that role, and which leave only one partner who is not subject to such an event – see 14.04(10);

    • (k)

      death of a member or shareowner of a company – see 14.06(5)(a) and (b);

    • (l)

      member or shareowner of a company ceases to be eligible to be a member or shareowner – see 14.06(6)(a) and (b);

    • (m)

      member or shareowner of a company becomes insolvent but remains eligible to be a member or shareowner – see 14.06(7)(a) and (b);

    • (n)

      Court of Protection deputy appointed in respect of a member or shareowner of a company – see 14.06(8)(a) and (b).

Executor, trustee and nominee companies

  • 15.27.

    If you wish to operate an executor, trustee or nominee company in conjunction with your main practice you should bear the following matters in mind:

    • (a)

      An English executor, trustee or nominee company itself provides the executor, trustee or nominee service. If run in conjunction with your practice it is a "business" for the purpose of rule 21 (Separate businesses), whether or not it is dormant for Companies Act purposes and whether or not a charge is made for its services. If you are practising from an office in England and Wales theThe company must therefore be a recognised body, or you will breach rule 21 - see 21.02(1)(g) and note 8note 11 of the guidance to rule 21.

    • (b)

      An overseas executor, trustee or nominee company cannot be a recognised body. It can be run in accordance with rule 12 (Framework of practice), as an overseas practice. Alternatively, it can be operated as a "separate business" provided that you comply with rule 21 (Separate businesses)or with 15.21 (which relates to separate businesses overseas), as appropriate, in relation to the company. See also note 912 of the guidance to rule 21.

  • 16.28.

    In relation to an English executor, trustee or nominee company, you should also note that:

    • (a)

      a recognised body, when holding money or receiving dividends as nominee, acts as a controlled trustee; and if the company holds client money or controlled trust money as defined in the Solicitors' Accounts Rules 1998 or in rule 24 (Interpretation), and it must have its own client account, in its own name;

    • (b)

      a single set of accounting records may be used for the company and the main practice and a single accountant's report can be delivered for both, if the relevant accounting periods are the same, and provided the accountant deals with the accounts for each separately;

    • (c)

      a wholly owned executor, trustee or nominee company can be covered by the same policy of qualifying insurance as your main practice, but only if the company is named on the policy and certificate of insurance as a separate insured; and

    • (d)

      a nominee company may be exempt from the requirement to have an extra £1 million qualifying insurance if it can show that:

      • (i)

        it is a nominee company only;

      • (ii)

        it is wholly owned byall the directors of the company are partners or members in your main practice;

      • (iii)

        it holds assets only for clients of your main practice;

      • (iv)

        it can act only as agent for your main practice; and

      • (v)

        all fees accrue to the benefit of your main practice.

Companies providing company secretarial services

  • 29.

    Your firm may own a company whose purpose is to provide company secretarial services to clients of the firm. Such a company may either be operated as a legal practice (and must therefore be a recognised body), or it may be operated as a "separate business" (and must therefore be operated in compliance with rule 21 and may also need to be separately regulated by HMRC under the anti-money laundering legislation).

Service companies

  • 17.30.

    A firm may have a wholly owned service company to carrywhich has no face to the public and provides no services to the public but carries out administrative functions concerned with the running of the firm, such as the employment of qualified and unqualified staff, the hiring of premises, furniture and equipment and general maintenance. If the service company is wholly owned by the firm and provides services only to the firm and not to clients, itSuch a company does not need to be a recognised body and is not a "separate business". The books of the company must be made available if the Solicitors Regulation AuthoritySRA requires an inspection of accounts. See also notes 10 and 1114 and 15 of the guidance to rule 21 (Separate businesses).

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